How to set a freelance rate that actually pays
There are three numbers most freelancers never write down: the salary they want, the business overhead they actually carry, and how many hours they can realistically bill in a week. Skip any of the three and you'll under-quote.
- Target take-home: what you want in your bank account after tax, not your invoice total.
- Business overhead: software, gear, accountant, insurance, education, downtime — usually 15–25% of revenue.
- Tax wedge: 25–40% of profit depending on jurisdiction and structure.
- Billable hours: most full-time freelancers bill 22–28 hours per week, not 40. Sales, ops, and admin eat the rest.
Hourly vs project vs retainer pricing
Hourly is honest but caps your upside the moment you get faster. Project pricing rewards efficiency but punishes scope creep. Retainers stabilize cash flow but require trust and clear deliverables. Most established freelancers run a hybrid: discovery as fixed fee, ongoing work as retainer, anything ad-hoc as hourly with a minimum.
Self-employment taxes, in plain English
When you were a W-2 employee, your employer paid half of payroll tax. As a freelancer you pay both halves yourself before income tax even enters the picture.
- United States: 15.3% self-employment tax on the first ~$168,600 of net SE earnings, then 2.9% Medicare above. Quarterly estimated payments due Apr/Jun/Sep/Jan.
- United Kingdom: Class 4 NIC of 6% on profits £12,570–£50,270, then 2% above. Class 2 was abolished from 2024/25 for most.
- Canada: 11.4% CPP self-employed (both halves) up to $68,500 plus CPP2 above. Income tax is federal + provincial.
- Australia: no separate SE tax, but you must fund your own super (currently 11.5% rising).
When to incorporate (LLC, Ltd, S-corp)
Below ~$70k US profit, the admin cost of an S-corp usually eats the savings. Above that, an S-corp election can shave 5–10% off your tax bill by splitting wages and distributions. UK freelancers often go Ltd above ~£40–50k profit. Always run the actual numbers — paper savings disappear fast under accountant fees.
Hourly vs project vs retainer at a glance
| Pricing model | Best for | Cash flow | Risk | Upside ceiling | |
|---|---|---|---|---|---|
| Hourly | New freelancers, ad-hoc work | Lumpy | Low for you, low for client | Capped — your speed hurts you | |
| Project / fixed fee | Defined scope, productized work | Lumpy with milestones | Scope creep risk | High if you're efficient | |
| Retainer | Ongoing strategic work | Predictable monthly | Client churn risk | Medium, scales with team | |
| Performance / equity | Senior consultants | Delayed | Highest | Highest |
Things people ask
How many hours a week can a freelancer realistically bill?+
22–28 billable hours per week is the honest average for a full-time solo freelancer. The other 12–18 hours go to sales, admin, learning, and dead time between clients.
What's a healthy freelance tax-reserve percentage?+
Most US freelancers reserve 25–35% of every invoice for taxes. UK, CA, and AU freelancers typically land in the same band depending on profit level and deductions.
Should I charge by the hour or by the project?+
Hourly is safer when scope is unclear. Project pricing pays you for value and efficiency, but only works when you've done the work enough times to estimate it accurately. Most freelancers should price discovery hourly and delivery by project.
Do I need an accountant as a freelancer?+
Once you cross ~$50k revenue or have multi-state / cross-border work, yes. The fee is almost always less than the deductions and structure savings they unlock.