11 August 20261 min read

Pricing your work: what an hour really costs

Your rate has to cover tax, costs, holidays, admin and quiet weeks, not just the hours you bill. That's why freelance rates look higher than salaries.

Business

In short

A common mistake is to take a salary, divide it by working hours, and charge that. But as a self-employed person, you pay for your own holidays, sick days, pension, equipment, admin time and quiet spells. Your rate has to cover all of it from the hours you can actually bill.

How it works

Bar chart of a year's 52 weeks. 6 weeks holiday and bank holidays, 2 weeks illness, 10 weeks of admin, marketing and quotes, 4 weeks of gaps between clients, leaving 30 weeks of paid client work, which is highlighted. — Made-up figures. Paid work might fill only around 30 of 52 weeks.

Start with what you need to take home for a year.
Add tax and National Insurance. Gross it up using your tax band.
Add business costs: software, insurance, equipment, travel, accountant.
Add a pension contribution. Nobody else is paying one. See Pensions for the self-employed.
Divide by your realistic billable time, not 52 weeks of 40 hours.

The result is usually much higher than people expect. That's not greed. It's the true cost of running a business with one employee: you.

An example

Using made-up figures: Jordan wants to take home £30,000. After tax, NI, a pension and £4,000 of costs, he needs to bring in about £45,000. With around 30 billable weeks of 25 hours, that's 750 hours, or roughly £60 an hour. He'd been charging £25.

Common mistakes

Pricing from a salary rate.
Never reviewing your rate. Raise it at least yearly, and give clients notice.
Charging by the hour when a fixed project price would reward your speed.

Your next step: count last year's truly billable hours. Divide your total profit by that number. That's what you actually earned per hour.