Most freelancers underprice themselves because they compare their rate to an employee salary. That's backwards. Your rate needs to cover much more.
The Reality of Billable Hours
You cannot bill 40 hours per week. Even if you work 40 hours, only 15-25 are typically billable.
The rest goes to:
- Finding clients
- Proposals and quotes
- Admin and invoicing
- Learning and development
- Coffee breaks and email
If you want £50,000 take-home and bill 20 hours per week for 48 weeks (4 weeks holiday), that's only 960 billable hours per year.
£50,000 ÷ 960 = £52/hour minimum
But that's not your rate yet.
The Real Cost Formula
Target Rate = (Desired Income + Annual Overhead) × (1 + Tax Buffer %) ÷ Billable Hours
Example: Freelance Copywriter
Desired income: £60,000
Annual overhead:
- Software (£80/mo): £960
- Insurance: £400
- Coworking space (£200/mo): £2,400
- Phone, internet: £600
- Equipment/upgrades: £1,000
- Total: £5,360
Pre-tax requirement: £60,000 + £5,360 = £65,360
Tax buffer (30%): £65,360 × 1.30 = £84,968
Billable hours: 20/week × 48 weeks = 960 hours
Required rate: £84,968 ÷ 960 = £88.50/hour
Round up to £90/hour or £650/day (8 hours).
Why You Feel Weird Charging That Much
You're thinking: "That's £187,200 per year if I worked full-time!"
Wrong. You won't bill 40 hours per week. You'll bill 20-25. Your actual revenue will be £86,400-£108,000. After taxes and overhead, you'll take home your £60,000.
Employees cost businesses way more than their salary too. A £60,000 employee costs the company £75,000-£90,000 with benefits, taxes, equipment, and management overhead.
You're not overcharging. You're pricing correctly.
Adjusting for Experience
Just starting: Multiply by 0.7-0.8
(£90 × 0.75 = £67.50/hour, £500/day)
Established (3-5 years): Use calculated rate as-is
Expert (5+ years): Multiply by 1.2-1.5
(£90 × 1.3 = £117/hour, £850/day)
What If Clients Won't Pay That?
Three options:
- Find better clients (enterprises pay more than startups)
- Package your services (sell outcomes, not hours)
- Lower your expenses (work from home, cheaper tools)
Never lower your rate to appease cheap clients. They'll never respect your time, and you'll resent the work.
Day Rates vs. Hourly
For projects over 8 hours, offer day rates (6-8× hourly rate).
£90/hour = £650/day
This is more attractive to clients (predictable cost) and more profitable for you (work tends to expand to fill time).
The Psychological Price Barrier
£50-75/hour: Junior level
£75-120/hour: Mid level
£120-200/hour: Senior level
£200-500+/hour: Expert level
Pick the bracket that matches your experience and skill, not what feels "nice" or "fair."
Raising Your Rates
Start with new clients only. Test a 15-20% increase. If 80%+ still say yes, your rate is too low.
For existing clients, announce increases 60 days in advance. Most will accept it. Some won't. That's okay—you'll replace them with higher-paying work.
The Bottom Line
Your rate is not your salary. It's your revenue stream that must cover:
- Your actual take-home
- Business expenses
- Taxes
- Non-billable time
- Dry spells and holidays
- Retirement savings
Use our Hourly Rate Calculator to find your real target rate.
Understanding the Employee True Cost Calculator
The employee true cost calculator is a vital tool for businesses seeking to accurately assess the complete financial impact of hiring and retaining staff. Unlike traditional payroll calculations that only consider basic salary, this calculator accounts for numerous hidden expenses including employer National Insurance contributions, pension matching, holiday pay, sick pay, training costs, and even the administrative overhead associated with employment. For UK businesses, understanding these true costs is essential for effective budgeting and compliance with employment legislation. The calculator helps organisations make informed decisions about staffing levels, compensation packages, and overall workforce strategy by revealing the full economic picture behind each employee. This transparency enables better financial planning and can significantly impact long-term business sustainability.
How to Use the Employee True Cost Calculator Effectively
To maximise the benefits of the employee true cost calculator, start by gathering accurate data on your organisation's specific employment costs. Input base salary figures, ensure you account for all statutory obligations such as auto-enrolment pension contributions and National Insurance thresholds, and consider additional benefits like health insurance or childcare support. The calculator works best when you use realistic assumptions about employee turnover rates, training requirements, and any industry-specific allowances. For small businesses, it's particularly important to factor in the cost of payroll processing and compliance management. Regular updates to your calculations will help track changes in employment costs over time, allowing for better budget forecasting and strategic decision-making. Remember that the tool provides estimates, so always cross-reference with professional financial advice when making major business decisions.
Key Benefits of Implementing Financial Planning Guides
Financial planning guides offer substantial advantages for businesses of all sizes by providing structured approaches to managing employment-related expenses. These resources help organisations avoid common pitfalls such as underestimating staff costs, which can lead to budget overruns and financial strain. For UK businesses, proper financial planning ensures compliance with evolving employment laws and tax regulations while maximising efficiency in workforce management. The guides serve as educational tools that empower business owners and managers to make informed decisions about staffing, compensation, and resource allocation. They also support long-term strategic planning by highlighting cost trends and identifying areas where savings can be achieved without compromising employee satisfaction or productivity. By implementing these planning strategies, businesses can achieve better financial stability and improved operational performance.