How to Set Your Freelance Rate and Stop Undercharging
A step-by-step guide to calculating a freelance hourly rate that covers your expenses, taxes, and income goals — without guessing.
Setting your freelance rate is the single most important business decision you'll make. Get it wrong and you'll either work yourself into burnout chasing low-paying clients, or price yourself out of work you actually want.
Here's how to calculate a rate that actually works.
Start With Your Income Goal
Before you open a spreadsheet, ask yourself: what do I want to take home each year?
Most freelancers reverse-engineer their rate from a random hourly number they saw on Reddit. That's backwards. Start with your lifestyle target — say $80,000/year take-home — and work forward.
Account for Non-Billable Time
This is where most freelancers massively underestimate their rate. You're not billing 40 hours a week, 52 weeks a year. Realistically:
- Vacation: 3–4 weeks/year
- Sick days: 5–10 days/year
- Admin, marketing, accounting: 30–40% of your working hours
- Unpaid client discovery and proposals: 5–10 hours/month
A realistic billable week for a solo freelancer is 20–25 hours, not 40.
Add Your Business Expenses
Your rate needs to cover:
- Health insurance (can be $300–$800/month)
- Software subscriptions (design tools, project management, accounting)
- Professional development and courses
- Home office costs
- Equipment depreciation
Add these up annually and divide by your billable hours.
Don't Forget Self-Employment Tax
As a freelancer, you pay both sides of payroll tax — roughly 15.3% on top of income tax. For someone targeting $80k take-home in the US, you likely need $120k+ in gross revenue.
The Formula
Annual Income Goal + Expenses + Taxes
÷ Annual Billable Hours
= Your Minimum Hourly Rate
Use our Freelance Rate Calculator to run the exact numbers for your situation — it handles the tax estimates and non-billable time automatically.
Add a Market Premium
Your minimum rate is just the floor. If the market will pay more — and it often will for specialists — charge more. Undercharging signals low value to clients, not affordability.
A rate you've never been pushed back on is probably too low.
Revisit Your Rate Annually
Expenses go up. Skills improve. Markets shift. Freelancers who set a rate in year one and never revisit it consistently earn less than they should. Put a calendar reminder for January 1st every year.