How to Calculate Your Real Hourly Rate as a Freelancer
Take a freelance designer and call her Dana. She's made up, but her month is ordinary. Four clients each pay a $2,400 invoice on time. That's $9,600 collected before payment processing fees. She logged 80 billable hours, which puts her rate at $120 an hour, a number she'll feel good about for roughly a minute. Then she counts the rest of the month. Proposals, invoicing, client calls, revisions.…
Dana, a freelance designer, made $9,600 in one month from four clients. However, once her business costs and unpaid hours were factored in, her real hourly rate decreased from $120 to $64.
To calculate your real hourly rate, subtract your business costs from the money received, then divide by all the hours you worked. This includes both billable hours and unpaid time working on proposals, invoicing, client calls, revisions, and other tasks.
Consider all costs, such as tools, payment fees, workspace, and equipment. Don't forget unpaid hours, which can significantly impact your hourly rate. For example, Dana's 36 unpaid hours brought her rate down to $64.
Some unpaid hours may be essential, like proposal writing, invoicing, and client communication. It's crucial to track and account for all time spent running your business.
Self-employment tax, based on 15.3% of your net earnings, can also affect your hourly rate. This tax is separate from income tax, which depends on your state and tax bracket.
When setting your rates, consider the time spent on unpaid tasks and the potential impact of unpaid hours on your overall earnings. Adjusting your rates or limiting unpaid hours can help improve your effective hourly rate.
Written by urgent.news from Dev.to's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
