If you’re a freelancer, chances are you’ve struggled at some point with calculating an hourly rate for your services. The internal battle between whether you’re overcharging or undercharging can be a challenge, especially when imposter syndrome comes into play.
As a freelancer, you’re also opened to a world of possibilities and flexibility when it comes to your daily routines. While this can offer so many opportunities, it also places a lot of ownership on you to schedule in downtime for yourself as well. You might have goals for how much you want to make in a year, a salary, for all intents and purposes, but how do you get there and how do you factor in things like vacation time?
For a long time, especially in the early stages of running a business, I struggled with calculating an hourly rate for the services I offered. After a year of making best guesses and trying to calculate my worth on hunches and comparisons, I finally learned a formula that helped put everything into perspective for me.
This formula for calculating my hourly rate has been a lifesaver and I truly think its so essential to any freelancer looking to establish standard rates for their services. Its something I’ve referred back to over the years and has really helped me to scale my business, setting goals for myself of where I want to be and working backwards to figure out what I need to do to get there. I hope it’s something you find helpful too.
Calculating Your Hourly Rate as a Freelancer
Before you begin to determine your hourly rate, there are a few things you need to consider. What is your ideal annual income after you’ve paid your taxes? How many weeks of “paid” vacation time do you want to have each year? These two numbers are the first steps to calculating your hourly rate.
Step One: Calculate Your Total Annual Income
The first step is to calculate your total annual income. For the purposes of this formula, consider this number to be the total amount of money you will make before you pay your taxes.
Ideal Annual Income + 20% Tax* = Total Annual Income
If you want to make $70,000.00 each year after taxes, your calculation would look like this:
$70,000.00 + 20% Tax = $84,000.00
*Note, in my example I use 20% as my “tax” amount aka the amount of money earned that I generally set aside to pay my taxes at the end of the year as a Canadian-owned business. While this number has worked well for me, it’s important to research the standards in your country or talk to an accountant to figure out what works right for you.
Step Two: Calculate Your Total Work Weeks
The second step is to calculate how many weeks of the year you’re planning to actually be working. It’s so important to add scheduled downtime into your routine to avoid burnout and thinking about things like this ahead of time is key to making sure you don’t lose income while taking time away to recharge.
52 Total Weeks In The Year – # of Vacation Weeks Each Year = Total Work Weeks
52 – 4 Vacation Weeks = 48 Work Weeks
Step Three: Calculate Your Weekly Income
The third step is to start reducing your Total Annual Income into smaller chunks of time. Let’s start with weekly.
Total Income ÷ Total Work Weeks = Weekly Income
$84,000.00 ÷ 48 working weeks = $1,750.00 weekly
Step Four: Calculate Your Daily Income
Now, just take your reductions one step further. Let’s find your daily rate.
Weekly Income ÷ # of Working Days Per Week = Daily Income
$1,750.00 ÷ 5 work days per week = $350.00 daily
Step Five: Calculate Your Hourly Rate
Now you’re at the final step and nearly have your ideal hourly rate! Here’s the last calculation.
Daily Income ÷ # of Work Hours Per Day = Hourly Rate
$350.00 ÷ 8 hours per day = $43.75 per hour
And there you have it! After following the steps above, you’re able to calculate your ideal hourly rate. In our example, we’re able to see that in order to make $70,000.00 a year after taxes and with four weeks of paid vacation, a freelancer would need to be charging $43.75 per hour if they’re planning to work a traditional work week of five days per week and eight hours per day.
Did you find this helpful? I’d love to hear your feedback and if you found this formula easy to follow! If you found it useful, I created a simple graphic below that walks you through the steps and is easy to refer back to. Feel free to save it or share it on socials and tag me when you do (@coldteasocial) so I can follow along with your freelancing journey as well!
Curious about some of the other tricks and lessons I’ve learned after a few years as a full-time freelancer? I wrote about some of the things I learned in my first year of freelancing earlier last year. You can check out that blog post here: A Few Things I Learned In My First Year of Freelancing
Good luck and don’t be shy! Let me know how things go in the comments or send me a message on Instagram if you have any questions or just want to say hi!