Salary ÷ 2,080 Is Not Your Rate
The conversion everyone reaches for assumes 2,080 paid hours, all billable, with an employer quietly covering everything else. Each assumption fails the day you go freelance.
| What the employer paid | Annual cost once it is yours |
|---|---|
| Employer half of FICA | 7.65% of earnings |
| Health insurance | $6,000–$15,000 |
| Paid holiday and sick leave | 3–5 weeks of income |
| Equipment, software, subscriptions | $1,500–$5,000 |
| Retirement match | 3–6% of salary |
| Unbillable hours | 30–40% of your working time |
The Calculation
``
revenue needed = (take-home + insurance + SE tax + expenses) ÷ (1 − margin)
billable hours = (52 − weeks off) × hours per week × billable %
hourly rate = revenue needed ÷ billable hours
``
For a $100,000 take-home target, six weeks off, 40-hour weeks, 65% billable and a 10% margin:
| Line | Amount |
|---|---|
| Take-home target | $100,000 |
| Health insurance | $7,200 |
| Self-employment tax (15.3%) | ~$15,100 |
| Business expenses | $8,000 |
| Subtotal | $130,300 |
| ÷ 0.90 for 10% margin | $144,800 |
| Billable hours: (52−6) × 40 × 0.65 | 1,196 |
| Hourly rate | $121 |
Rates by Target Income
| Take-home target | Rate at 65% billable | Rate at 50% billable |
|---|---|---|
| $60,000 | $78 | $101 |
| $80,000 | $99 | $129 |
| $100,000 | $121 | $157 |
| $150,000 | $175 | $228 |
| $200,000 | $230 | $299 |
Why the Margin Line Is Not Optional
Ten to twenty percent above costs absorbs the client who pays 60 days late, the project that runs 30% over, and the quarter with a hole in it. A rate that exactly covers costs fails the first time anything goes wrong — and something always does.
Quoting the Rate You Calculated
The number is the easy part. Three things determine whether you get it:
Quote the project, not the hour. A client comparing $120/hour against $90/hour is comparing rates. A client comparing "$8,000, delivered in three weeks" against another proposal is comparing outcomes — and efficiency gains stay with you instead of shrinking the invoice.
Anchor before they do. Whoever names a number first sets the range. If a client asks for your rate before you understand the scope, give a range tied to project size rather than a single hourly figure.
Charge for scope changes. The most common way a good rate becomes a bad one is uncompensated scope creep. A short change-order clause, invoked once early, prevents most of it.
Payment Terms Are Part of the Rate
| Term | Effect |
|---|---|
| 50% deposit | Removes most of the non-payment risk |
| Net 15 | Standard for small clients |
| Net 60 | A 60-day interest-free loan you are making |
| Late fee 1.5%/month | Enforceable in most jurisdictions if stated up front |
Raising Your Rate
Raise on new clients first — you keep existing revenue while testing whether the market accepts the new number. When you go to existing clients, give 60 days' notice and apply it at a natural project boundary. Losing your lowest-paying client is usually the intended outcome, not a failure.