Your freelance hourly rate should be your gross revenue need divided by your billable hours — not your old salary divided by 2,080. Add your target take-home income to your business expenses, gross that up for taxes, and divide by the hours you'll actually invoice. Most freelancers who do this math discover they've been undercharging by 20 to 50 percent.
The mistake almost every new freelancer makes
Here's how rate-setting usually goes: someone leaves a $90,000 job (about $43 an hour), looks at what other freelancers charge, and picks $50 or $60 an hour. It feels like a raise. It isn't. It's usually a pay cut wearing a disguise.
The disguise has three layers. First, the employee's $43 an hour came with an employer paying half their payroll taxes, subsidizing their health insurance, and paying them for vacation, holidays, and sick days. As a freelancer, you pay all of that yourself — and the calculator's tax estimate and working-weeks inputs exist precisely to surface those costs.
Second, and this is the big one: billable hours are not working hours. A salaried employee gets paid for every hour they're at work, including the slow ones. A freelancer gets paid only for hours invoiced to clients. The other hours — writing proposals, chasing invoices, doing your books, marketing yourself, learning new skills — are real work that pays nothing directly. Most freelancers bill somewhere between half and two-thirds of the time they work. Every non-billable hour has to be funded by a billable one.
Third, employees get paid for time off. Freelancers don't. If you take four weeks off a year, your rate has to earn your full annual income in 48 weeks, not 52.
How the calculation works
The calculator runs four steps, in this order:
- Add your real costs. Target take-home income + annual business expenses. This is the net number your business must deliver to you.
- Gross up for taxes. If you estimate taxes at 25% of revenue, every dollar you keep requires $1 ÷ (1 − 0.25) = $1.33 of revenue. Gross revenue needed = (income + expenses) ÷ (1 − tax rate). This is why the tax estimate matters so much: at a 30% rate, you need $1.43 of revenue per dollar kept.
- Count billable hours honestly. Billable hours per week × working weeks per year. Notice what's missing: non-billable hours and time off don't appear anywhere, because they can't — they have to be absorbed by the rate.
- Divide. Minimum hourly rate = gross revenue needed ÷ billable hours per year.
The result is a floor, not a quote. It's the lowest rate at which your business sustains itself. Many successful freelancers charge well above their floor — the floor just tells them where "well above" starts and where "losing money politely" begins.
Worked example
Maya is a freelance designer. She wants to keep $75,000 a year, spends $6,000 on software, equipment, and insurance, and estimates 28% for taxes. She can bill about 22 hours a week and takes 4 weeks off, so she works 48 weeks.
- Net needed: $75,000 + $6,000 = $81,000
- Gross revenue needed: $81,000 ÷ (1 − 0.28) = $112,500
- Billable hours: 22 × 48 = 1,056 hours
- Minimum rate: $112,500 ÷ 1,056 = $106.53/hour
Maya had been charging $75 an hour — at which she'd have earned roughly $79,200 gross and kept barely $51,000 after expenses and taxes. The math says $107 is her floor. She raised her rate to $125, lost one price-sensitive client, and still earned more while working fewer hours.
What to do with your number
First, compare it against what you're charging now. If there's a gap, you have three levers: raise rates, increase billable hours (more clients or less admin drag), or cut expenses. Most freelancers find rate increases are the highest-leverage move — a 20% rate increase usually beats a 20% increase in hours worked, because hours have a hard ceiling and rates don't.
Second, use the floor to evaluate project quotes. Estimate the hours, multiply by your minimum rate, and treat the result as your walk-away number. Flat-fee projects priced above the floor are where real profit lives.
Third, revisit the inputs twice a year. Expenses creep up, tax situations change, and billable hours drift. A rate that was right eighteen months ago is a guess today. The five minutes this calculator takes is the cheapest business review you'll ever do.
And if the number shocks you, that's the calculator working as intended. The freelancers who thrive aren't the ones who charge the most — they're the ones who know exactly what they need and price with their eyes open.