A developer I know spent four years charging $30 an hour. He was busy every single week, turned down work regularly, and still could not explain why his bank balance never moved.

The maths, when he finally did it, was brutal. After unpaid admin, tax, software, and the six weeks a year he was not billing anyone, his $30 an hour was worth about $11. A supermarket job in the same city paid more, with sick leave attached.

He was not underpaid because clients were cheap. He was underpaid because he had picked his rate the way almost everyone picks their rate: he looked at what a salaried version of his job paid, divided by the hours in a working year, and added a bit on top.

That calculation is wrong in three separate ways, and this article is about fixing all three.

Why salary divided by 2,080 gives you the wrong number

The standard working year is around 2,080 hours: forty hours a week, fifty-two weeks. Take a $60,000 salary, divide it, and you get roughly $29 an hour. That number feels reasonable. It is also a trap, for three reasons.

First, you do not bill forty hours a week. Nobody does. Between finding clients, writing proposals, invoicing, chasing late payments, calls that go nowhere, and keeping your skills current, most established freelancers bill somewhere between twenty and thirty hours. The unbilled hours do not disappear — they are simply hours you work for free.

Second, you do not work fifty-two weeks. You take vacation, you get sick, and there are quiet weeks where the pipeline is empty. Forty-six billable weeks is a realistic planning figure. Assume fifty-two and you have priced in a year with no rest and no gaps.

Third, a salary is not what a salary costs. An employer pays for your equipment, your software, your workspace, your training, and a share of your tax and social contributions. As a freelancer you pay all of it, out of the same number you just divided.

Stack the three together and the gap is enormous. To take home what a $60,000 salary gives you, you will typically need to bill closer to $70 an hour than $29. Not because you are greedy. Because that is what the arithmetic says.

The calculation that actually works

Run it in this order. Start with what you want to keep, and work backwards to the rate that produces it.

1. Decide your target take-home. The amount you want in your account after tax, for the year.
2. Add your business expenses. Software, hardware, hosting, accounting, insurance, courses, fees. Be honest — most people underestimate this by half.
3. Gross it up for tax. Divide the total by one minus your tax rate. At 20%, divide by 0.8. This is your required revenue.
4. Count your real billable hours. Billable hours per week, multiplied by working weeks per year. Twenty-five hours across forty-six weeks is 1,150 — not 2,080.
5. Divide. Required revenue divided by billable hours is your floor. Not your target. Your floor.

Worked through: you want $60,000 take-home, you have $6,000 of expenses, you pay 20% tax, and you bill 25 hours across 46 weeks. That is $66,000 grossed up to $82,500, divided by 1,150 hours. Your floor is roughly $72 an hour.

If that number made you uncomfortable, sit with the discomfort for a moment. It is the correct number. The rate you were charging before was the wrong one.

What the market will actually pay

Your floor tells you what you need. It says nothing about what anyone will pay you. Those are two different questions, and confusing them is how freelancers end up either broke or unbooked.

Rates vary enormously by skill, by market and by how you are positioned, so treat any published average with suspicion — it is usually an aggregate of wildly different situations. What holds true more generally is the shape of the market:

• Generalists compete on price. Specialists compete on outcome. “I build websites” invites comparison with everyone else who builds websites. “I fix checkout flows for Shopify stores doing over $50k a month” does not.
• Who you bill matters more than where you live. A client in London or Dubai with a real budget pays for the result, not your zip code. Positioning is what gets you into that conversation.
• Proximity to revenue sets the ceiling. Work that visibly makes or saves money commands more than work that is merely necessary. The same skill applied to a revenue problem is worth multiples of the same skill applied to a maintenance task.

If your floor is above what your market pays, you have a positioning problem, not a pricing problem. Lowering the rate does not fix it. It just delays the reckoning.

Why hourly billing punishes you for getting better

Here is the uncomfortable part. Every hour you save through experience is an hour you do not get paid for. The faster you work, the less you earn for the same result. Hourly billing quietly penalises the exact thing you are trying to develop.

It also caps you absolutely. There are only so many hours, and you cannot bill more of them than exist. Every hourly freelancer eventually hits that wall.

The way out is to charge for the outcome rather than the time. A project quoted at a fixed price, based on what solving the problem is worth to the client, breaks the link between your hours and your income. You still use your hourly floor — but now it is an internal check on whether a quote is worth accepting, not something the client ever sees.

Quote $4,000 for work you expect to take thirty hours, and you are at $133 an hour. Get faster and finish in twenty, and you are at $200. Your improvement now pays you instead of costing you.

Raising your rate without losing your clients

The fear is always the same: raise the rate and they walk. Sometimes they do. That is usually a better outcome than it feels like at the time.

• Quote the new rate to new enquiries first. No conversation required, no risk to existing income. You will learn quickly whether the number holds.
• Give existing clients notice. Thirty days, in writing, stated plainly. No apology and no lengthy justification — a rate is a fact, not a request.
• Expect to lose your cheapest client. They are usually the most demanding one. Losing them frees capacity for work that pays properly.
• Never negotiate down without removing scope. If the price drops, something leaves the deliverable. Otherwise you have taught the client that your first number was fictional.

Most freelancers discover their rate was never the reason clients hired them. It was reliability, communication, and actually finishing things. Those are not cheap, and clients who value them know it.

Frequently asked questions

How do I set a rate with no experience?

Calculate your floor anyway, then start slightly below it while you build proof. Treat it as an introductory rate with a stated end point — three clients, or ninety days. Give the discount a deadline, or it becomes permanent.

Should I show my rates publicly?

Publishing a starting price filters out people who were never going to buy, which saves you calls. Publishing exact prices for custom work removes your ability to price by value. A stated minimum is usually the right balance.

How often should I raise my rate?

Review annually, and any time you are booked solid for more than a month. A full pipeline at your current rate is the market telling you the rate is too low.

What if a client says I am too expensive?

Ask what budget they had in mind, then decide whether a smaller scope fits it. “Too expensive” often means “I do not yet understand what I am getting” — and that is a conversation about value, not a signal to discount.

The one thing worth doing today

Work out your floor. Just that. Most freelancers have never done the calculation, which is precisely why so many of them are busy and broke at the same time.

You may find you are already above it, in which case you can relax. You may find you are well below it, which explains a great deal about the last few years. Either way you will be making decisions with a number instead of a feeling.

The developer charging $30 an hour now charges $95. He lost two clients in the transition and replaced them within a month. His hours went down. His income roughly tripled. Nothing about his skills changed — only the arithmetic he was willing to look at.

Run your numbers through the calculator and find out which situation you are in.