How many billable hours should I plan for per year?

Most freelancers and consultants bill 50–65% of their available work time. A 40-hour week × 50 weeks = 2,000 hours total, but only 1,000–1,300 are realistically billable after admin, sales, professional development, and vacation. Using 2,000 billable hours will drastically underprice your work. Start with 1,200 billable hours as a conservative estimate.

Should I charge more than my competitors?

Not necessarily less, and often yes. Premium pricing signals quality and attracts clients who value results over cost. Competing on price is a race to the bottom. Better differentiation points: faster delivery, deeper expertise in a niche, stronger track record, better communication. Clients who hire on price alone are typically the most demanding and least profitable.

What costs should I include in my hourly rate calculation?

Business costs: software subscriptions, equipment depreciation, insurance, professional development, accounting fees, marketing, and a portion of home office if applicable. Personal costs: salary or draw, health insurance, retirement contributions (freelancers pay these out of pocket), and self-employment tax (15.3% on net earnings). Missing any of these leads to a rate that looks profitable but isn't.

Pricing & Invoice Calculator

Most freelancers underprice by 30–40% because they forget self-employment taxes, non-billable hours, and business overhead. Use this calculator to find the rate that actually covers your costs and hits your target profit margin — for hourly work or fixed-price projects.

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Calculate by:

Your Costs & Target

Total Cost Per Hour

Salary + taxes + benefits + overhead ÷ billable hours

Target Profit Margin

Monthly Billable Hours

Realistic billable hours (not total work hours)

How This Calculator Works

Hourly mode: Enter your cost per hour (all costs divided by billable hours) and your target margin. The calculator computes: Rate = Cost ÷ (1 − Margin%). At a $50/hr cost and 25% margin, you need $66.67/hr to hit your target.

Project mode: Enter your total project costs and target margin. The calculator computes: Project Price = Costs ÷ (1 − Margin%). Add your estimated hours to see your effective hourly rate, which helps you check whether the project is worth taking.

The cost-profit breakdown chart shows what portion of your price covers costs versus what you keep as profit. A healthy business keeps at least 20–25 cents of every dollar billed.

How to Calculate Your Real Cost Per Hour

Most freelancers dramatically underestimate their cost per hour. Here's the full picture:

Step 1: Annual business costs
Software tools, hardware depreciation, insurance, accounting, marketing, professional development, home office.

Step 2: Annual personal costs
Your desired salary or draw, self-employment tax (15.3% on net earnings), health insurance premiums, retirement contributions.

Step 3: Realistic billable hours
52 weeks × 40 hrs = 2,080 total hours. Subtract: 10 days vacation (80 hrs), 5 sick days (40 hrs), 8 holidays (64 hrs), 30% non-billable time (admin, sales, professional development) = approximately 1,260 billable hours/year, or 105/month.

Step 4: Cost per hour
(Annual business costs + Annual personal costs) ÷ Billable hours. Add your target margin and you have your rate.

Frequently Asked Questions

How do I calculate my hourly rate as a freelancer?

Total annual costs (business + personal + taxes) ÷ realistic billable hours (typically 1,000–1,300/year) = break-even rate. Add your target margin. Most freelancers bill only 50–65% of available hours, so using 2,000 hours underprices your work by 35–50%.

What is a good profit margin for a service business?

15–25% net profit margin is healthy for most service businesses. Consultants and professional services often target 20–35%. Margins below 10% leave little buffer for slow months, scope creep, or unexpected costs.

How do I price a project instead of billing hourly?

Estimate total project costs (labor at your effective rate + materials + overhead). Add your margin. Add a 10–20% buffer for scope creep and revisions. Check against market rates — if clients expect to pay more, charge more. Project pricing rewards efficiency: if you finish in 20 hours instead of 40, you keep the difference.

What costs am I probably forgetting?

Self-employment tax (15.3%), health insurance (often $300–700/mo for a family), retirement contributions, professional development, time spent on admin and sales (not billable), software and equipment depreciation, and quiet months between clients.

Related Calculators

Profit Margin Calculator Self-Employment Tax Markup & Margin

Estimates only. These results are based on publicly available data and standard formulas. Actual costs may vary based on your specific circumstances. This calculator does not constitute financial, tax, or legal advice. Consult a qualified professional for advice on your situation.

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