Why your rate is probably too low
When freelancers move from a salaried job to self-employment, they usually divide their old salary by 2,080 (the standard full-time working hours in a year) and use that number as their rate. That math is wrong in three places.
It ignores self-employment tax, which the employer used to cover half of. It ignores overhead — software, insurance, equipment — that used to be invisible. And it assumes every hour is billable, which never happens.
The formula that actually covers your costs
Start from what you want to take home, then gross it up for the costs the salary number hid.
1. Pick your target take-home income
The number you want in your bank account after tax and expenses. Say $80,000.
2. Add self-employment and income tax
Multiply by roughly 1.5 — self-employment tax is 15.3%, federal effective is around 17%, state adds more. $80,000 becomes about $120,000 of pre-tax revenue.
3. Add business overhead
Software, insurance, equipment, retirement contributions. A conservative estimate is $10,000–$15,000 a year for most solo freelancers. $120,000 becomes $135,000.
4. Divide by billable hours, not total hours
Most freelancers bill 60–70% of their working hours. On a 40-hour week, that is 24–28 billable hours. Over 48 working weeks (allowing vacation and sick days), that is 1,150–1,350 billable hours.
5. Calculate the rate
$135,000 ÷ 1,200 billable hours = $112.50 per hour. That is your floor.
Why the 'billable hours' step is the one people skip
New freelancers assume they will bill 40 hours a week. They will not. Time goes to marketing, proposals, client calls that do not convert, invoicing, tax prep, learning new tools, and everything else that keeps a business running.
Tracking your hours — billable and non-billable — is the only way to find your real utilization rate. If you log 40 hours of work this week and 24 of them ended up on invoices, your utilization is 60%. Price for that, not for the fantasy of 100%.
FreelanceFlow tracks both kinds of time. Create a client called Admin or Business for non-billable work, and run a timer on it the same way you would for paying clients. The split becomes visible over a few weeks.
Varying rates by client (and why it is okay)
Not every client will pay your floor rate. That is not a reason to lower your floor — it is a reason to charge different clients different rates openly.
A long-term retainer at a slight discount is fine because it smooths your cash flow. A new client referred by a friend might get a small discount. A client who discovered you through marketing and has no alternative pays the full rate.
FreelanceFlow supports per-client default rates, so you set each client's rate once and every invoice applies the right number. No more searching old emails to remember what you quoted.
When to raise your rate
The simplest signal is that you are turning down work. If your calendar is full and you still have inquiries, your rate is below market.
The second signal is that you have been at the same rate for over a year while your skills grew. Annual raises are normal in employment. They should be normal in freelancing too. 5%–10% per year is a reasonable baseline; more if you added significant new capabilities.