You love being your own boss and you love the freedom that being a freelancer brings, but you probably have the question in the back of your mind – what should I be charging my clients? Give me 60 seconds and I’ll teach you how to calculate your hourly rate as a freelancer.
How much money will you make as a freelancer?
If this was your only job, how much would you like to make per year?
Confidently charge what you NEED per hour
Download my FREE step-by-step worksheet
The formula to calculate your hourly rate as a freelancer
Divide your desired annual salary by 40 hours a week, then divide by 52 weeks a year, and multiply it by 2.5 for overhead.
For example:
You aim to make $100,000 per year / 40 hours a week / 52 weeks in a year X 2.5 = $120.19
You would then charge $120.19 per hour
WARNING: This formula assumes you will take no vacation. If you plan on taking a vacation (or two!), then simply subtract the number of vacation week(s) from 52 and use that new number.
What about holidays or if you get sick? Instead of dividing by 52, use the amount of weeks you plan on working. In my experience, anywhere between 46-48 weeks of actual, billable work is possible in any given year. Between holidays, non-holidays that are rather slow (like the day after Thanksgiving or New Year’s Eve), and any sick time you might take, 46-48 weeks might be the number you consider using.
How do freelancers calculate their overhead?
Also, why do I have you multiply by 2.5 for overhead? Here’s why, time worked – does not equal the time you can actually bill to clients. There’s a lot of non-billable time that we refer to as overhead. This includes travel, administration, billing, and business development (you know, that whole “getting clients” thing that we need to do). 🙂
Overhead can be calculated by a formula called utilization. 2.5 times assumes that out of every 40 hours worked, you’re billing 16 of them. That’s called 40% utilization (16 hours billed divided into 40 hours worked = 40%). If you’re able to increase that number, this will drastically increase your earnings as well. As an example, just turning 4 overhead hours into 4 billable hours each week pushes your utilization to 50% (20 hours billed divided into 40 hours worked = 50%). Then, you could change the formula I gave you to multiply by 2 instead of 2.5 .
Questions about this formula? I’d love to answer them. Just let me know in the comments section below.
Loved your whiteboard video! Great idea! Good information to factor in when deciding what to charge clients. Thanks for sharing Spence!
Thanks so much, Barbara! Yep, that whole “overhead” thing really tripped me up when I started consulting back in 2002. Figured I’d better share my mistake 🙂