Direct answer
A defensible freelance-rate plan starts with the annual revenue the business must generate, then divides that revenue by realistic billable hours. It should not divide a desired salary by every hour in the year, because freelancers normally fund business costs, unpaid time and their own tax or social-contribution reserve.
The calculation sequence
Pre-reserve owner income = take-home target ÷ (1 − reserve rate)Required revenue = (pre-reserve owner income + business costs) ÷ (1 − contingency margin)Billable hours = working weeks × days per week × hours per day × billable utilisationHourly rate = required revenue ÷ billable hoursThe reserve and margin must each remain below 100%. The reserve is a planning allowance, not a statutory tax calculation. The margin is treated as a share of final revenue, which is why the model divides by one minus the margin rate.
Example
Assume a 40,000 personal take-home target, a 25% reserve, 10,000 of annual business costs, a 10% contingency margin, 46 working weeks, five days per week, 7.5 hours per day and 70% billable utilisation.
| Step | Calculation | Result |
|---|---|---|
| Pre-reserve owner income | 40,000 ÷ 0.75 | 53,333.33 |
| Revenue before margin | 53,333.33 + 10,000 | 63,333.33 |
| Required annual revenue | 63,333.33 ÷ 0.90 | 70,370.37 |
| Billable hours | 46 × 5 × 7.5 × 70% | 1,207.5 |
| Hourly rate | 70,370.37 ÷ 1,207.5 | 58.28 |
| Day rate | 58.28 × 7.5 | 437.08 |
Billable-utilisation sensitivity
Utilisation is one of the most influential assumptions because the annual revenue target is spread across fewer or more chargeable hours.
| Billable utilisation | Billable hours | Hourly rate | 7.5-hour day rate |
|---|---|---|---|
| 60% | 1,035.0 | 67.99 | 509.93 |
| 70% | 1,207.5 | 58.28 | 437.08 |
| 80% | 1,380.0 | 50.99 | 382.45 |
A lower utilisation assumption is more conservative. It recognises that not every working hour can be invoiced.
Business costs to consider
| Category | Examples | Planning note |
|---|---|---|
| Software and subscriptions | Cloud services, licences, communications | Use annual totals, including renewals |
| Insurance and professional fees | Liability cover, accountancy, legal advice | Eligibility for tax deductions varies |
| Equipment and office | Computers, tools, furniture, consumables | Separate recurring costs from replacement reserves |
| Marketing and administration | Website, advertising, banking, invoicing | Include non-billable delivery time separately through utilisation |
| Travel, workspace and delivery | Transport, coworking, postage, subcontractors | Do not assume every cost can be passed directly to clients |
Gross salary is not freelance revenue
An employee salary is normally only one component of the employer’s total cost and is not the same as personal take-home pay. Freelance revenue may need to cover unpaid leave, sickness, pension provision, insurance, equipment, professional costs and periods without client work. A linked salary calculator can provide context, but it should not automatically become the take-home target.
Limitations
- The model does not calculate income tax, social contributions, VAT/GST or corporation tax.
- It does not determine whether an expense is deductible.
- It assumes the same revenue requirement across the year and does not model seasonal cash flow.
- It does not price intellectual property, rush work, scope risk, usage rights or client concentration.
- The result is a planning floor, not a guarantee that the market will accept the rate.