As a small business advisor, most of my clients are non-employer freelancers—solopreneurs who operate their businesses independently. According to the U.S. Chamber of Commerce study, a staggering 82% of small businesses in the U.S. fall into this category. These businesses, often service-based or consulting-oriented, rely on billable hours to generate income.
However, one of the most common mistakes freelancers make is underpricing their services because they fail to correctly calculate their hourly rate. Many assume they can simply compare their pricing to competitors or base it on their last salary from a traditional job. Unfortunately, this approach often leads to unsustainable pricing models that don’t cover expenses or account for the realities of running a business.
How to Calculate Your Real Hourly Rate
To determine a sustainable hourly rate, you need to consider three major factors:
The number of billable hours you can realistically work per year
Your desired personal income
Your business expenses (both fixed and variable costs)
Here’s a step-by-step breakdown to help you arrive at your actual hourly rate:
Step 1: Establish Your Workable Days
There are 365 days in a year, but you can’t work all of them. Let’s start by subtracting:
104 days for weekends (52 weeks × 2 days)
20 days for vacation and personal time
9 days for holidays
This leaves 232 potential working days per year.
Step 2: Calculate Your Billable Hours
Even though you have 232 working days, not all 8 hours per day are billable. Running a freelance business requires non-billable tasks, such as:
Marketing & client outreach
Invoicing & bookkeeping
Email & administrative tasks
Business development & continuing education
A reasonable estimate is that these activities consume about 3 hours per day, leaving 5 hours per day for actual billable work.
So, we multiply: 5 billable hours/day × 232 working days = 1,160 billable hours per year
Step 3: Account for Your Income Goals & Business Expenses
Now, let’s determine the rate you need to charge:
Suppose you want to earn $100,000 per year as your take-home income.
You also have business expenses to cover. These could include:
Rent, utilities, and internet
Equipment and software
Insurance and accounting fees
Self-employment taxes (typically 15.3% in the U.S.)
Professional memberships and education
Let’s assume your total fixed and variable business expenses amount to $20,000 per year.
Thus, your total revenue requirement is: $100,000 (income) + $20,000 (expenses) = $120,000 needed annually
Now, divide this by the 1,160 billable hours: $120,000 ÷ 1,160 = $103.45 per hour
This means to meet your income goal while covering expenses, you must charge at least $103.45 per hour.
The Problem: Freelancers Underpricing Themselves
Many freelancers recoil when they see this number, convinced that the market won’t bear such a high rate. Some try to work more hours or cut expenses, only to find themselves:
Burning out by working excessive hours
Struggling financially due to underpricing
Unable to scale their business
Smart freelancers recognize the reality of their costs and set sustainable rates. They also find creative ways to package their services, value price, or productize their expertise to maximize earnings.
Get the Hourly Rate Calculator
To make this process easier, I’ve created an Hourly Rate Calculator based on this formula. It allows you to plug in your own numbers—income goals, expenses, and billable hours—to calculate a personalized hourly rate.
Are you charging what you’re worth? If not, it might be time to rethink your pricing strategy.
