How to Set a Freelance Rate That Accounts for Nonbillable Time

Here is a pricing mistake so common that it deserves a name: the 2,080 trap. A freelancer decides they want to earn $90,000 a year, divides by 2,080 (the hours in a 40-hour, 52-week year), and arrives at $43 an hour. It feels reasonable. It is a recipe for earning far less than the goal.

The problem is not the arithmetic. It is the assumption that every hour of the year is billable. They are not. This guide shows what to do instead, with numbers you can check and a calculator to try your own.

Why $90,000 divided by 2,080 fails

A salaried employee is paid for the hours they are there, including meetings, admin, holidays and sick days. Someone else covers the overhead.

A freelancer is paid only for the hours they bill. Everything else is your cost to carry:

• Finding clients, writing proposals and taking sales calls
• Invoicing, bookkeeping and chasing payments
• Learning, tools setup and portfolio work
• Revisions beyond the agreed scope
• Gaps between projects
• Holidays, vacation and sick days
• Business costs such as software, equipment, insurance and accounting

Your rate has to pay for the billable hours and absorb all of that.

What nonbillable time looks like

Here is a hypothetical 40-hour week for a freelancer who is doing reasonably well. Yours will differ, which is why it is worth tracking for a few weeks.

In this example, half the week is billable. That is not failure. For a business of one, billable time is rarely the whole week. The only way to know your own share is to measure it, so track a couple of typical weeks before you trust a guess.

Costs people forget

The calculator asks for your yearly business expenses. These are the ones that tend to be left out.

• Software and subscriptions. Invoicing, accounting, storage, design tools and anything else you pay for monthly. Add up a full year.
• Payment processing fees. If clients pay by card, the processor takes a cut. As an example of published rates, Bonsai Payments lists 2.9% + $0.30 per card payment in the US. Five $1,000 card invoices would cost about $146.50 in fees (5 × $29.30). Bank transfers usually cost less. Check your own processor's rates.
• Unpaid invoices. Some freelancers keep a small allowance for invoices that are never paid. We do not have a reliable industry figure to give you, so base yours on your own history. If you have never lost an invoice, you may reasonably keep it at zero. The buffer field in the calculator is the natural home for this.
• Time spent chasing money. Treat it as nonbillable time in your weekly estimate, not as free.

The formula

Four steps, none complicated:

1. Add what you want to earn and what the business costs. Desired income + annual business expenses.
2. Add a buffer. A margin for slow months, unpaid delays and growth. Values between 10% and 20% are only examples; choose what matches your own risk.
3. Count your billable hours. Working weeks per year × billable hours per week.
4. Divide. Revenue target ÷ billable hours = your hourly rate.

You can run it yourself in the freelance rate calculator. Here is the same example by hand.

A worked example

All numbers are hypothetical.

• Desired income: $90,000
• Business expenses: $12,000 (software, equipment, insurance, accounting, workspace)
• Working weeks: 46 (52 minus vacation, holidays and sick days)
• Billable hours per week: 20
• Buffer: 10%

Step 1: $90,000 + $12,000 = $102,000

Step 2: $102,000 × 1.10 = $112,200 (the annual revenue target)

Step 3: 46 weeks × 20 hours = 920 billable hours

Step 4: $112,200 ÷ 920 = $121.96 per billable hour

Monthly, that is $112,200 ÷ 12 = $9,350 of revenue to bring in.

Compare that with the 2,080 trap: $90,000 ÷ 2,080 = $43.27. The honest rate is nearly three times higher.

How sensitive is the rate to billable hours?

This is the lever that matters most. Same income goal, expenses, weeks and buffer, with only the billable hours changing:

Raising billable hours from 20 to 25 lowers the rate you need by about a fifth, which is why trimming nonbillable work (tighter admin, fewer unpaid revisions, a repeatable proposal) is as valuable as raising prices. The back-office guide covers the first, and the onboarding guide covers the second.

What this does not include: taxes

Things to put in your "desired income"

Many freelancers undercount this line. Include what an employer would normally provide:

• Health insurance and out-of-pocket medical costs
• Retirement saving
• Paid time off, which shows up as fewer working weeks
• Your own salary for the work you do, not just profit

From hourly rate to day rate and project price

An hourly number is a planning tool. Most clients prefer a fixed price.

• Day rate: hourly rate × the billable hours in a day. At $121.96, an eight-hour day is about $976.
• Project price: estimated hours × your rate, plus a contingency for things that go wrong. A 40-hour project with a 25% contingency is 50 hours × $121.96 = about $6,100.
• Retainer: an agreed monthly fee for a set amount of work or availability. Price it using your rate, and define what is included.

If a project's price works out to less than your rate for the hours you expect to spend, you are discounting your time, which can be a fine decision, as long as you make it deliberately.

Value, market and your floor

Your calculated rate is a floor, the minimum that makes the business work. Two other things shape what you actually charge:

• The market. What do people with your skills and experience charge? Ask peers and look at published rates in your field.
• The value. What is the result worth to the client? A logo for a local café and a brand system for a company raising funding are not the same job.

When market or value points higher than your floor, charge more. When the market is lower, you have a business decision to make: improve your efficiency, specialize, or find clients who value your work more.

Raising your rates

A calculated rate is only useful if you charge it. A few practical points:

• Raise for new clients first. It is the easiest place to test a higher number.
• Give existing clients notice, typically a month or more, and a short reason.
• Do not apologize. State the new rate and the date.
• Review annually. Costs and skills both change.

Frequently asked questions