How to Set Your Freelance Rate (So You Actually Profit)

New freelancers often take their old salary, divide by 2,080 hours, and call that their rate. That number is a trap: it ignores self-employment taxes, business expenses, unpaid time, and the simple fact that you cannot bill 40 hours a week. Here is how to set a rate that actually pays you.

Start with your real target income

Begin with what you actually want to take home after taxes. Then gross it up: as a freelancer you pay self-employment tax (about 15.3%) on top of income tax, so you need to earn meaningfully more than your target to keep it.

Add your business expenses

Software, hardware, your own health insurance, retirement contributions, professional fees, and other costs all come out of what you bill. These are real and need to be built into the rate, not absorbed quietly.

Account for non-billable time

This is the step most people miss. You cannot bill every working hour, time spent on marketing, admin, invoicing, and finding clients is unpaid. A realistic billable ratio is often 50 to 60% of your working hours. If you only bill half your time, your rate has to cover the other half.

Subtract weeks you won't work

A full-time employee gets paid vacation, holidays, and sick days. You do not. Plan for several weeks a year with no income and build that into your annual math, otherwise time off becomes a pay cut.

Do the arithmetic

Add your target take-home, the taxes on it, your expenses, and a buffer, then divide by the number of hours you can realistically bill in a year. The result is often two to three times the naive "salary divided by 2,080" figure, and that is the point: it reflects what self-employment actually costs.

Work backward to your number with our freelance hourly rate calculator.