The Math Behind Setting Your Freelance Rate (Most People Undercharge)

When I talk to developers transitioning from full-time employment to freelancing, they almost always make the same mistake with pricing. They take their salary, divide by 2,080 hours (40 hours times 52 weeks), and use that as their hourly rate. If they earned $100,000, they charge $48/hour. This is a recipe for making less money while working harder. The reason is that a salaried employee's hourly rate includes benefits that a freelancer must fund independently. And the freelancer has overhead, non-billable time, and business costs that the salary calculation ignores entirely. The real cost of freelancing Start with what your equivalent salary actually costs your employer: Base salary: $100,000 Health insurance: $7,000-$15,000/year (employer portion) 401k match: $3,000-$6,000/year Payroll taxes (employer portion): ~$7,650 (Social Security + Medicare) Paid time off: 15-20 days = $5,800-$7,700 in paid non-work Equipment, software, training: $2,000-$5,000/year Office space, utilities (emp