How to Set Your Freelance Rate

Most freelancers pick a rate by copying whatever a friend charges or by halving their old salary. Both methods leave money on the table because neither accounts for the days you will not bill. A rate is a small piece of arithmetic with a few honest inputs, and it is far easier to defend in a client conversation once you have done that arithmetic.

Start from the income you actually want to take home

Begin with a number you want to live on, not a number you think sounds reasonable. Say you want the equivalent of a salary of 50,000 in your pocket before tax. That figure is the target, and everything else in the calculation exists to support it. Most people skip this step, guess a day rate, then wonder at the end of the year where the money went.

Treat the target as gross personal income, meaning the money that lands in your account before you pay personal tax on it. If you work through a company rather than as a sole trader, the shape is different because the company pays its own tax first, but the principle holds: decide the personal number, then work outward.

Add the costs nobody bills for

A salaried job hides a pile of costs your employer used to pay. Software subscriptions, insurance, accountancy fees, a laptop, part of your rent or a co-working desk, phone, training, and pension contributions all come out of your own money now. Add them up for a year and divide by the billable days you plan to work. That gives a cost-per-day you must recover before you earn a penny for yourself.

Then add tax. Exact rates, thresholds and allowances vary by country and change most years, so the honest approach is to ask an accountant what percentage of gross income someone in your position typically sets aside, and to check whether you need to make payments in advance. Set that percentage aside in a separate account from day one rather than treating it as spending money.

Count billable days, not working days

There are about 260 weekdays in a year. Subtract public holidays, and subtract the leave you want to take, because unpaid leave is one of the biggest differences between freelancing and employment. Then subtract the days that go on admin, invoicing, chasing late payers, proposals, marketing, and learning. For most people that is a fifth to a third of their working time, and it is real work that simply does not generate revenue.

Allow for sickness and for the quiet weeks between contracts. A freelancer who assumes 220 billable days is likely to bill far fewer. Many experienced freelancers plan on somewhere between 130 and 180 billable days, and some years come in under that. Being pessimistic here protects you; being optimistic means the rate you set is wrong for the whole year.

Write the number down and put it somewhere you can see it, because the count is the part of this calculation most people quietly inflate. Keep a timesheet for a month and see where the hours actually go. The gap between the days you assumed and the days you billed is the most useful figure you will collect in your first year of freelancing.

Do the division and sanity-check the result

Take your target personal income, add the tax set-aside, add your annual business costs, and divide by your realistic billable days. That is your day rate floor. Divide again by the hours you are genuinely prepared to work in a day to get an hourly equivalent, keeping in mind that a six-hour productive day is a normal outcome of meetings and context switching.

Now compare that number with what a salaried equivalent earns. A salaried person on the same headline figure receives paid holiday, sick pay, employer pension contributions, training, equipment, and an employer-funded share of tax that a freelancer does not get. Once you count those, the freelance rate that matches the salary is meaningfully higher than the salary divided by working days. If your calculated floor is below the local market rate for your skill, the market is telling you the target income is unrealistic at your current number of billable days, and you can either raise the rate, work more billable hours, or cut costs.

Decide how you will handle rate increases. Review annually and give existing clients notice in writing. It is normal to charge new clients the new rate immediately and to keep long-standing ones on the old rate for one more cycle as a courtesy.

• Day rate - The fee for one day of work, usually the anchor figure from which an hourly or weekly rate is derived.
• Billable day - A day spent on work you can invoice for, as opposed to admin, marketing or learning.
• Rate floor - The lowest figure your costs and tax set-asides allow you to charge without losing money.
• Tax set-aside - The share of each payment moved into a separate account to cover the eventual tax bill.