How the hourly rate formula works
Your hourly rate has to cover three things: the income you want to take home, your business expenses, and a profit margin that keeps the business healthy. The calculator starts from your target annual income, adds yearly expenses such as software, hardware and insurance, then divides by your billable hours — the hours clients actually pay for. Finally it applies your profit margin, because a rate that only covers costs leaves nothing for slow months, investment or growth.
Common mistakes when setting freelance rates
The biggest mistake is dividing by 40 hours a week, 52 weeks a year. Nobody bills every working hour: subtract holidays, admin, marketing and business development first — most freelancers bill 20–30 hours a week. The second mistake is forgetting expenses entirely; the third is skipping the margin, which means one quiet month wipes out the year’s buffer.
When to raise your rates
Raise your rates when you are consistently booked out, when your skills or results have clearly improved, or when your costs rise. Existing clients usually accept a modest, well-communicated increase — especially with notice. Review the numbers at least once a quarter rather than letting your rate go stale for years.