Why an employee hourly rate is not a freelance rate
An employee can calculate an hourly equivalent from their salary, but that does not mean a freelancer charging the same hourly rate would be equally well off.
Employment commonly includes paid holiday, employer pension contributions and periods of work that remain paid even when they are not directly generating revenue.
A freelancer normally has to fund those things from their own revenue.
Start with the annual income you want to replace
A useful starting point is deciding how much annual value you want your freelance work to generate.
If you currently earn £50,000, simply targeting £50,000 of freelance revenue may not fully replace the value of employment, particularly if your employer also contributes to your pension.
Work out your realistic billable hours
One of the biggest mistakes when setting a freelance rate is assuming every working hour can be invoiced.
Freelancers spend time on administration, emails, meetings, quotes, invoicing, marketing and finding future work. You will probably also want holidays and may experience gaps between clients.
- Holiday and time off
- Administration
- Sales and quoting
- Bookkeeping and invoicing
- Training and professional development
- Gaps between projects
Calculate your break-even hourly rate
Once you have an annual target and a realistic estimate of billable hours, divide the target by those hours.
Break-even is not necessarily your quoted rate
The break-even rate tells you what the numbers require under your assumptions. It does not necessarily tell you what clients should be charged.
Your commercial rate can also reflect your experience, demand, specialist knowledge, expenses, business risk and the value of the work to the client.
Other costs freelancers may need to cover
- Professional insurance
- Software and subscriptions
- Equipment
- Accountancy costs
- Pension contributions
- Training
- Unpaid sick leave
- Time between contracts or clients
Hourly rate versus project pricing
An hourly rate is useful for understanding your minimum economics even if you ultimately charge by the day, project or retainer.
Knowing your underlying hourly requirement makes it easier to judge whether a fixed-price piece of work is actually worthwhile.
Find your break-even freelance rate
Enter your current salary and the number of hours you realistically expect to bill to see the freelance rate needed to match your employment package.
Calculate my break-even rateWorkSmart Money provides calculators and educational content to help make work and money decisions easier to understand. Figures and examples are illustrative and should not be treated as personal financial advice.