Hourly Rate Calculator Formula
Understand the math behind the hourly rate calculator. Each variable explained with a worked example.
Formulas Used
Required Hourly Rate
hourly_rate = total_needed / total_billableGross Revenue Needed
gross_revenue = total_neededMonthly Revenue Target
monthly_revenue = total_needed / 12Variables
| Variable | Description | Default |
|---|---|---|
desired_annual | Desired Annual Income(USD) | 80000 |
billable_hours_week | Billable Hours Per Week(hrs) | 30 |
working_weeks | Working Weeks Per Year(weeks) | 48 |
expense_pct | Business Expenses Overhead(%) | 25 |
total_needed | Derived value= desired_annual / (1 - expense_pct / 100) | calculated |
total_billable | Derived value= billable_hours_week * working_weeks | calculated |
How It Works
How to Calculate Your Hourly Rate
Account for business expenses by inflating your desired income, then divide by total annual billable hours.
Formula
Gross Needed = Desired Income / (1 - Expense % / 100)
Hourly Rate = Gross Needed / (Billable Hours/Week x Working Weeks)
Worked Example
You want $80,000 take-home with 25% overhead, billing 30 hrs/week for 48 weeks.
- 01Gross needed = $80,000 / (1 - 0.25) = $106,667
- 02Total billable hours = 30 x 48 = 1,440
- 03Hourly rate = $106,667 / 1,440 = $74.07
- 04Monthly revenue target = $106,667 / 12 = $8,889
Frequently Asked Questions
What counts as billable hours?
Billable hours are time directly spent on client work. Admin, marketing, learning, and other overhead are non-billable. Freelancers typically bill 60-70% of their working hours.
What expenses should I include in overhead?
Health insurance, self-employment tax (~15.3%), software, equipment, office space, accounting, professional development, and marketing costs.
How do freelance rates compare to salary?
Freelance rates should be 30-50% higher than an equivalent salaried hourly rate to cover benefits, taxes, non-billable time, and business expenses.
Ready to run the numbers?
Open Hourly Rate Calculator