Most new freelancers pick a rate the way hungry people pick a restaurant: quickly, based on what’s nearby, and with some regret afterward.
If you’re building Side Income & Careers around freelance work, the price you set in your first month tends to stick for a long time, so it’s worth an hour of real math.
This guide covers a simple formula, a worked example, and the situations where charging by the hour stops making sense.
Why do so many freelancers undercharge?
Mostly because they compare their rate to a salary say you earned $25 an hour at a job and you quote $25 an hour as a freelancer.
That feels fair, but it leaves out a lot an employer pays for your sick days, your holidays, your software, and half of your payroll taxes.
A freelancer pays for all of that personally, out of the same hourly rate.
The second reason is fear a low price feels safer because fewer people will say no. I’d argue that’s a trap.
Very cheap clients often ask for the most revisions, and a rate that’s too low will push you into overwork or force you to quit the whole thing.
How do you calculate your freelance hourly rate?
Work backward from the income you want. Here is the order I’d follow:
- Decide how much you want to take home each year after taxes and expenses.
- Estimate your tax set-aside and divide your take-home by what’s left, if you plan to set aside 25% for taxes, divide by 0.75.
- Add your yearly business costs, such as software, equipment, a website, and insurance.
- Count the hours you can realistically bill in a year.
- Divide the total by those billable hours.
The fourth step is where most people go wrong nobody bills 40 hours a week.
Pitching, invoicing, emails, and learning new tools eat a big share of the week.
Many freelancers find that only half to two-thirds of their working hours can be charged to a client, though your own numbers may differ.
On taxes, a US-specific note: self-employed workers generally pay self-employment tax of 15.3% (12.4% for Social Security and 2.9% for Medicare) on top of regular income tax.
The 25% figure above is a rough placeholder I picked for the example, not a rule.
Your real number depends on your income, location, and deductions.
Other countries handle this differently, so check your local tax authority.
A worked example
Take Dana, a made-up copywriter who wants to take home $40,000 a year.
- Taxes at a rough 25%: $40,000 ÷ 0.75 = about $53,333.
- Business costs of $3,000 for software, a laptop fund, and a portfolio site: $56,333.
- Working weeks: she plans a month off and some holidays, so about 44 weeks.
- Billable time: 20 hours a week out of a 30-hour work week. That gives 44 × 20 = 880 billable hours.
- Rate: $56,333 ÷ 880 = about $64 per hour. She rounds to $65.
Compare that to the $25 an hour she might have guessed at $25, she’d bill $22,000 across those 880 hours, and after costs and taxes she’d take home well under $20,000 the math is what shows her the gap.
What if the number feels too high for your market?
Check it against what other people charge, but treat the result as a reality check, not a verdict.
Look at freelance job boards, public rate surveys from professional associations in your field, and the pay data in the US Bureau of Labor Statistics’ Occupational Outlook Handbook if you want a rough employee wage to compare against.
Remember that an employee wage is not the same as a freelance rate, for all the reasons covered above.
If your calculated rate sits far above what beginners in your field charge, you have three honest choices.
You can raise your value by specializing, for example writing for dental clinics instead of “any business.” You can lower your costs or take-home goal for now.
Or you can accept that you’ll need a few strong portfolio pieces before the full rate is realistic.
All three beat quietly underpricing and hoping it works out.
Side Income & Careers: Should you charge hourly or by project?
It depends on how predictable the work is hourly pricing suits tasks with unclear boundaries, such as ongoing support, consulting calls, or edits where the client keeps changing direction.
You get paid for every hour, so scope creep stops being your problem.
Project pricing suits work you’ve done before.
If a logo package or a 1,500-word article takes you about the same time on each job, a flat fee lets you earn more as you get faster. Clients also tend to like knowing the final cost up front.
Here’s how Dana prices a project.
A client wants a set of five product descriptions and a landing page.
She estimates 12 hours of work at $65 an hour, that’s $780.
She adds roughly 20% as a buffer for revisions and slow email replies which brings it to $936, and she quotes $950.
If the job goes smoothly, she’s paid well for it. If the client asks for extra rounds of changes, the buffer absorbs some of it, and her contract covers anything past two revision rounds.
There’s a hybrid that works well for side hustles
Quote a flat fee for a clearly defined deliverable and an hourly rate for anything outside it.
How should a beginner price the first few jobs?
Slightly below your target, with a clear reason attached. Offering a first-client rate of say 15% to 20% off while you build a portfolio is normal.
What matters is that you say it’s a starting rate, so the client doesn’t expect that number to last.
Avoid dropping to rock-bottom prices on bidding sites to win work.
It attracts buyers who shop only on cost, and it’s hard to climb out of afterward I’d rather see a beginner land two clients at a fair rate than ten at a rate that burns them out in a month.
Also write down the scope before any work starts: what’s included, how many revisions, when payment is due, and what happens if the project grows.
A one-page agreement protects your rate better than any negotiation trick.
When and how do you raise your rates?
Earlier than you think. A good signal is when you’re booked solid, or when you win nearly every pitch. If everyone says yes, you’re probably too cheap.
For new clients, just quote the higher number. Nothing complicated is required.
For existing clients, give notice, usually 30 to 60 days, and keep the message short.
Something like: Starting March 1, my rate will be $75 an hour. I’m happy to finish the current project at the old rate.
Most reasonable clients accept it, and a few might leave.
Losing the lowest-paying client often frees up time for better ones.
Review your numbers once a year. Costs go up, your skills improve, and your hours shift.
An annual rate check takes about an hour and is easy to schedule around a tax-filing date.
Sources and Accuracy Notes
- U.S. Internal Revenue Service (IRS): Self-employed individuals tax information and Schedule SE guidance covering self-employment tax and estimated tax payments.
- U.S. Bureau of Labor Statistics (BLS), Occupational Outlook Handbook: Employee wage data by occupation, which can be used as a general comparison point but should not be treated as equivalent to freelance rates.
- Professional associations: Depending on the field, professional associations may publish freelance rate surveys or pricing guidance.
The tax rates, billable-hour assumptions, project buffer, and introductory discount used in the article are illustrative examples rather than universal recommendations or industry averages.
Tax rules vary by country and individual circumstances.
Your next step
Open a spreadsheet and fill in the five steps from above with your own numbers, not Dana’s.
Then compare the result to two or three real job listings in your field.
If the gap is big, decide whether to specialize, trim your costs, or phase in your price over a few months.
Whether freelancing is your main plan or one piece of your wider Side Income & Careers mix, a rate built from your own math will hold up better than one copied from a stranger’s profile.
Disclaimer: This article is for general information and isn’t personalized financial, tax, or legal advice.
Tax rules differ by country and change over time, so talk to a licensed accountant or tax professional about your own situation.
