How to Set Your Freelance Rate

A friend of mine quit her marketing job last year to go freelance. She'd been making $95,000, so she did what seemed logical: divided that by 2,080 (the standard 40-hours-a-week, 52-weeks-a-year number) and landed on roughly $46 an hour. She rounded up to $50 because it felt cleaner. Then she started pitching clients at that rate.

Six months in, she called me in a mild panic. She was working more than she ever had at her old job, landing plenty of clients, and somehow netting about $58,000. Not $95,000. Not even close.

She'd made the single most common mistake in freelancing: treating her old salary like a direct conversion to an hourly rate. It's not. It's not even in the same neighborhood. And the gap between those two numbers is where most new freelancers lose tens of thousands of dollars a year without realizing it.

The $48-an-hour illusion

Let's start with why the naive math feels so convincing. If you earned $100,000 at a full-time job, $100,000 divided by 2,080 hours is $48.08 per hour. Simple. Elegant. Wrong.

That number already has a bunch of invisible subsidies baked into it. Your employer was paying half of your Social Security and Medicare taxes — that's 7.65% of your salary they covered and you never saw. They were probably kicking in $400 to $800 a month toward your health insurance. They matched some percentage of your 401(k). They gave you paid vacation, paid sick days, paid holidays. They bought you a laptop, paid for your software licenses, covered your office space.

When you go freelance, every single one of those costs lands on you. And they add up to a staggering amount.

Let's actually do the math

I'm going to walk through this with a $100,000 target because the numbers are easy to follow. But you can plug in your own salary using the freelance rate calculator and get your exact number in about 30 seconds.

Self-employment tax: $15,300. As a freelancer, you pay both the employer and employee portions of Social Security and Medicare. That's 15.3% on your first $168,600 of net self-employment income (as of 2024). On $100K, that's $15,300 that simply didn't exist when you were a W-2 employee. Your employer was silently covering half of it.

Health insurance: $6,000 to $12,000 a year. The average individual marketplace plan runs about $500 to $700 a month, depending on your state and age. A family plan? Easily $1,500 or more. At your old job, the company was probably covering 70-80% of that premium. Now you're paying every cent.

Retirement: $6,000 to $10,000. No more employer 401(k) match. If your company matched 4% on a $100K salary, that's $4,000 in free money that just vanished. And you still need to save for retirement — a SEP IRA or Solo 401(k) contribution is on you now. If you want to put away 10% of your income, that's another $10,000 from your own pocket.

Paid time off: gone. The average American gets about 15 days of PTO plus 10 holidays. That's 5 weeks where you were getting paid to not work. As a freelancer, every week off is a week of zero revenue. If you take those same 5 weeks off, you only have 47 billable weeks — not 52. You can use a PTO calculator to see exactly how much that time was worth at your old job.

Non-billable hours: the silent killer. This is the one that catches people most off guard. You will not bill 40 hours a week. You will bill 25 to 30 if you're disciplined and lucky. The rest gets eaten by invoicing, chasing late payments, doing your bookkeeping, updating your portfolio, writing proposals that don't convert, responding to emails, marketing yourself, and the general overhead of running a one-person business. Most freelancers I know estimate 10 to 15 hours a week of non-billable work.

So what should you actually charge?

Let's add it all up. To net $100,000 in take-home income, you need to gross enough to cover:

Your target income ($100,000) + self-employment tax (~$15,300) + health insurance (~$8,400) + retirement savings (~$10,000) + business expenses like software, equipment, and accounting (~$5,000) = roughly $138,700 in gross revenue you need to generate.

Now divide that by your actual billable hours. If you work 47 weeks at 30 billable hours per week, that's 1,410 billable hours.

$138,700 divided by 1,410 hours = $98 per hour.

Not $48. Not $50. Not $65. Nearly a hundred dollars an hour to take home the same $100K you were making at your desk job. That's the gap. And it's why my friend was short $37,000.

Even if you're more conservative — 32 billable hours a week, fewer expenses — you're still looking at $75 to $85 an hour minimum. The freelance rate calculator lets you adjust every variable to see exactly where your number falls.

Why it feels wrong to charge that much

I get it. When you first see that number, there's a psychological flinch. Ninety-eight dollars an hour? For me? I'm not a lawyer or a surgeon.

But here's the thing: your client isn't comparing your rate to what a salaried employee earns. They're comparing it to what it would cost them to hire a full-time person (salary + benefits + overhead + equipment + management time), or what an agency would charge them (which is usually $150 to $300 an hour). At $98/hour, you're a bargain compared to both of those options.

I also find it helpful to think in the other direction. Instead of asking "what hourly rate do I deserve?", ask "what's this deliverable worth to the client?" A freelance web developer charging $95/hour for a project that takes 40 hours is billing $3,800. If that project helps the client generate $50,000 in new revenue over the next year, nobody's questioning the $3,800. The rate only feels scary in isolation.

The hours trap: what "full-time freelancing" actually looks like

One more thing that messes up the math: the assumption that you'll work 40 billable hours a week. I can't stress this enough — you won't. At least not sustainably.

Every freelancer I've talked to — designers, writers, developers, consultants — converges on roughly the same number: 25 to 32 hours of billable work per week, with the rest consumed by the business of running a business. Some weeks you'll bill 40 hours. Those are the weeks you'll have zero time to find your next client, and you'll pay for it a month later when the pipeline dries up.

If you want to see how your current salary translates to an actual per-hour figure — the real one, including all the hidden benefits — the hourly wage calculator breaks that down nicely. It's a useful gut-check before you start comparing freelance rates to salary numbers. You might find your old "hourly rate" was higher than you thought once you add back benefits.

A quick sanity check using everyday expenses

Here's a trick I like for putting freelance rates in perspective. Think about what you buy regularly and ask: how many minutes of work does this cost me?

At $48/hour (the naive rate), a $15 lunch costs you about 19 minutes of billable time. At $98/hour, it costs 9 minutes. That doesn't sound like a huge difference until you realize the $48 rate means you're actually losing money — because that rate doesn't cover your real costs.

The price to wage calculator is fun for this. Plug in your real hourly rate and the price of something you're thinking about buying. It converts dollars into time, which is often a more honest way to evaluate what things cost.

What about project-based pricing?

A lot of experienced freelancers eventually move away from hourly billing entirely. They quote flat project rates instead. This is smart for a bunch of reasons — it rewards efficiency, it gives the client cost certainty, and it decouples your income from your time.

But even if you quote project rates, you still need to know your hourly number. It's the foundation. When a client asks you to build them a website and you quote $8,000, that number should come from somewhere: your estimated hours times your target rate, plus a buffer for scope creep. If you don't know your hourly floor, you'll underprice projects just as badly as you'll underprice hours.

Think of your hourly rate as the internal number you never show the client but always use to sanity-check your quotes.

The annual raise you have to give yourself

At a traditional job, you get annual raises (or at least you're supposed to). Cost of living adjustments. Promotions. As a freelancer, your rate stays exactly where it is until you manually change it. I've met freelancers who've been charging the same rate for five years — which means, adjusted for inflation, they've been giving themselves a pay cut every year.

Health insurance premiums go up annually. Self-employment tax thresholds shift. Your skills improve and your work gets more valuable. Review your rate at least once a year. Run the numbers again. If you haven't raised your rate in over 12 months, you're almost certainly undercharging.

The bottom line

Freelancing is one of the few career moves where the arithmetic is genuinely surprising. The number you need to charge to match your old salary is not your old salary divided by hours. It's your old salary plus taxes plus insurance plus retirement plus expenses plus a correction for non-billable time — then divided by fewer hours than you think.

My friend eventually recalculated and raised her rate to $90/hour. She lost two clients who were shopping purely on price. She replaced them within a month. Her annual income climbed to $102,000 — better than her old salary, with the flexibility she wanted in the first place.

If you're about to go freelance, or you've been freelancing and the money doesn't add up, spend two minutes with the freelance rate calculator. Plug in your target income, your estimated expenses, your tax situation, and your realistic billable hours. The number it gives you might make you uncomfortable. Charge it anyway.

The alternative is working harder than you ever have for less money than you used to make. And nobody quits their job to do that.