Pricing your time is hard, and most new freelancers set rates by guessing what others charge. A better way is to work backwards from what you need. This guide gives you a simple formula with a worked example. The figures are illustrative, so use your own numbers.
Step 1: decide what you need to take home
Start with the money you want in your pocket after tax, for example £40,000 a year.
Step 2: add your tax
Work out the income tax and National Insurance on that profit. Use our self-employed tax calculator to find the profit you need before tax. For example, to take home £40,000 you might need profit of about £50,000.
Step 3: add your business costs
Add software, equipment, insurance, accountancy, marketing and a co-working or home office share. Say £6,000 a year. Your target revenue is now £56,000.
Step 4: work out your billable hours
You will not bill every working hour. Start with 52 weeks and subtract holiday, bank holidays and sickness, for example 8 weeks. That leaves 44 working weeks. At 40 hours that is 1,760 hours, but a lot of that time goes on admin, sales and learning. If only 60% of your time is billable, you have about 1,056 billable hours.
Step 5: calculate the rate
£56,000 divided by 1,056 hours gives about £53 an hour, or about £425 for an eight-hour day. Add a buffer for slow periods and bad debts, perhaps 10%, and the figure becomes about £58 an hour.
Check the market
Compare your number with what clients pay for similar work. If the market rate is far lower, you may need to cut costs or find higher-value clients. If it is higher, you can charge more than your minimum.
Alternatives to hourly pricing
- Day rates: simple for contract work.
- Fixed price per project: rewards you for being efficient. Scope it carefully.
- Monthly retainers: steady income for ongoing work.
- Value pricing: charge according to the result for the client.
Review your rate
Revisit your price every six to twelve months. Costs and tax change, and your skills improve.
Get your quote right
A clear quote and a proper invoice help you get paid what you agreed.
How AvrioBooks helps
Track your income, costs and profit all year so you know whether your rate is working. See AvrioBooks for freelancers.
Frequently asked questions
How do I work out my hourly rate?
Start with the take-home pay you want, add tax and business costs to get your target revenue, then divide by your realistic billable hours.
How many hours can I bill in a year?
Fewer than you think. After holidays, sickness and time spent on admin and sales, many freelancers bill about 50 to 65% of their working hours.
Should I charge hourly or per project?
Hourly is simple. Fixed prices and retainers can reward efficiency and give steadier income, but need careful scoping.
How often should I review my rate?
Every six to twelve months, because your costs, tax and skills change.
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