Work out the hourly rate you need to charge
Start from what the business has to earn in a year, then divide by the hours a client will actually pay for. This is the floor for your rate — the lowest number that still covers your pay, your running costs and the money you want to keep in reserve. Use it before you quote a new client or when you review your prices for the year.
Result
- Owner pay$60,000.00
- Overhead$8,000.00
- Reserve$4,000.00
- Needed per year$72,000.00
- Billable hours1,200
- Hourly rate$60.00
Charge at least $60.00 an hour — about $6,000.00 in billings each month.
Formula and assumptions
Hourly rate = (target owner pay + annual overhead + reserve) ÷ annual billable hours
- Owner pay is before personal income tax; this calculator does not estimate tax.
- Billable hours are hours you can actually invoice, not total hours worked.
- The rate covers costs and goals only if you sell every billable hour you entered.
Worked example
A freelance designer wants to pay herself 60,000 a year before personal tax. Software, equipment, insurance and accounting cost 8,000 a year, and she wants to set aside 4,000 as a reserve. After holidays, admin and finding new work, she expects to bill about 1,200 hours.
- Money needed for the year: 60,000 + 8,000 + 4,000 = 72,000
- Divide by billable hours: 72,000 ÷ 1,200 = 60
She needs to charge at least 60 an hour. If she charges less, one of the three goals is not met — usually her own pay.
The example uses round numbers in no particular currency. They are the values the calculator loads with.
What the inputs mean
- Target owner pay
- What you want to take home from the business in a year, before personal income tax. Treat it like a salary you pay yourself.
- Annual overhead
- Costs of running the business that aren't tied to one client: software subscriptions, hardware, internet, workspace, insurance, accounting and bank fees.
- Reserve / profit goal
- Money the business keeps on top of your pay — a cushion for slow months, new equipment or growth.
- Billable hours
- Hours you can invoice. A full-time year has roughly 2,000 working hours, but many freelancers bill between 1,000 and 1,400 once admin, marketing, learning and time off are taken out.
Common mistakes
- Using 40 hours × 52 weeks (2,080) as billable hours. That assumes no holidays, no sick days and no unpaid work.
- Comparing your rate to an employee's hourly wage. An employer also pays for equipment, leave, benefits and the hours spent not working on client tasks.
- Leaving overhead out because each subscription feels small. Add them up for the year.
Limitations
- Does not estimate income tax or social contributions — those depend on where you live.
- Assumes every billable hour is sold. If you are not fully booked, the real rate you need is higher.
- Gives one average rate; specialised or rush work can reasonably be priced above it.
Results are estimates based on the numbers you enter. They are not tax, legal or accounting advice. Read the disclaimer.
Questions
Should I include taxes in target owner pay?
This calculator treats owner pay as before personal income tax, so enter the gross amount you want. If you would rather work back from take-home pay, gross it up yourself using your local tax rules or ask an accountant.
How do I estimate my billable hours?
Start with the weeks you'll actually work (52 minus holidays and expected sick days), multiply by your weekly working hours, then multiply by your utilization rate — the share of working time that is billed. The utilization calculator helps with that last number.
Is this the rate I should charge?
It is the minimum that meets your goals. What clients will pay depends on your market, experience and the value of the work, which may support a higher rate.