How to Set Your Hourly Rate as a Freelancer (Without Guessing)
Ask ten freelancers how they arrived at their hourly rate and at least eight will describe some version of guessing. They picked a number that sounded plausible, or copied what a colleague charges, or took their old salary and divided it by the hours in a working year. Then they spent the next two years wondering why a fully booked diary still felt tight at the end of the month.
The good news is that a defensible hourly rate is just arithmetic, and there isn't much of it. The hard part is being honest about the numbers you feed in, particularly how many hours you'll really bill. It's written for UK freelancers and contractors, but the method travels.
Why you can't just divide a salary by 2,080
The most common mistake is treating a freelance hour like an employed hour. An employee on £50,000 works roughly 2,080 hours a year (40 hours by 52 weeks), which looks like £24 an hour. So the new freelancer charges £30, feels generous about it, and has quietly signed up for a pay cut.
The employed £24 comes with things the freelance £30 doesn't: paid holiday, sick pay, employer pension contributions, a laptop, software licences, training, insurance, and a salesperson (the company) keeping the work flowing. As a freelancer you fund all of that yourself, out of the same hourly rate.
The deeper problem is the 2,080. Nobody bills 40 hours a week, 52 weeks a year. Real weeks contain proposals, invoicing, bookkeeping, emails, calls that turn into nothing, and the marketing that keeps next quarter alive. None of it is billable, and all of it is work. The share of your time that clients actually pay for is your utilisation rate, and for most freelancers it sits between 50% and 70%, not 100%. Your rate has to carry the whole week on the back of the billable part.
How to set your hourly rate in six steps
1. Set your target annual income
Start from the end: the gross income you want the business to pay you this year. Not a fantasy number and not a survival number, but the figure that covers your life, your tax bill and some saving. If you're leaving employment, your old salary plus 10 to 20% is a reasonable first target, because some of the value you used to receive as benefits now has to arrive as cash. For the worked example, let's say £50,000.
2. Add your business costs
List what it costs to be in business for a year before you pay yourself anything: hardware and its replacement cycle, software subscriptions, insurance, an accountant, your pension contributions, co-working or office costs, training, and travel you can't bill on. For a typical desk-based freelancer this lands somewhere between £3,000 and £8,000 a year. Call it £5,000 for the example, which brings the total the business must bring in to £55,000.
3. Count your real billable hours
This is the step that separates a rate that works from a rate that looks fine in January and hurts by June. Start with 52 weeks and take away holiday (say 5 weeks, because you're allowed a life), bank holidays and sick days (call it 1 week), and time on training and admin-heavy patches between projects (1 week). That leaves about 45 working weeks.
Then be honest about the week itself. Of a 40-hour week, how many hours will a client actually pay for once the pipeline, paperwork and dead ends have taken their share? For most people 25 billable hours a week is a realistic, even slightly optimistic, figure. That gives you 45 weeks × 25 hours = 1,125 billable hours a year. If you've been tracking your time, use your own number here instead; a few months of honest timesheets beats any rule of thumb.
4. Do the division
Divide the money by the hours: £55,000 ÷ 1,125 = £48.89. Round to a number you can say out loud without apologising, so £50 an hour. That's the rate at which a normal, sustainable year (with holidays, admin and the odd quiet fortnight) actually delivers the income you set out to earn. Anything below it isn't modesty, it's an unplanned discount.
5. Sense-check it against the market
Now, and only now, look outward. Check day-rate benchmarks for your field, rate surveys, job boards, and what agencies quote for your kind of work. You're looking for a sanity band, not a target. If your calculated rate sits comfortably inside it, done. If the market rate is far above your number, put your rate up; the maths only told you your minimum, not your worth. If the market seems well below, the answer is rarely "charge less than it costs to exist" but rather a different niche, a sharper offer, or clients who buy outcomes instead of hours.
6. Review it every six months, with data
A rate isn't a tattoo. Put a date in the diary twice a year to re-run the sums with real numbers: the hours you actually billed, what your utilisation really was, what your costs really came to. This is where tracked time quietly earns its keep, because the review takes ten minutes when the data already exists. VibaCloud's time tracking reports show your billable and non-billable split and the value of your weeks over time, so questions like "what am I actually earning per working hour?" have answers instead of vibes.
The worked example in one place
- Target income: £50,000. Business costs: £5,000. The business must earn: £55,000.
- 52 weeks, minus 5 holiday, 1 sick and bank holidays, 1 training and admin: 45 working weeks.
- Realistic billable hours per week: 25, so 45 × 25 = 1,125 billable hours a year.
- £55,000 ÷ 1,125 = £48.89, rounded to £50 an hour.
Swap in your own income target, costs and hours and the same four lines produce your number. If the result makes you flinch, remember what it includes: your holidays, your pension, your kit, your quiet weeks and your tax bill. The employed person earning "less" per hour is having all of that paid for by someone else.
Hourly rate, day rate or fixed price?
The hourly figure is your foundation, but you don't have to sell in hours. A day rate is just your hourly rate times a sensible day (7 or 7.5 hours, so £350 to £375 in the example) and suits longer engagements where counting minutes would annoy everyone. Fixed prices suit well-defined deliverables, and the only safe way to set one is hours estimated times your hourly rate, plus a margin for the surprises every project contains.
Whichever way you sell, keep tracking the hours underneath. A fixed-price project that ate 60 hours instead of 35 only teaches you something if the 60 got recorded, and a day-rate engagement still needs a timesheet behind it when the client asks what the days were spent on. Your effective hourly rate (what you actually earned divided by what you actually worked) is the single most useful number in your business, and it only exists if the hours do.
When (and how) to raise your rate
The signals are usually obvious in the data before they're comfortable in conversation. You're booked solid for weeks ahead. You're turning good work away. Nobody has pushed back on a quote in months (if every quote lands without a flicker, you're underpriced). Your skills or results have visibly moved on since you set the number. Or the rate simply hasn't changed in two years while everything you buy has.
Raising it is easier than the dread suggests. Quote the new rate to every new client from today; they have no anchor, and the awkwardness exists only in your head. For existing clients, give notice ("from 1 September my rate moves from £50 to £58") a month or two ahead, tied to a natural boundary like a new project or contract renewal. Most will nod. A client who leaves over a fair increase was a discount arrangement, not a relationship, and the capacity they release usually re-fills at the new rate. If you invoice from tracked time, the change is one field: in VibaCloud the rate lives on the project, new work picks it up automatically, and weeks you already submitted keep the rate they were worked at, which is exactly what a client auditing an old invoice expects.
Common rate-setting mistakes
- Dividing a salary by 2,080 hours and calling it a rate. It ignores every cost of being in business and every unbillable hour.
- Assuming 100% utilisation. Admin, sales and empty patches are part of the job; price them in or work for free.
- Copying someone else's rate without their costs, niche or pipeline. Their number answers their equation.
- Competing on cheapness. There's always someone cheaper, and the clients who choose on price alone leave on price alone.
- Never reviewing. A rate set in 2023 and untouched since is a standing discount that grows every year.
- Guessing your utilisation instead of measuring it. Track a month honestly and use the real figure.
- Discounting quietly by not billing time you worked. Untracked hours are the most common rate cut of all, and nobody even thanked you for it.
Key takeaways
- A freelance rate must fund the whole year (holidays, costs, pension, quiet weeks) from only the billable hours in it.
- Work backwards: target income plus costs, divided by realistic billable hours. Most freelancers bill 50 to 70% of their time.
- A worked example: £55,000 needed ÷ 1,125 billable hours ≈ £50 an hour.
- Use the market to sense-check the number, not to replace the maths. The calculation is your floor.
- Day rates and fixed prices are packaging; keep tracking hours underneath so you know your effective rate.
- Review twice a year with real tracked data, raise with notice at natural boundaries, and quote new clients the new rate immediately.
Frequently asked questions
What is a good hourly rate for a freelancer?
There's no single figure: rates run from around £25 an hour for early-career generalist work to £100+ for specialist consulting. The dependable answer is the one you calculate: target income plus business costs, divided by the billable hours you can realistically sell in a year, then sense-checked against benchmarks for your field and experience.
How do I convert my old salary into a freelance rate?
Don't divide the salary by 2,080 hours; that prices you as an employee without the benefits. A better starting point is to add 10 to 20% to the salary for the benefits you now buy yourself, add your business costs, and divide by realistic billable hours (typically 1,000 to 1,300 a year). For most people that lands between 1.5 and 2 times the employed hourly figure.
What utilisation rate should I assume?
If you have no data yet, 60% of a 40-hour week (about 25 billable hours) is a sensible planning figure; 50% is safer if you do a lot of your own marketing and admin. Then track a real month or two and replace the assumption with your own number. Most freelancers who measure it for the first time find it lower than they'd guessed.
Should I charge different clients different rates?
Different kinds of work can carry different rates, and in most tools (VibaCloud included) the rate belongs to the project, so this is easy to manage honestly. What ages badly is charging two clients different prices for identical work; freelance circles are smaller than they look, and rate gossip travels.
Is a day rate better than an hourly rate?
For engagements measured in weeks, usually yes: a day rate (your hourly rate times a 7 or 7.5 hour day) is simpler to quote, invoice and budget for. Keep recording the actual hours underneath it though, both to answer client questions and to know your effective hourly rate when the engagement runs long.
How much notice should I give before raising my rate?
A month or two for existing clients, in writing, ideally tied to a natural boundary such as a new project, a new calendar year or a contract renewal. New clients simply get quoted the new rate. Annual small increases are far easier for everyone than a 30% correction after three static years.
