Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A target salary translated into an hourly rate by dividing by 2,080 (40 hours times 52 weeks) assumes every one of those hours gets billed, and none of them ever do. Sales calls, admin, slow weeks and time off all eat into billable hours, sometimes by close to half, so a rate calculated on full-time hours alone falls well short of the target income once realistic utilization is factored in.
Before you rely on it
What to check
Use your actual expected billable hours, not total working hours, as the divisor. Most freelancers bill well under 40 hours in a typical working week.
The common error
Where people go wrong with freelance hourly rate calculator
Dividing a target income straight by 2,080 hours as if every working hour were billable. Realistic billable-hour counts run meaningfully lower, and the resulting rate needs to be correspondingly higher to hit the same income target.
Sensitivity evidence
How target employee-equivalent salary changes the required hourly rate
| Target employee-equivalent salary | Required hourly rate | Required annual revenue |
|---|---|---|
| $72,000 | $104 | $125,350 |
| $81,000 | $113 | $135,700 |
| $90,000worked example | $122 | $146,050 |
| $99,000 | $130 | $156,400 |
| $108,000 | $139 | $166,750 |
Every input, tested
Which input moves the required hourly rate most
| Input | Tested from | To | Required hourly rate at each end | Swing |
|---|---|---|---|---|
| Annual billable hours | 1080.0 hours | 1320.0 hours | $135 to $111 | $25 (20%) |
| Target employee-equivalent salary | $81,000 | $99,000 | $113 to $130 | $17 (14%) |
| Additional tax/profit buffer | 13.0% | 17.0% | $120 to $124 | $4.23 (3.5%) |
| Annual benefits to replace | $19,800 | $24,200 | $120 to $124 | $4.22 (3.5%) |
| Annual business overhead | $13,500 | $16,500 | $120 to $123 | $2.88 (2.4%) |
Two variables at once
Required hourly rate by target employee-equivalent salary and annual benefits to replace
| Target employee-equivalent salary \ Annual benefits to replace | $17,600 | $22,000 | $26,400 |
|---|---|---|---|
| $72,000 | $100 | $104 | $109 |
| $81,000 | $109 | $113 | $117 |
| $90,000 | $117 | $122 | $126 |
| $99,000 | $126 | $130 | $135 |
| $108,000 | $135 | $139 | $143 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Target employee-equivalent salary | $90,000 |
| Annual benefits to replace | $22,000 |
| Annual business overhead | $15,000 |
| Additional tax/profit buffer | 15.0% |
| Annual billable hours | 1200.0 hours |
| Required hourly rate | $122 |
| Required annual revenue | $146,050 |
Where the inputs come from
Target employee-equivalent salary is what you would want to earn as a salaried worker. Annual benefits to replace is the value of health insurance, retirement contributions and paid time off that an employer would provide, which you must now pay yourself. Annual business overhead includes software, insurance, equipment, accounting and marketing. The tax and profit buffer covers self-employment tax and a margin. Annual billable hours is realistic: many freelancers bill only 1,000 to 1,400 hours a year because of sales, admin and gaps.
Using the required hourly rate in a real decision
Compare with market rates for your skill, and consider project pricing.
When the result stops applying
The rate depends on billable hours, which are the hardest number to predict, and a fully booked year is rare at first. Market rates, not your costs, set what clients will pay, so the calculation shows the minimum you need, not what you can charge. Taxes, retirement savings and slow periods add up, and rates should rise with experience.
What to compare it with
Check how many hours you must bill with the billable hours calculator, and compare with employment on the W-2 versus 1099 page. The contractor rate and benefits gap calculators use the same math, and the project profitability calculator tests individual jobs. Review rates at least yearly.
People also ask
Frequently asked questions
Why is my freelance rate so much higher than my salary per hour?
Because you must cover benefits, self-employment tax, overhead and unpaid time, and you bill only part of your working hours.
How many billable hours should I assume?
Many freelancers plan for 1,000 to 1,400 hours a year, a utilization of about 50% to 70% of working time, since sales and admin are unbilled.
Should I charge hourly or by project?
Project pricing can reward efficiency and give clients certainty, but base it on your hourly target and estimates so the project is profitable.