How to Set Your Freelance Hourly Rate
Most freelancers set their rate based on gut feel, what they charged at their last job, or what they think clients will accept. None of those approaches are reliable. This guide gives you a formula for calculating an hourly rate based on what you actually need to earn.
Start with your target annual income
What do you want to take home after taxes? Pick a number. Let's use $80,000 as an example.
This is your starting point — but it's not the number you divide by your hours. There are several layers to add first.
Account for taxes
As a freelancer, you pay self-employment tax on top of income tax. In the US, self-employment tax is 15.3% on top of your regular income tax bracket. A rough rule of thumb: multiply your target take-home income by 1.35 to 1.40 to get your pre-tax target.
Account for business expenses
Add your annual business expenses: software subscriptions, equipment, home office, professional development, insurance, accounting. For most freelancers this is $3,000–$10,000/year. Let's use $6,000.
Calculate your billable hours
This is the part most freelancers get wrong. You don't have 2,080 billable hours in a year (40 hours × 52 weeks). You have far fewer, because:
- Vacation and sick days (3–4 weeks)
- Non-billable business time: admin, marketing, invoicing, email (~20% of working time)
- Time between clients: finding new work, proposals, onboarding
A realistic billable utilization rate for a freelancer is 60–70% of working hours. That means:
1,920 × 0.65 (65% billable) = ~1,250 billable hours/year
Calculate your hourly rate
Round up to a clean number: $95/hour.
Key insight: Most freelancers underestimate non-billable time and overestimate billable hours. Using a time tracker for a month — including non-billable time — gives you an accurate utilization rate to plug into this formula.
Check your rate against the market
Your formula gives you a floor — the minimum you need to charge to hit your income goals. Now check that against what the market will bear for your skill set and experience level.
If the market rate for your work is well above your formula rate, charge closer to market rate. If your formula rate is above market, you either need to reduce expenses, increase your target income, or develop skills that command a higher rate.
When to raise your rate
- When you're fully booked — high demand means you can charge more
- When you add a valuable new skill or certification
- Annually — at minimum to keep pace with inflation
- When you're getting too much work from a low-paying client (raise their rate or move on)
How to raise rates with existing clients
Give 30–60 days notice. Frame it as a rate adjustment, not an apology. Most good clients will accept a rate increase from a freelancer they trust. The ones who won't often weren't the right clients anyway.
Tracking actual vs. effective hourly rate
Once you're tracking time, you can calculate your effective hourly rate per client: total invoiced divided by total hours. This number is often different from your stated rate — because of scope creep, non-billable revision rounds, and communication overhead.
Tally's Reports view shows total hours and total earnings per client, so you can see your effective rate at a glance and make informed decisions about which client relationships to grow.
Track your time to know your real hourly rate
Tally shows you exactly what you've earned and how many hours it took. Free to start.
Get started free →Frequently asked questions
- What is self-employment tax and how much is it?
- In the US, self-employment tax is 15.3% of your net self-employment income (12.4% Social Security + 2.9% Medicare). Unlike employees who split this with their employer, freelancers pay both halves. You can deduct half when calculating taxable income. Combined with federal and state income tax, most US freelancers set aside 25–35% of income for taxes. Rates vary by country and individual situation — consult a tax professional for advice specific to you.
- What billable utilization rate should I use when calculating my rate?
- 65% is a reasonable planning assumption for a freelancer with a steady client base. New freelancers often run closer to 50% while building clients; experienced freelancers with full books can reach 75–80%. Track your actual utilization for a month, then use that real number in your calculation instead of an assumption.
- How do freelancers typically communicate a rate increase?
- Giving clients advance written notice and framing the change professionally is generally well-received. How much to increase, how often, and how to handle the transition depends on your relationships, market, and goals — there's no universal formula that works for everyone.
- Do freelancers charge different rates for different types of work?
- Many do — for example, different rates for standard work, rush turnarounds, or consulting/advisory work. How you structure your pricing is up to you and what makes sense for your business.
- What if my calculated rate is higher than what clients in my market will pay?
- This is a useful signal to examine — whether that means revisiting your income targets, looking at your expenses, or exploring different types of clients or work. There's no single right answer; it depends on your specific situation and goals.