Hourly Freelance Rate

$80 Hourly Freelance Rate = $14.40 Wage

by Nicholas Tart on May 12, 2011 · 27 comments

Young entrepreneurs don’t charge enough for their time. And clients are shocked when they hear anything over $30 an hour.

I bid out freelance jobs at $80 per hour. That seems like a lot, but it’s really half as much as I should be charging. My friend’s dad told me that big companies contract out to developers and designers for $165-$245 per hour.

When we take a closer look at where that $80 per hour goes, you’ll realize it’s nowhere near how much you should be charging.

Only 50% of the Time is Billable

When you’re starting with freelancing, most of your time is spent setting up your business and putting your systems in place. Then you have to land your first few customers.

Up to this point, you’re working for free or even paying to work.

When you have a few clients, a lot of your time is still spent on non-money making activities like email, phone calls, and working on your own business. Let’s say 50% of your time is billable.

$80 per hour turns into $40 per hour.

50% Goes Back into the Business

When you start getting paid for your work, you need to build a solid financial base so your company can grow.

For example, with a web development company, you want to sub-contract the design and development work to other freelancers. But you have to pay them immediately after the work is done and it might be another month or two before you get paid.

So you need to have at least a couple grand in the bank for every current client that you have. To build that base, it’s good to put 50% of your revenue back into your business savings.

$40 per hour turns into $20 per hour.

15.3% for Self-Employment Tax

Now that you have $20 per hour profit from the original $80, you have to sack away 15.3% to pay Self-Employment tax at the end of the year.

$20 per hour turns into $16.94 per hour.

About 15% Federal Income Tax

In addition to SE tax, you’ll have to pay federal income tax. If you make $40,000 per year in profit, income tax will be another 15.3%. If you earn $80,000 per year, your federal income tax will be 21.3%.

Conservatively, let’s say you’ll have to take out another 15% for federal income tax.

$16.94 per hour turns into $14.40 per hour total.

$80 per Hour Freelancing = $28,800 per Year Salary

If you take that $14.40 hourly wage and assume that you’ll be working 40 hours per week, that’s equivalent to a $28,800 salary (after taxes).

Raise your rates and bid by the job so you don’t shock your customers.

Hourly Freelance Rate Table

Here’s a table of freelance rates, real wages, and estimated salaries (after taxes) based on the previous assumptions.

Freelance Rate Real Hourly Wage Estimated Yearly Salary
$20 $3.60 $7,200
$40 $7.20 $14,399
$60 $10.80 $21,599
$80 $14.40 $28,798
$100 $18.00 $35,998
$120 $21.60 $43,197
$140 $25.20 $50,397
$160 $28.80 $57,596
$180 $32.40 $64,796
$200 $36.00 $71,995
$220 $39.60 $79,195
$240 $43.20 $86,394
$260 $46.80 $93,594
$280 $50.40 $100,793
$300 $54.00 $107,993

Unless you have other people do the work, you have to charge out at $280 per hour to walk away with $100K at the end of the year.

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Post image by: christianmeichtry

{ 20 comments }

Buntu Redempter May 12, 2011 at 11:20 am

Wow, This is very interesting Nick!

Kennedy September 23, 2011 at 12:17 am

wao i really like it my friend.keep on.am a little entrepreneur and always i used to carry your ideas as a roll model to my carrier

Nicholas Tart September 24, 2011 at 4:05 pm

I’m guessing that last word is supposed to be career. ;) And thanks, I think.

Lita February 2, 2012 at 2:23 pm

So at what point can you consider yourself strong enough with a specific skill to freelance?

Nicholas Tart February 4, 2012 at 10:58 am

When you can sell it, Lita. The only thing I knew about web development when I landed my first web dev client was that websites needed a domain and hosting. I didn’t know anything about WordPress. I didn’t know anything about HTML. And I certainly didn’t know anything about web design. But I sold my eagerness to learn and he was a paying client for a year.

Kennedy February 2, 2012 at 11:35 pm

am very interesting with this as far as am a small entrepreneur,i would like to learn more from you on how you start this to where you are now.its so interesting and marvelous to me.hongera sana.

Nicholas Tart February 4, 2012 at 10:59 am

Hey Kennedy… I wrote about all of this in a book. Get a free digital copy of it here: http://14clicks.com/get-started-entrepreneurship/

Advice Hunters February 15, 2012 at 4:07 pm

Thats interesting! Thank you for your post

Brendan Coots March 20, 2012 at 2:38 pm

The logic presented in this article is fundamentally flawed:

- if only 50% of your time is billable, that usually means you’re not an attractive/competitive prospect (for whatever reason), or you aren’t using the right tactics to line up clients. People in this situation would only make themselves even LESS attractive following your advice, since their rate will be greater than their marketability warrants.

- 50% goes back into the business? Studios may hold capital like this (and not 50%), but freelancers certainly don’t. Either way, that money is still profit, you still have it in your bank account, so excluding it from your hourly rate is just bad math.

- Taxes SHOULD be factored into an artist’s hourly rate, I’ll agree with you on this point. So should health insurance.

Nicholas Tart March 22, 2012 at 12:47 pm

Hey Brendan, I appreciate your feedback. What percentage of your time is billable? If it’s more than 50%, what do you do to focus so much on the tasks that are billable?

Part of the reason mine is around 50% is because I spend a great deal of time working on this site and building other assets for my business, not just for clients.

Bob December 17, 2012 at 5:01 pm

Your numbers are certainly a good guideline. I’m sure they don’t fit everyone’s scenario exactly, but they are probably not far off.

Brendan, money put back into the business for sub-contractors, tools, equipment, etc… is certainly not profit. These are necessary expenses for doing business. Profit is what you have after all the expenses are paid.

basti May 15, 2012 at 6:30 am

Well, taxes you counted could be way optimistic in Europe. Because of devastating compulsory social and health “insurance” (taxes in fact) and VAT your total income tax usually ends somewhere between 40-65% and of course you pay VAT even from your investments.

50% billable time is not best ratio but even in well managed company where I worked was billable 70-75% in best case. Investing 50% back into oyur business is mission impossible for most freelancers, they are lucky if they survive and investment is only a bonus.

Rich July 16, 2012 at 5:42 am

Thanks Nicholas.
My freelance work has mostly been bid by the project. Recently, and with longer-term contract bids and some government/state opportunities I have been asked for my hourly rate. I have a full-time job but I continue to freelance on my own time. If I had bid my work at my full-time hourly rate I would have been cutting myself way, way short. Since I do not need to replace my full-time money I can bid beneath my salary to stay competitive and simply be selective about the projects I take on.
I appreciate you sharing this.

Nicholas Tart July 17, 2012 at 10:42 am

What do you mean by, “bid beneath my salary”? Your taking freelance gigs that pay less than your day job?

Skip January 24, 2013 at 12:34 am

Sorry to dig up such and old post, but your bottom line is so misleading.

You say $80 turns into “$14.40 (after taxes)” which is a “$28,800 salary (after taxes)”

Who gets hired for a job and negotiates what they will be making after taxes?

If all your other numbers are correct it should say $80 an hour is equal to a $33880 salary. A person making a salary still has to pay taxes!

Nicholas Tart February 21, 2013 at 1:19 pm

Yeah, you’re right Skip. That is misleading. Self-employment tax, however, is something that employees don’t have to worry about. This is just the way I see my takehome pay, and I think everyone should see it that way.

Anon February 25, 2014 at 4:09 pm

Employees DO pay self-employment tax – only it’s referred to as payroll taxes and is taken directly out of their paycheck so they never see it. Self-employment / payroll taxes are those for medicare, social security, etc. Everyone pays these regardless of income tax.

David April 14, 2014 at 6:36 pm

Anon, All employees have to pay their side of self-employment taxes (Medicare, Social Security, etc.). This was taken out of my paycheck when I was an employee. However, the employer also pays a share which is equal to the employee’s share (the laws may have changed; I’ve been freelancing full time for the past 2 years). Now that I am freelancing, I have to pay the employer’s portion of self-employment tax myself – in addition to the employee’s portion. This is why freelancers have to build it into their rates.

Alex March 11, 2014 at 3:35 pm

The tax calculations are totally misleading… self-employment tax IS federal income tax. You are not giving 30% of your income away every year as a freelancer. You did leave out state income taxes however. But even with state taxes tacked on, the calculation is less than 30%

Imran A. Hunzai March 18, 2014 at 3:21 pm

So, freelancing is not my way to become a millionaire :D

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