How to calculate your hourly rate from salary
The formula is simple — but most people get it wrong because they use 52 weeks and 40 hours. In reality, you lose weeks to holidays, sick days, and admin. And not every working hour is billable.
Hourly Rate = Annual Income ÷ (Working Weeks × Hours per Week)
Example: You want to earn $100,000 per year. You work 48 weeks (4 weeks holiday) at 40 hours per week.
- Total working hours = 48 × 40 = 1,920 hours
- Hourly rate = $100,000 ÷ 1,920 = $52.08 / hr
But that’s your employment-equivalent rate. If you’re freelancing, you also need to cover overhead, taxes, and non-billable time — which can push the real number 30–50% higher.
Billable vs. non-billable hours — why it matters
Not every hour you work generates revenue. Emails, proposals, bookkeeping, marketing, client calls — these are real hours that never appear on an invoice.
Most freelancers are billable only 60–75% of their working time. If you price based on 100% billable hours, you’re undercharging by 25–40%.
The fix: calculate your rate using billable hours only, then verify the result against your overhead. See the full list of non-billable time sinks →
How to set your freelance rate
Your hourly rate is one input, not the whole answer. A sustainable freelance rate accounts for:
- Target income — what you want to take home after taxes
- Overhead — rent, software, insurance, accounting
- Non-billable time — admin, marketing, learning
- Taxes & benefits — self-employment tax, health insurance, retirement
- Profit margin — the buffer that makes your business sustainable, not just survivable
Once you have your hourly rate, use the full proposal pricing framework to build a quote that actually works.
