Setting a freelance rate

The formula

Three steps, and each one is a place the sum usually goes wrong.

The tax share is a division, not an addition

Setting aside a quarter means keeping three quarters of what you invoice, so the target is divided by 0.75 — it is not the target plus 25 per cent. On a 60,000 target those are 80,000 and 75,000: five thousand a year apart, every year, in the direction that only shows up when the tax bill does.

You cannot bill every hour you work

Quotes, invoices, chasing the invoices, admin, tools breaking, the call that turns into nothing, the work you redo for free. Forty hours a week for forty-eight weeks is 1,920 hours worked — at sixty per cent billable that is 1,152 hours you can actually charge for, and the rate that comes out is two thirds higher than dividing by 1,920 would give.

Dividing by hours worked rather than hours billed is the most common way this calculation is got wrong, and it is wrong in the direction that quietly funds the gap out of your own time.

A worked example

Take 60,000 of income, 8,000 of business costs and 25 per cent set aside. That is 68,000 ÷ 0.75 = 90,667 to invoice across the year. At 48 weeks × 40 hours × 60 per cent billable — 1,152 hours — the rate is about 79 an hour, and a six-hour billable day comes to roughly 472.

Why the quoted rate is rounded up

The exact rate is the one that just reaches the target, so rounding it down is a rate that does not. The rate to quote is therefore rounded up to the next whole unit, and the calculator keeps the exact one beside it — the difference is never more than a unit an hour, and it falls on the right side of the target.

Hourly, day and project rates

A day rate is this hourly rate times the billable hours in a day, which is not the same as the hours in a day — that is the point of the separate field. A project rate is this rate times the hours you expect the project to take, plus whatever you are willing to carry if it takes longer. Fixed prices move the risk of a bad estimate from the client to you, which is a trade worth making deliberately rather than by accident.