Calculating Your Hourly Rate as a Freelancer: The Formula That Actually Works
Target income divided by 2,000 hours – that is how many people calculate, and that is how prices end up too low. Here is the complete formula with an example.
- It is not your target income that determines your hourly rate, but the number of hours you can really invoice.
- Of roughly 2,000 working hours a year, usually 900 to 1,200 billable hours remain after vacation, illness, public holidays and admin.
- Costs, social security and a risk buffer belong in the formula – otherwise you pay them out of your income.
- A day rate is the same hourly rate times eight, not a discount.
"I want to earn €60,000 a year, that is €30 an hour at 2,000 hours." You hear this calculation a lot – and it is the reason why many freelancers find after a year that, despite full order books, they earn less than they did as employees. The formula is not wrong, it is incomplete. Here is the complete version.
The complete hourly rate formula
The hourly rate results from two quantities: the money you must take in per year, and the hours you can actually invoice for it.
Hourly rate = (target income + social security + business costs) × (1 + buffer) ÷ billable hours
Each of these quantities has its pitfalls. Let us go through them one by one.
Part 1: What you must take in per year
Target income
This is the amount that corresponds to an employee's gross salary – before income tax, but as what is meant for you in the end. Base it on what you would earn in a comparable job, not on what you "just about" need.
Social security
Health and long-term care insurance, retirement provision, possibly disability cover: as an employee the employer pays roughly half, as a freelancer you pay all of it. At €800 a month that is €9,600 a year missing from the simple calculation.
Business costs
Office or coworking, software and subscriptions, hardware, training, accountant, liability insurance, marketing, travel. Anyone going through a year of bank statements rarely ends up below €6,000 – many well above.
Buffer
A client drops out, a computer breaks, you are ill for three weeks. A buffer of 10 to 20% on the total is not a luxury but the replacement for what employees call notice periods and sick pay.
Part 2: The hours you can really invoice
This is where the real mistake of the simple calculation lies. A year has around 250 working days. From these you subtract:
- Vacation: 25 to 30 days, if you want to treat yourself like a human being.
- Illness: on average 8 to 12 days.
- Public holidays: depending on the German state, 8 to 13 days that fall on weekdays.
- Training, trade fairs, networking: 5 to 10 days.
About 200 working days remain. And on those days you do not work eight hours for clients. Writing proposals, invoicing, bookkeeping, sales, e-mails, training: for most freelancers 55 to 70% of working time is billable. The rest is necessary but unpaid.
200 days × 8 hours × 65% = 1,040 billable hours. Not 2,000.
The example calculation (fictional figures)
| Item | Amount |
|---|---|
| Target income | €60,000 |
| Social security (€800 × 12) | €9,600 |
| Business costs | €9,000 |
| Subtotal | €78,600 |
| Buffer 15% | €11,790 |
| Required annual revenue (net) | €90,390 |
| Billable hours | 1,040 |
| Hourly rate (net) | around €87 |
The €30 of the simple calculation becomes €87. Not a mark-up out of greed, but simply the costs and the time that were invisible before. With VAT the invoice shows around €103 per hour.
Day rate, project price and minimum price
The day rate is the hourly rate times eight: here around €700. A day rate is no reason for a discount – the client gets eight hours, not a flat fee.
For project prices you estimate the hours, multiply by the rate and add a risk buffer of 10 to 25%, because projects almost always take longer than planned. The advantage: the client sees a price for an outcome, not for hours.
The minimum price is the rate at which you just cover your costs and target income, without a buffer. Below this rate every job costs you money, no matter how interesting it is.
What if the market will not pay that?
Then you have three levers, and hope is not one of them:
- Increase utilisation: less admin, more billable work. Often the strongest lever.
- Reduce costs: review subscriptions, share an office. Usually the weakest lever.
- Sharpen your positioning: specialists can command higher rates than generalists.
If none of the three works, that is important information about the business model – better now than after two years.
Conclusion
The right hourly rate formula has three parts: everything you must take in, times a buffer, divided by the hours you can really invoice. The biggest mistake is almost always the denominator. Run it once with your real figures – the free hourly rate calculator does it in 30 seconds, including public holidays by German state. If you want to go further, pricing offers a tool with scenarios, target margin and quote calculation. And how hourly rate and account balance are connected is explained in liquidity planning for freelancers.
Frequently asked questions
Is an hourly rate of €50 too low for freelancers?
Do I have to add VAT on top of the hourly rate?
How often should I review my hourly rate?
Note: THA·ONE is a planning aid, not tax advice (German StBerG). Talk to your tax advisor about your individual situation.
Never sell yourself short again.
The Pricing Tool calculates the hourly rate that covers your costs and hits your target margin – including scenarios and break-even. As an Excel download or as an online module.