How to Set Your Freelance Rate for the First Time
Picking a number out of thin air is how most freelancers start. Here’s a better way — one that actually covers your costs and leaves room for profit.
Why most freelancers start too low
The first freelance rate you set is almost always wrong. Not because you’re bad at math — because you’re solving the wrong equation.
Most new freelancers pick a rate by looking at what employees earn in the same role and dividing by hours. A $60,000 salary becomes $30/hour. Sounds reasonable. It isn’t.
An employee earning $60,000 gets paid for every hour they work — including meetings, sick days, and the hours spent waiting for the next task. A freelancer gets paid only for billable hours. And billable hours are never 40 per week.
On top of that, employees don’t pay for their own software, insurance, accounting, or office space. A freelancer does. That $30/hour rate, once you subtract all the costs an employer normally covers, might leave you with $15 of actual income.
The minimum viable rate
Before you think about what the market will pay, figure out what you need to earn. This is your minimum viable rate — the floor below which freelancing doesn’t make financial sense.
Start with your annual target income. Not your dream salary — the realistic number you need to cover rent, food, savings, and taxes. Say that’s $60,000.
If you work 48 weeks a year (4 weeks off) and bill 25 hours per week (realistic, not optimistic), that’s 1,200 billable hours. $60,000 ÷ 1,200 = $50/hour minimum.
That’s already $20 higher than the naive $30/hour calculation. And we haven’t added overhead yet. Use the hourly rate calculator to run your own numbers.
Factor in non-billable hours
Here’s where most rate calculators stop — and where reality kicks in. Not every working hour is billable. You spend time on:
• Prospecting and sales conversations
• Writing proposals and follow-ups
• Invoicing and bookkeeping
• Email and project management
• Learning new tools and skills
• Marketing and social media
For most solo freelancers, only 50–65% of working hours are billable. If you work 40 hours a week, expect to bill 20–26 of them. The rest is the cost of running a one-person business.
This is why the “salary ÷ 2080 hours” formula is dangerous. You’re not billing 2,080 hours a year. You’re billing 1,000–1,350. Your rate needs to reflect that.
Don’t forget overhead
Overhead is every fixed cost your business carries regardless of how many projects you have: software subscriptions, insurance, accounting, phone plan, internet, coworking space, hardware depreciation.
Add up your monthly overhead. Multiply by 12. Divide by your annual billable hours. That’s how much each billable hour needs to contribute toward keeping the lights on.
Example: $800/month overhead × 12 = $9,600/year. Divided by 1,200 billable hours = $8/hour in overhead. Your $50 minimum rate is now $58.
Want to go deeper? The business overhead guide walks through every category with a calculator.
Hourly vs. project-based pricing
Once you know your hourly floor, you have a decision: charge by the hour, or charge by the project.
Hourly pricing is simple and transparent. The client pays for time spent. The risk is that you get punished for being fast — if you finish in 10 hours what you quoted for 20, you earn half. It also creates an awkward dynamic where the client watches the clock.
Project-based pricing flips the incentive. You quote a fixed fee based on the deliverables, and efficiency becomes your advantage. The risk shifts to you — if the project takes longer than expected, your effective rate drops.
The solution? Use your hourly rate to calculate the project fee internally, then add your contingency buffer and profit margin. The client sees a clean project price. You see a rate that works.
This is exactly what the proposal pricing formula does: base cost + overhead + hidden costs + buffer + margin = your number.
When to raise your rate
If you’re booked solid for more than 2–3 months in a row, your rate is too low. The market is telling you it would pay more — you’re just not asking.
Raise your rate for new clients first. Existing clients can get a grace period or a smaller increase with advance notice. Most will stay. The ones who leave over a 10–15% increase were probably your least profitable clients anyway.
Other signals it’s time to raise your rate:
• You haven’t raised it in 12+ months (inflation alone justifies an increase)
• Your skills have improved significantly
• You’re consistently delivering more value than you charge for
• You dread saying yes to new projects at the current price
Pricing isn’t a one-time decision. It’s a practice. Review your rate every 6 months, compare it to your actual effective rate (revenue ÷ hours worked), and adjust.
There’s no universal answer — it depends on your target income, billable hours, and overhead. Use the hourly rate calculator to find your personal floor. As a rough guide, your freelance rate should be 2–3x what you’d earn as an hourly employee in the same role.
Slightly lower than market rate is fine while building a portfolio — but never below your minimum viable rate. Undercharging attracts price-sensitive clients who are harder to work with and harder to raise rates on later.
Three signs: you’re always booked (demand exceeds supply), you feel resentful about the work (you’re undervalued), or your effective hourly rate (actual income ÷ actual hours) is lower than what you’d earn employed. Any of those means it’s time to raise.
Project-based pricing is generally better for experienced freelancers — it rewards efficiency and gives clients cost certainty. But calculate your fee using your hourly rate internally, then add overhead, contingency, and margin.