Most freelancers set their hourly rate… by guesswork. You look at what "others charge," round it off, and hope it works. The result is usually a rate that's too low — one that covers neither your costs, nor your time off, nor all that work you never bill for.

Yet calculating a solid hourly rate isn't hard. You start from what you want to earn, add reality (costs, time off), and divide by your genuinely billable hours. Here's the method, with a worked example.

Contents

Why so many freelancers underprice

Two mistakes come up again and again:

  • Confusing an hourly rate with an hourly wage. An employee paid $25/h costs their employer far more (payroll taxes, paid leave, equipment, unproductive time). As a freelancer, you are the employer: your rate has to absorb all of it.
  • Believing you bill 35 hours a week. You don't. Between prospecting, admin, email and time off, a freelancer rarely bills more than 20–25 hours a week. Dividing by an unrealistic number dooms you to a rate that's too low.

So the whole calculation rests on a figure you must know: your genuinely billable hours. And for that, you need to have tracked them (see our guide on time tracking for freelancers).

The method in 4 steps

1. Define your target net income

How much do you want to take home, net, per year? Start from real needs (rent, living costs, savings), not a random figure. That's your anchor.

2. Add costs, taxes and expenses

Work back from net to the gross you need: taxes and social contributions, plus your business expenses (software, hardware, accountant, insurance, training). Depending on your country and status, that can add 30–50%, sometimes more. Check the rules for your situation.

3. Estimate your genuinely billable hours

Count your working weeks (remove holidays, public holidays, sick time: often 45–47 of 52), then your billable hours per week (rarely more than 20–25). Multiply. This is where time tracking changes everything: without data, you almost always overestimate.

4. Calculate the rate

The formula is simple:

Hourly rate = gross income needed (costs + expenses included) ÷ billable hours per year

The hourly rate calculator runs this for you, starting from the median wage for your occupation and province.

A worked example

Here's a concrete case:

Item Value
Target net income $40,000 / year
+ costs, taxes, expenses (≈ 45%) ≈ $58,000 gross needed
Working weeks 46
Billable hours / week 22
Billable hours / year ≈ 1,012 h
Hourly rate ≈ $57 / h

In this case, many freelancers would instinctively charge $35 or $40/h — and wonder why they can't quite make a living. The gap isn't about talent; it's a flawed calculation from the start.

(Illustrative figures: adapt costs and hours to your situation and country.)

Hourly rate or day rate?

A day rate is simply your hourly rate times billable hours per day — often 6, not 8. Many clients think in days; calculate your hourly rate first, then convert.

And flat fees? They don't replace this calculation — they build on it. For a flat fee to be profitable, you have to estimate the project's time (see how to track your work hours) and compare it to your target rate. Otherwise you're working at a loss without knowing it.

How to raise your rate

  • Charge for value, not time. The more business impact you show, the less the hourly rate is a sticking point.
  • Cut non-billable time. Every admin hour reclaimed is another billable hour (or some rest).
  • Specialize. A rare profile commands more than a generalist one.
  • Track your numbers. Knowing your realized rate (income ÷ hours actually worked) reveals which clients and projects to renegotiate.

Common mistakes

  • Dividing by an unrealistic number of hours. The #1 mistake, and it crushes the rate.
  • Forgetting non-billable time and time off. They don't vanish: someone pays for them — you, if you ignore them.
  • Copying someone else's rate. Their costs, hours and needs aren't yours.
  • Never revisiting. A rate should be revised with experience, demand, and your real data.

FAQ

How do I calculate my freelance hourly rate simply?

Divide the gross income you need (costs and expenses included) by your real annual billable hours. The key is using a realistic hours figure, not a theoretical one.

How many billable hours per year for a freelancer?

Often between 900 and 1,200 hours, depending on your work — far from the ~1,800 h of a theoretical full-time. Hence the value of tracking your hours to know your real number.

Should I include time off in the calculation?

Yes. Your holiday weeks, public holidays and any sick time aren't billed: they must be absorbed by your rate, or you're effectively working for free on those days.

Hourly rate or flat fee — which to choose?

Both rest on the same calculation. A flat fee is only profitable if you can estimate the project's time and compare it to your target rate — which means tracking your time.

Conclusion

A good hourly rate isn't about confidence: it's a calculation. Start from what you want to earn, add the reality of your costs and time off, divide by your genuinely billable hours — and you'll get a number you can defend.

The one figure many freelancers don't have? Their real billable hours. That's exactly what lightweight time tracking gives you. Puuunch was built for it: track hours by project in seconds, see your week at a glance, and finally calculate — and bill — accurately. See how it works.