How the formula works
The calculator uses three steps:
- Billable hours per year = billable hours per week x working weeks per year.
- Gross revenue needed = (income target + benefits + business expenses) ÷ (1 − tax rate − retirement rate). Tax and retirement are treated as a share of your gross revenue, so the formula grosses your target up to what you must bill before they are taken.
- Hourly rate = gross revenue needed ÷ billable hours per year. The day rate is the hourly rate x 8.
If the tax and retirement percentages add up to 100% or more, or the hours are zero, no rate can be calculated and the tool says so instead of showing a number.
Because tax is applied to revenue rather than to profit, the result is slightly conservative for anyone whose expenses are tax deductible. The tax percentage is yours to set: the tool has no tax tables, so use the effective rate your accountant gives you.
Worked example
With the default inputs: an after-tax target of 80,000, expenses of 5,000, 25% set aside for tax, 10% for retirement, no benefits, 30 billable hours a week for 48 weeks.
Billable hours 30 x 48 = 1,440
Gross needed (80,000 + 0 + 5,000) / (1 - 0.25 - 0.10)
= 85,000 / 0.65 = 130,769.23
Tax provision 130,769.23 x 25% = 32,692.31
Retirement 130,769.23 x 10% = 13,076.92
Hourly rate 130,769.23 / 1,440 = 90.81
Day rate 90.81 x 8 = 726.50The rate is higher than an employee-style figure because 80,000 divided by 2,080 hours would give about 38.46 an hour, and it ignores tax, expenses and unpaid time.
Why not just divide a salary by 2,080?
Dividing a salary by 40 hours x 52 weeks leaves a freelancer short for several reasons: you do not bill every hour you work, because admin, proposals and client calls are unpaid; you do not work every week, because holidays and sick days are unpaid; you pay business costs an employer would normally cover; and in many countries you pay both the employee and the employer share of social contributions. The calculator makes each of these visible as an input you can change.
What to do with the result
Treat the answer as a floor, not a target. Many freelancers add a margin on top for slow months and growth, check what peers charge for similar work, and review the rate every year. If you price whole projects instead of hours, use the project quote calculator to turn a rate into a price.
Frequently asked questions
How many billable hours per week should I enter?
The default is 30, but it is an assumption, not a statistic. Track your own time for a few weeks: billable hours are usually well below the hours you work, because admin and selling are unpaid.
How many working weeks per year should I use?
The default is 48. Count the weeks you expect to take off for holidays, sickness and quiet periods and subtract them from 52. If you expect more time off, lower the number and the required rate rises.
What tax percentage should I enter?
Use the effective share of your gross revenue that goes to income tax and social contributions. The calculator does not know your country's rules, so ask an accountant or use your tax authority's own calculator to estimate it.
What counts as business expenses?
Typical items include software, equipment, insurance, accounting, training, workspace, travel and marketing. Add up the annual total. Which costs are tax deductible depends on your country.
Why is my rate higher than I expected?
Because the same income has to be earned in fewer billable hours and after costs an employee does not carry. With the default inputs the rate is about 90.81 an hour for an 80,000 after-tax target. Change the inputs to see which one moves the result most.
Can I use it for a day rate?
Yes. The result shows a day rate based on an 8-hour day. If your working day is a different length, multiply the hourly rate by your own number of hours.