New freelancers often set their rate by dividing a desired salary by 2,080 hours, then wonder why they feel underpaid. That shortcut ignores the taxes, benefits, and unbillable time that an employer used to absorb. Pricing your work correctly means building all of those realities into your number from the start.
Start from your target income
Begin with the annual take-home income you actually want, not a headline salary figure. Then work backward to the revenue your business must generate to produce that income after expenses and taxes. This target-first approach keeps you from anchoring on an employee salary that does not reflect self-employment costs. Your rate is a business price, so it must cover everything the business must pay.
Add the costs employers used to cover
As a freelancer you now pay the full 15.3 percent self-employment tax, your own health insurance, and your own retirement contributions. You also cover software, equipment, professional insurance, and time off that an employer once provided. A useful rule of thumb is that these costs can add 25 to 40 percent on top of an equivalent salary. Failing to build them in means quietly funding your clients' savings out of your own pocket.
Account for unbillable hours
You cannot bill all 2,080 working hours a year because much of your time goes to unpaid work. Marketing, admin, invoicing, professional development, and gaps between projects can easily consume a third or more of your time. If only 1,200 to 1,400 hours a year are billable, your rate must cover your full income across those hours alone. Dividing your revenue target by realistic billable hours, not total hours, is what yields a livable rate.
Choose hourly, project, or value pricing
Once you know your minimum viable rate, decide how to present it to clients. Hourly pricing is simple but caps your income at your available hours and can penalize efficiency. Project or fixed pricing lets you charge for the value delivered rather than time spent, often improving your effective rate. Whatever model you choose, your minimum hourly figure remains the floor that keeps a project from losing you money.
Tara wants the equivalent of an $80,000 salary, so she adds about 30 percent for taxes, benefits, and overhead, targeting roughly $104,000 in revenue. She realistically bills 1,200 hours a year after marketing and admin, so $104,000 divided by 1,200 sets her floor near $87 per hour. Pricing below that would leave her earning less than the salaried job she left.
Key takeaways
- Start from your target take-home income and work backward to required revenue.
- Add 25 to 40 percent for self-employment tax, benefits, and business costs an employer once covered.
- Only a portion of your hours are billable, so divide revenue by realistic billable hours.
- Your minimum hourly rate is the floor even when you use project or value-based pricing.
Common mistakes
- Setting a rate by dividing a salary by 2,080 hours and ignoring self-employment costs.
- Assuming every working hour is billable when much of the week is unpaid overhead.
- Forgetting to fund your own taxes, health insurance, and retirement in the rate.
FAQ
Why can I not just charge my old hourly wage as a freelancer?
Because you now pay the full payroll tax, your own benefits, and business costs, and you cannot bill every hour, so your rate must be meaningfully higher than an employee wage.
How many hours a year can I realistically bill?
Many full-time freelancers bill only 1,000 to 1,400 hours a year after marketing, admin, and downtime, so plan your rate around that, not 2,080.