How do I work out my freelance rate?

Start from what you need the business to pay you annually, add business costs, add tax, then divide by the hours you can realistically bill — not 2,000. Billing 20 hours a week for 46 weeks is 920 hours. The result is the floor beneath which work costs you money.

Why can't I just charge my old salary as an hourly rate?

Because a salary arrived after an employer absorbed costs you now carry: both halves of Social Security and Medicare at 15.3%, any retirement match, roughly five weeks of paid time off, health insurance, equipment and software. Converting a salary directly into an hourly rate is a substantial pay cut.

What is self-employment tax?

Currently 15.3% on net self-employment earnings, covering both the employee and employer halves of Social Security and Medicare, charged on top of income tax. Half of it is deductible as an adjustment to income.

How many hours can I actually bill?

Far fewer than you work. Finding work, proposals, invoicing, chasing payment, bookkeeping and admin are unpaid, and for many solo businesses account for a third to a half of the working week. Plan on billing roughly half the hours you put in, especially early on.

How do I raise my rates with existing clients?

With notice and a date, not an apology. “From January my rate will be X” is complete. New clients get the new rate immediately. The instinct to justify the increase at length is what invites negotiation.

How to Set Your Rate: What Freelance Pricing Has to Cover

Here is the mistake, and it is nearly universal.

A woman leaves a job paying $60,000. She starts consulting. She works out that $60,000 is about $29 an hour, rounds up to feel brave, and charges $40.

And she has just taken a very large pay cut while believing she gave herself a raise.

Revenue is not salary

The number a client pays you is not the number you take home, and the gap is much wider than most people expect. Your old salary arrived after an employer had already absorbed a list of costs on your behalf. Now you absorb them.

Self-employment tax. As an employee, your employer paid half of your Social Security and Medicare. Now you pay both halves — currently 15.3% on net self-employment earnings, on top of income tax. Half of it is deductible as an adjustment, which softens but does not remove it.

No employer match. Whatever was going into a retirement account on top of your salary now comes out of your own revenue.

No paid time off. Employees are paid for roughly five weeks a year they do not work — holiday, sick days, public holidays. You are paid for none of it.

Health insurance, at whatever it costs without an employer contributing.

Your own equipment, software, insurance, and training.

And the hours nobody pays for

This is the part that undoes the arithmetic completely.

Employees are paid for forty hours. Business owners are paid for the billable ones. The rest — finding work, writing proposals, invoicing, chasing invoices, bookkeeping, email, admin, the client call that did not convert — is unpaid and it is not a small number. For many solo businesses it is a third to a half of the working week.

So if you want to bill 20 hours a week, you are likely working close to 40.

The floor

You are not trying to arrive at a perfect rate. You are trying to find the number below which the work costs you money, so you never accidentally go under it.

Roughly:

What do I need the business to pay me a year? Your personal number — what your life actually costs. If you do not know it, that is the first job.
Add business costs. Software, insurance, equipment, professional fees, training.
Add tax. Self-employment plus income tax. A quarter to a third of net is a common starting point; a CPA will give you yours.
Divide by the hours you can actually bill. Not 2,000. If you can bill 20 hours a week for 46 weeks, that is 920.

The number that falls out is your floor. It is almost always higher than people guess, and seeing it is usually the moment something changes.

Why the number felt wrong

Because you did not ask what the work is worth. You asked what you could comfortably say out loud.

That question is a money story question, not a pricing one — and if you recognise the flinch, it has a whole article of its own. What you can say without discomfort is a measure of your history, not of your value, and it is the single most expensive thing a new business owner brings with her.

A practical test: say your rate out loud, alone, three times. Then say it 20% higher. If the second one produces a physical reaction and the first does not, you have learned something about the first one.

A few things that are true about pricing

Price the outcome, not the hour, where you can. Hourly billing caps you at your own time and quietly penalises you for getting faster.

The lowest bidder attracts the worst clients. This is not a slogan. Clients who choose on price alone negotiate hardest, pay slowest and demand most.

Rates go up. Not for existing clients retroactively, but for new ones, regularly. Tell existing clients with notice and a date: from January my rate will be X. No apology, no justification paragraph. Most people say fine.

You do not have to explain your rate. "My rate is X" is complete. The urge to fill the silence after it with reasons is the thing that costs money.

What this article deliberately does not do

It does not tell you what to charge, what your market pays, or what your tax will be. Those depend on your field, your location and facts no article can see.

What it does is make sure the number you pick is one you calculated rather than one you could bear to say.

What to Charge