What Should I Charge? Working Out a Freelance Rate That Holds

Almost every new freelancer sets their rate the same way. Take the old salary, divide by roughly 2,000 working hours a year, add a bit because freelancing feels like it should pay more, and quote that.

That calculation is wrong in two independent ways, and both errors push the number down. The result is a rate that looks reasonable and cannot actually sustain the life it is supposed to fund.

Error one: you do not bill the hours you work

This is the big one.

A salaried employee works around 1,700 hours a year after holiday, and is paid for every one of them, including the hours spent in pointless meetings and the week where nothing much happened.

A freelancer works a similar number of hours and invoices for perhaps 1,000 of them.

The missing 700 hours are not slack. They are pitching, writing proposals, negotiating contracts, invoicing, chasing late payment, bookkeeping, the tax return, updating a portfolio, marketing, learning tools, answering enquiries that go nowhere, and the dead fortnight between one project ending and the next starting.

All of that is real work that produces no invoice, and it has to be paid for by the hours that do.

Realistic billable percentages:

• New freelancers: 40% to 50%. You spend most of your time finding work.
• Established with some repeat clients: 55% to 65%. This is where most people settle.
• Very established, or working through an agency: 70% and up, though the agency takes a cut for doing the finding.

At 60% billable, you need a rate roughly 1.7 times higher than the naive calculation just to reach the same income.

Error two: the salary was never the cost

The second mistake is treating your old salary as what you were worth. It was what you saw. It was not what you cost.

On top of it, your employer paid for:

• Paid holiday and public holidays. Five to six weeks, around 11% of the year.
• Sick leave. As a freelancer, illness costs you twice: no income and a missed deadline.
• Pension contributions. Commonly 3% to 10% of salary.
• Employer taxes. In many countries another 10% to 20% that never appeared on a payslip.
• Equipment, software, insurance, a desk, training, IT support.

Added up, an employee on 40,000 typically costs an employer 55,000 to 65,000. That is before the unbillable time problem.

This is why a freelance rate that sounds outrageous next to an hourly salary equivalent is usually just correct. You are not charging more for the same thing. You are absorbing everything the employer used to absorb.

The calculation that works

revenue needed = (target take-home ÷ (1 − tax rate)) + business costs + pension
billable hours = hours per week × working weeks × billable percentage
rate           = revenue needed ÷ billable hours

Work it through. Target take-home of 40,000, an effective tax rate of 28%, an 8% pension contribution, business costs of 5,400 a year, working 40 hours a week for 45 weeks, billing 60% of that time.

Grossed up for tax and pension, you need about 60,000 of income, plus 5,400 of costs, so 65,400 of revenue. Billable hours come to 1,080. The rate is a little over 60 an hour.

The naive calculation, 40,000 divided by 2,000 hours, gives 20. The correct answer is three times higher, and the gap is entirely made up of things that are genuinely being paid for.

That number is a floor, not a price

What you have calculated is your break-even against your own target. It contains no profit, no growth, no buffer for a bad quarter and nothing for the risk you are carrying.

What you charge should sit above it. How far above depends on things arithmetic cannot see: how scarce your skill is, what the work is worth to the client, how much risk you are absorbing, and how urgently they need it.

This is where value-based pricing comes in. If a piece of work will earn a client 200,000, the hours it takes you are close to irrelevant to what it is worth to them. Hourly costing is a sanity check on the low end, not a pricing philosophy.

Quote projects, price in hours

Clients dislike open-ended hourly billing, and they are right to: it puts all the risk on them and it rewards you for working slowly.

Estimate the hours, apply your rate, add 20% for the parts that always take longer, and quote one project figure. You keep the benefit of working efficiently, and the client gets a number they can approve without a conversation about your speed.

Be explicit about what is included and how many rounds of revision. Nearly every freelance project that goes wrong goes wrong at that boundary rather than on the rate.

Ask for a deposit

Between 25% and 50% up front on anything substantial. This is completely standard and it does three things: it improves your cash flow, it confirms the client is real, and it filters out the ones who were never going to pay.

The clients who object to a reasonable deposit are, with unnerving reliability, the ones who would have been a problem later.

Raising it later

Rates do not drift upward on their own. Holding a rate for three years during 3% inflation is a real-terms cut of about 9%.

The lowest-friction approach is to raise it for new clients first and leave existing ones for a cycle. You find out whether the new number holds without risking your base. If new clients accept it with no hesitation at all, it was probably still too low.

When you do raise existing clients, give notice, do it at a natural boundary such as a new project or a new year, and state it rather than ask. Most clients accept a reasonable increase from someone they trust, because finding and briefing a replacement costs them more than the difference.

If the number comes out above the market

Two possibilities, and it is worth working out which.

Your assumptions may be off. Check the billable percentage and the target income first; those are where the error usually is.

Or the market genuinely pays below a sustainable rate, which happens in crowded fields with a lot of newcomers who have done the naive calculation. In that case the answer is rarely to accept a loss-making rate. It is to change who you are selling to: a different sector, a different size of client, a narrower specialism where fewer people can do the work.

Competing on price against people who have miscalculated their own costs is a race you win by going out of business slightly later than they do.