The ladder, one rung at a time
Start at the bottom with the money you want left over. Add the health insurance you buy because no employer buys it for you, and the retirement contributions nobody is matching. That subtotal is what has to survive tax, so divide by one minus your set-aside rate to get the profit the business needs to make. Add the expenses the business incurs, because they come out of revenue before profit exists. What you have then is the revenue to invoice, and dividing it by the days you can actually bill gives the day rate.
With the defaults on this page that runs: $60,000 to keep, plus $6,000 of premiums and $6,000 of retirement, is $72,000 needed after tax. At a 25 percent set-aside that needs $96,000 of profit. Add $4,000 of expenses and the business has to invoice $100,000. Over 200 billable days that is $500 a day, and at eight-hour days that are 65 percent billable — 5.2 billable hours, 1,040 in the year — it is $96.15 an hour.
The gap between $60,000 kept and $100,000 invoiced is the whole point of doing this. Two thirds of the difference is tax, and the rest is the things an employer would otherwise be buying.
Billable days is the input that moves everything
Five days a week for fifty-two weeks is 260 weekdays, and that number appears in almost every rate that turns out to be too low. What comes off it:
- Holidays and vacation — nobody pays you to take them. Ten holidays and three weeks off is 25 days.
- Sales, quoting and calls that go nowhere — 15 to 25 days a year is common, and it is the cost of having any work at all.
- Invoicing, chasing payment, bookkeeping, taxes — around 10 days.
- Learning and portfolio work — unbillable, and skipping it shows up in the rate a couple of years later.
- Gaps between contracts — the one people leave out. In a first year it can run to 40 or 60 days on its own.
Full-time freelancers commonly land somewhere between 180 and 220 billable days. Build a rate on 260 and the year ends around three quarters of target. If this is a first year, model 150 and revise upwards once you have evidence.
The hours inside a day are the second leak
The billable share field exists because an eight-hour working day is not eight hours of billable work. Email, scoping, revisions that were not scoped, the half hour after an interruption before concentration returns — all of it is real and none of it is invoiceable. Sixty to seventy percent is a realistic band for most solo work, and it is the difference between a rate that holds and one that gets made up in evenings.
The results include a line showing what the hourly rate would be if every hour of the day were billed. The distance between that and your actual hourly rate is the price of the unbilled portion, expressed per hour so it is hard to ignore.
The tax box, and why it is empty of opinion
The set-aside percentage is yours. It has to cover federal income tax, self-employment tax — the part that funds Social Security and Medicare, which an employer would otherwise split with you — and whatever your state and locality levy. That total depends on your profit, your filing status, your deductions, your state, and the structure of your business, and no honest default can be printed here.
Two practical routes to a number: divide last year's total tax by last year's profit, or ask whoever prepares your return what to set aside. The figure is applied to profit rather than to revenue on this page, which matters — deductible business expenses come off before the percentage is applied, so a business with real expenses pays less than the same revenue would suggest.
What a rate calculation cannot do
It produces a floor, not a price. A price is what a client will agree to, and it is set by the value of the work to them, by what the alternatives cost, and by how badly either side needs the deal. The floor is still worth knowing, because it is what tells you when to walk rather than negotiate.
If your floor lands far above the going rate in your market, that is information rather than an error: the market may not support a full-time living at your assumptions, and the response is usually higher output per hour, a different type of client, or a narrower speciality rather than a slow slide down in price. If it lands well below, you may be underpricing. For the same question from the other side of the table, employee total cost shows what an employer pays for an hour, and hourly value puts a figure on an hour of your own time.
Questions people ask
Is the tax percentage applied to revenue or to profit?
To profit — revenue after business expenses, and before the health insurance and retirement lines. That ordering matters, because it means deductible expenses reduce the tax figure rather than sitting on top of it. Two freelancers invoicing the same amount will need different rates if one has $20,000 of equipment and software costs and the other has almost none. Whether your particular expenses are deductible, and whether your premiums or retirement contributions get their own treatment, are questions for whoever prepares your return.
My calculated rate is far above what clients in my field pay. What now?
Check the two inputs that swing hardest first. Billable days is usually the culprit — 140 days and 220 days produce rates that differ by more than half. After that, the target take-home may be set at a level the market cannot fund at your current volume. If both are realistic and the gap remains, the calculation has told you something real: at that price, in that market, this does not clear as full-time work. The usual responses are to raise output per billed hour, move upmarket in client type, or narrow the speciality, all of which change the price rather than the arithmetic.
How should I handle a retainer or a long-term contract?
Convert it to a day rate and compare. A retainer of $6,000 a month for roughly eight days of work is $750 a day, which stands well against a $500 floor — but the comparison is only fair if the retainer really consumes eight days. Retainers tend to expand quietly, and reserved capacity you do not use still blocks other work. Track the actual days for two or three months, then divide again.
Should I quote by the day, the hour, or the project?
Whichever you quote, price it from the day rate. Hourly billing exposes you to scope creep in your favour but makes clients watch the clock; project pricing rewards you for working quickly and punishes you for underestimating. The protection that matters more than the pricing model is written scope: how many revision rounds are included, and what triggers a re-quote. A ten-day project that turns into fifteen has cut the rate by a third no matter which model produced the number.
Does this include paid time off?
Implicitly, through the billable days figure. There is no separate line for vacation because unpaid time off is not a cost you pay, it is revenue you do not earn — which is exactly what a lower billable-days count expresses. If you want four weeks off rather than two, drop the days by ten and watch the required day rate rise. That increase is the price of the extra fortnight.