Start from the costs, not from the courage
- Write the month's real costs: rent or mortgage share, food, transport, phone, internet, software subscriptions, insurance, tax you will owe.
- Add the business costs freelancers forget: the laptop amortized over three years, the software, the bank fees, the quiet months you must survive.
- Add a line for savings, because a freelancer with no buffer prices the next project from desperation, and desperation prices badly.
- That total is the number the business must produce every month before you have earned a single nice-to-have.
The billable-hours truth
- A working year is about 230 weekdays before holidays and illness; call it 200 to be safe.
- Of a working day, selling, admin, invoicing and learning eat a large share; most solo freelancers can honestly bill around half to sixty percent of their hours.
- Two hundred days at five billable hours is a thousand billable hours a year, eighty-odd a month - not the one hundred and sixty that a naive calculation assumes.
- Every hour you cannot bill still has to be paid for by the hours you can. That is the whole reason the naive rate is always too low.
Run the numbers, once a year
- Add up the monthly costs, including tax and the quiet-month buffer.
- Divide by your realistic billable hours per month - the honest sixty percent, not the fantasy.
- Round up, not to the nearest ten but to the nearest step that makes quoting simple.
- Write the number down and use it as your floor: every quote's arithmetic starts from it, and discounts come out of scope, never out of the rate.
- Rerun it every year, or whenever a cost line moves. A rate set once in 2019 is a rate quietly losing money.
What to do with the number
- Use it to sanity-check fixed prices: a project price divided by its real hours should sit above your floor rate, not below it.
- Watch the gap between your floor and what the market pays; if clients accept instantly and always, the market may be telling you something.
- Raise rates on new clients first - the ones who never knew the old number - and give existing clients a fair warning and a date.
- Keep the arithmetic. When a client asks why your rate is your rate, the answer is a short story about costs and hours, and it is a good story.
The free tool for this
What an hour has to cost to pay you - What an hour has to cost to pay you. It runs in the page, asks for your own numbers, and sends nothing anywhere.
If you would rather not build it yourself
The Calculator Pack keeps this as the rate check: costs and hours in, floor rate out, with the arithmetic visible on the page. Calculator Pack is $12. See it on the shop, and there is a plain page about it here: what it holds.
Questions people actually ask
What if the number comes out higher than anyone will pay?
Then the arithmetic has found a business problem before the bank did: your costs are too high for your market, or your market is too cheap for your life. The fix is changing one of those two, not discounting the math.
Hourly rate or project rate?
Work out the hourly rate first, always - it is the unit everything else prices from. Then quote projects from it: phases, hours, buffer, total. The client sees a project price; you see arithmetic that clears your floor.
Read next
What a sale actually leaves behind: fees, tax, the real number, How to find your break-even as a one-person business.