How to Set Freelance Rates: A Step-by-Step Guide

To set a freelance rate, work out what you need to earn in a year (your pay, your business costs and an amount set aside for taxes), divide it by the hours you can realistically bill, and use the result as your hourly rate. Then turn that rate into day and project prices, track the hours each job really takes, and adjust the rate when the numbers show it's too low. The hourly rate calculator runs the same sum with your own figures.

1. Work out your annual target

Add up three figures for the year:

• The pay you want to take home before tax.
• Your business costs: software, equipment, insurance, training, accounting fees and so on.
• An amount set aside for taxes. In the US that includes self-employment tax; see what is self-employment tax. Ask your accountant what to set aside.

2. Work out your billable hours

Billable hours are the hours you can invoice a client for. Count the weeks you'll actually work after holidays and time off, then the hours a week you can bill after sales, admin, invoicing and learning. Be realistic: if you plan on more billable hours than you'll actually bill, the rate will come out too low.

3. Turn the target into an hourly rate

Hourly rate = annual target ÷ billable hours a year.

That's the rate the work needs to earn across all your billable hours. For the lowest rate you'd accept in a negotiation, see how to negotiate freelance rates.

4. Convert it to day and project prices

• Day rate: hourly rate × the hours you can bill in a day.
• Project price: hourly rate × the hours you estimate the project will take, including meetings, revisions and admin for that project.
• Retainer: hourly rate × the hours included each month. See how to build freelance retainer clients.

For pricing models beyond hourly, see freelance pricing strategies.

5. Check the rate against real hours

After each project, divide what you were paid by the hours it actually took. If that effective rate keeps coming in below your hourly rate, your estimates or your rate need to change. See how to scale your freelance business for more on effective rates.

6. Review your rates

Revisit the sum when your costs, your taxes or your available hours change, and at least once a year. Tell existing clients about a new rate in writing, in advance.

Sample: from annual target to a project price

This is a sample with invented figures; the tax amount is invented for the sample, so ask your accountant for your own. A freelance designer plans the year:

• Pay: $60,000.00
• Business costs: $8,800.00
• Tax set-aside: $14,000.00
• Annual target: $60,000.00 + $8,800.00 + $14,000.00 = $82,800.00
• Billable hours: 46 weeks × 20 hours = 920
• Hourly rate: $82,800.00 ÷ 920 = $90.00
• Day rate (6 billable hours): 6 × $90.00 = $540.00
• Project quote (estimated 30 hours): 30 × $90.00 = $2,700.00

The project actually takes 36 hours, so the effective rate is $2,700.00 ÷ 36 = $75.00 an hour, $15.00 below the $90.00 target. Next time, the designer estimates similar projects at 36 hours.

Where Billed fits

Billed's time tracking page says: "Log the time you and your team spend on tasks and projects, see it by day and by week, create timesheets, and invoice hourly projects from the time you tracked." It also says: "Create an hourly rate project, set its hourly rate, and Billed tracks the charge for each task as you log it." Its invoice software page says you can "save the products and services you sell so you can pull them into an invoice instead of retyping them."

Related Articles

• How to Negotiate Freelance Rates
• Freelance Pricing Strategies
• How to Transition From Employee to Freelancer
• How to Manage Freelance Finances
• Hourly Rate Calculator

Frequently Asked Questions

How do I calculate my freelance hourly rate?

Add the pay you want, your business costs and an amount set aside for taxes, then divide by the hours you can bill in a year. In the sample on this page, $82,800.00 over 920 billable hours gives $90.00 an hour.

What billable hours should I plan for?

Count the weeks you'll work and the hours a week you can actually invoice after sales, admin and time off. The sample on this page uses 46 weeks of 20 billable hours, or 920 hours a year.

How do I turn an hourly rate into a project price?

Multiply the hourly rate by the hours you estimate the project will take, including meetings, revisions and admin. In the sample, 30 hours at $90.00 is a $2,700.00 quote.

How do I know if my rate is too low?

Divide what each project paid by the hours it actually took. If that effective rate keeps falling below your hourly rate, raise the rate or change your estimates.