How to Set Your Freelance Hourly Rate (Without Underselling Yourself)

Why most freelancers undercharge

When a new freelancer sets their rate, they usually do one of two things: copy what they saw on a job board, or divide their old salary by 2,000 hours. Both methods ignore the financial reality of self-employment — and both lead to undercharging.

As a freelancer, you are not just a worker. You are also your own HR department, accountant, sales team, and IT support. Those hours don't get billed. When you account for them properly, the math changes completely.

The formula: what you actually need to earn

Start with your target net income — the amount you want to take home after tax. Let's say that's £40,000 a year.

Now add your business expenses: software subscriptions, equipment, insurance, accounting fees, professional development. A conservative estimate for most freelancers is £4,000–£8,000 per year.

Then gross up for tax. If your effective tax rate is 25%, divide your total by 0.75 to get the pre-tax revenue you need. In this example: (£40,000 + £6,000) ÷ 0.75 = £61,333.

The hours problem: not all hours are billable

Most freelancers assume they'll bill 40 hours a week, 52 weeks a year. That's not realistic. You need to subtract holidays, sick days, admin time, sales and marketing, and the inevitable quiet periods between projects.

A realistic billable hour count for a full-time freelancer is closer to 1,000–1,200 hours per year — not 2,080.

• 52 weeks × 40 hours = 2,080 raw hours
• Minus 4 weeks holiday = 1,920 hours
• Minus 30% for non-billable work (admin, sales, meetings) = 1,344 hours
• Minus buffer for quiet periods = ~1,100 truly billable hours

Putting it together: your minimum rate

Divide your required annual revenue by your realistic billable hours. Using the example above: £61,333 ÷ 1,100 hours = £55.76/hr as a bare minimum.

This is your floor, not your ceiling. Add a buffer (typically 15–25%) to account for scope creep, underestimates, and the fact that you want to grow. A £70/hr rate is not arrogance — it's arithmetic.

Use our free Rate Calculator to run these numbers with your own figures in under two minutes.

What about platform fees?

If you work through platforms like Upwork or Fiverr, they take 5–20% of your earnings. Factor this in by dividing your required hourly rate by (1 minus the platform fee percentage). At 20% fees, a £70/hr need becomes a £87.50/hr listed rate.

When to raise your rate

Raise your rate when you're fully booked, when clients never push back on price, or when your costs increase. A good rule of thumb: if fewer than 20% of prospective clients object to your rate, you're probably undercharging.

The best time to raise your rate is at the start of a new project with a new client. Existing clients can be informed 4–6 weeks in advance with a professional, matter-of-fact email.