Ask ten freelancers how they arrived at their rate and nine will describe the same method: look at what similar people charge, pick a number slightly below, adjust upward when it starts to hurt. It is not a stupid method — the market is real information — but it answers the wrong question. It tells you what you can probably get away with charging, not what you need to earn.
The arithmetic below answers the second question. It takes about twenty minutes and it usually produces a number higher than people expect, for one specific reason we will get to.
Why copying the market fails
Two rates that look identical can describe completely different businesses. Someone charging the same as you may have a spouse's salary underneath them, no office, no software costs, and three days a week of work they never invoice. Comparing your rate to theirs compares two numbers that were produced by different equations.
Worse, the number that circulates in a market is usually the headline rate, not the effective one. A rate quoted at 100 and discounted to 80 for the two clients who provide most of the work is a rate of 80.
The arithmetic
Four figures, in this order. Work them out annually rather than monthly — annual figures absorb the quiet August and the month with three invoices, which monthly figures do not.
- What you need to take home. Not what you would like: what covers your life, including the pension contribution you keep postponing.
- What the business costs. Software, hardware amortised over its real life, accountant, insurance, workspace, training, the phone. Every subscription, including the ones you forgot.
- What you owe on top. Income tax and social contributions on the above. Ask your accountant for the effective rate rather than guessing — this is the line people get most wrong.
- How many hours you can actually bill. Not how many you work. This is the number that decides everything.
| Line | Amount |
|---|---|
| Target take-home for the year | $60,000 |
| Business costs | $12,000 |
| Tax and social contributions | $24,000 |
| Total the business must earn | $96,000 |
| Billable hours available | 1,100 |
| Rate required | $87 per hour |
The figures are illustrative — yours will differ, and the tax line especially so. What transfers is the shape: the rate is what you must earn divided by the hours you can genuinely sell, and neither of those is the number people start from.
Where the hours actually go
This is the line that breaks most calculations. A full-time year is roughly 220 working days after weekends, holidays and some illness. At eight hours a day that is 1,760 hours — and almost nobody bills 1,760 hours.
- Sales, proposals and calls that go nowhere
- Your own invoicing, bookkeeping and chasing unpaid invoices
- Learning the thing you had to learn to do the work
- Rework you did not feel able to charge for
- Admin, email, and the meeting that could have been an email
The uncomfortable implication is that you cannot fix a low rate by working more. Selling more hours at a rate that does not cover the year just moves the shortfall to a bigger number of hours.
Checking the number you got
Before you use it, run it past three tests. If it fails all three, the rate is wrong. If it fails one, the assumption behind that test is worth examining.
- Does it survive a bad year? Rerun it at four billable hours a day instead of five. That is the version of your year where one big client leaves.
- Does it match what you actually invoiced? Divide last year's invoiced total by the hours you actually recorded. If you never recorded them, that is the first thing to fix — you are negotiating without knowing your current effective rate.
- Would you take the work at that price? If the number makes you want to decline the job, you will discount it under pressure, and a rate you cannot hold is not a rate.
Raising an existing rate
The arithmetic usually says your rate should be higher, and the hard part is not the arithmetic. Three things make the conversation easier: raise it for new clients first and let the existing ones follow at renewal; give notice rather than applying it to work already agreed; and be able to show what the hours went into.
That last one is why time records matter beyond billing. A client who can see that the redesign took nineteen hours across four named tasks argues about the work. A client who receives a line saying "design, 19 hours" argues about the number.
Knowing your effective rate needs records
The second test above only works if the hours exist somewhere. The buying guide covers what to look for in a tracker, starting with what an hour attaches to and who approves it.