How to Calculate Your True Freelance Hourly Rate
The Freelance Gap
When transitioning from a full-time job to freelancing, most people make a critical mistake: they take their old salary, divide it by 2,080 hours, and use that as their freelance rate. This guarantees you will lose money.
As a freelancer, you must account for unbillable hours (marketing, admin, emails), the cost of your own benefits (health insurance, retirement), self-employment taxes (15.3%), and business overhead (software, hardware, internet). A proper freelance rate is typically 2x to 3x higher than the equivalent W-2 employee wage.
Frequently Asked Questions
Why is the default billable capacity only 50-60%?
No freelancer bills 40 hours a week for 52 weeks a year. You will spend roughly 40% of your time finding clients, writing proposals, doing bookkeeping, and taking sick or vacation days. If you assume 100% billability, you will underprice yourself severely.
Should I charge hourly or flat rate?
Hourly billing is great for beginners or unpredictable projects. However, as you become faster and more skilled, hourly billing penalizes your efficiency. Eventually, you should transition to value-based flat-rate pricing or monthly retainers.