How to use the freelance rate calculator
- Enter the take-home pay you want per year after your business expenses and your tax set-aside.
- Enter your annual business expenses and the tax set-aside percentage you plan to save from your profit. You choose that percentage.
- Enter weeks off per year, hours worked per week and billable utilization, the share of those hours you can bill.
- Read the hourly rate and day rate, then use the sensitivity table to see how the rate changes if you bill more or fewer hours or take more time off.
Formula
Profit before your set-aside = take-home / (1 - set-aside %)
Revenue needed = profit + business expenses
Billable hours = (52 - weeks off) x hours per week x utilization %
Hourly rate = revenue needed / billable hours
Day rate = hourly rate x hours in a billed day
The set-aside is the percentage of profit you move to a tax account. It is a planning input you choose, not a tax calculation.
Worked example
You want $100,000 take-home, expect $12,000 of expenses, set aside 25%, take 4 weeks off, work 40 hours a week and bill 65% of them.
Profit before the set-aside is $100,000 / 0.75 = $133,333.33, so the set-aside is $33,333.33. Add expenses and you need $145,333.33 in revenue.
Billable hours are 48 weeks x 40 hours x 0.65 = 1,248. The hourly rate is $145,333.33 / 1,248 = $116.45, and an 8-hour day is $931.62.
If utilization drops to 50% and you take 2 weeks off, billable hours become 50 x 40 x 0.5 = 1,000 and the same goal needs $145.33 an hour.
Why the hourly rate is higher than a salary equivalent
An employee with a $100,000 salary is paid for vacations, holidays and time spent on meetings. A freelancer is paid only for billable time and also pays expenses, so the same take-home needs a much higher hourly rate. Most of the gap comes from unbilled time: sales calls, invoicing, learning and gaps between projects.
Utilization is the lever many people miss. Moving from 50% to 70% billable at the same hours per week lowers the rate you need by about 29%. The sensitivity table shows these trade-offs side by side.
What this calculator does not include
It does not compute taxes. Income tax, self-employment tax and any quarterly payment rules depend on where you live and on your business structure. Use the set-aside to reserve cash, and ask a tax professional what number is right for you.
It also does not cover retirement saving, unpaid invoices, equipment replacement or the value of benefits you would get as an employee. Add these to expenses or to your take-home goal if you want them reflected in the rate.
Using the result
Treat the rate as a floor, not a price. Market rates, the value you deliver and what your clients can pay all matter. If the calculated rate is far above what your market pays, the table shows which levers are available: lower expenses, a smaller take-home goal or more billable hours. To turn a rate into an annual figure, try the hourly to salary calculator.
Assumptions and limits
- A year has 52 weeks, and weeks off are subtracted from them.
- The tax set-aside is a share of profit that you enter. It is not an estimate of any actual tax.
- Expenses are business costs you pay before your take-home, in the same year.
- The day rate uses the hours in a billed day you set, 8 by default.
- All income is billed and collected. Late and unpaid invoices are not modeled.
Frequently asked questions
How do I calculate a freelance hourly rate?
Work out the revenue you need (take-home plus your tax set-aside plus expenses), then divide by the hours you can actually bill in a year. This tool does both steps and shows the numbers.
What is billable utilization?
It is the share of your working hours that you charge to clients. If you work 40 hours and bill 26 of them, your utilization is 65%. The rest goes to admin, sales and gaps between projects.
What utilization should I use?
Use your own history if you have it. If you are starting out, a range of 50 to 70 percent is a common planning assumption. The sensitivity table shows the rate at several levels so you can choose a cautious one.
Is the tax set-aside my tax bill?
No. It is a percentage you enter to set money aside. Your real tax depends on your income, location, deductions and business structure, so confirm the right amount with a tax professional.
How is the day rate worked out?
It is the hourly rate multiplied by the hours in a billed day, 8 unless you change it under More options. A day rate usually works best for work billed per day rather than per hour.