How to Calculate Your Hourly Rate as a Freelancer (and Survive Doing It)

Published on October 24, 2025 · Freelance

One of the most difficult and stressful questions when you start freelancing is: “How much should I charge?” Pricing too low can lead to burnout and bankruptcy. Pricing too high can scare off potential clients. The key is finding a balance based on realistic calculations — not random guesses.

In this article, we’ll guide you through a simple formula to calculate an hourly rate that’s fair to you and your clients.

Your rate isn’t just your “salary.” It should cover your expenses, taxes, vacations, and your future. You are a business, not just an employee.

Step 1: Define Your Annual Expenses as a Freelancer

First, you need to know how much it costs you to live and work for a year.

• Personal Expenses: Add up all your annual living costs — rent/mortgage, bills (electricity, water, internet), food, transport, entertainment, etc. Be honest and realistic.
• Business Expenses: Add up all your business-related costs — freelance taxes, software, hardware, accounting, marketing, education, etc.
• Total Sum: Add your personal and professional expenses to get your total annual living and business cost.

Step 2: Add Taxes and a Profit Margin

On top of your total cost, you need to add a cushion for taxes and profit (to save, invest, or treat yourself).

• Taxes: A good rule of thumb is to add 20–25% for income tax and 21% VAT (though VAT is charged to the client, it’s good to keep in mind). To simplify, start by adding 25% to your total expenses.
• Profit/Savings: Next, decide what profit margin you want. 10–20% is a good starting point. This is what allows you to grow, invest in better tools, or have a buffer for unexpected situations.

Example: If your annual expenses are €30,000, you might add €7,500 (25% taxes) and €3,000 (10% profit), giving you an annual income goal of €40,500.

Step 3: Calculate Your Annual Billable Hours

This is the step many forget. You won’t work 8 hours a day, 5 days a week, 52 weeks a year. You need to subtract holidays, sick days, and the time spent on non-billable tasks (marketing, accounting, finding clients, etc.).

• Workdays per year: 365 days - 104 (weekends) - 14 (holidays) - 22 (vacation) = 225 workdays.
• Billable hours per day: From an 8-hour day, it’s realistic to assume that only 5–6 hours are directly billable. The rest goes to admin, meetings, etc. Let’s be conservative and use 5 hours.
• Total billable hours: 225 days * 5 hours/day = 1,125 billable hours per year.

Step 4: Calculate Your Hourly Rate

Now simply divide your annual income goal by your total billable hours.

Using our example:

€40,500 / 1,125 hours = €36/hour

This is your minimum viable rate. Charging less than this means losing money or sacrificing your salary, savings, or free time. You can use our Work Time Calculator to track your hours and make sure you meet your goals.

The Final Adjustment: Market and Experience

Once you have your base rate, compare it to the market. How much do other freelancers with your experience level charge in your field? If your calculated rate is much higher, you might need to review your expenses or profit margin. If it’s much lower — great! You have room to increase it and position yourself as a higher-value professional.

Frequently Asked Questions About Freelancer Rates

• Is it better to charge by the hour or by project?
  It depends on the project. Hourly rates are great for work with uncertain duration. Project rates are ideal when the scope is clear and you can estimate time accurately. A good strategy is to calculate your hourly rate and use it as the basis for project quotes.
• How should I communicate my rate to clients?
  With confidence and transparency. Present your rate as what it is: a professional price for quality service. Avoid overjustifying it. If a client asks, you can explain that your rate reflects your experience, the value you deliver, and the cost of running a sustainable business.
• What if a client says my rate is too high?
  Thank them for the feedback. Sometimes it’s just a negotiation tactic. If you’re confident in your rate, stand firm and explain the value you bring. If the client truly can’t afford it, offer to reduce the project scope to fit their budget — but avoid lowering your rate.

Don’t be afraid to adjust your rate over time. As you gain experience and grow your client base, your value will increase. Calculating your rate professionally is the first step to building a sustainable and profitable freelance business. To boost your productivity, check out our articles on Time Blocking and the Pomodoro Method.