Your real hourly rate is 40-60% lower than you think

The comparison that gets freelancers into trouble

A friend gets promoted to a $75/hr consulting role at a big firm. You freelance at $75/hr. You feel like you're doing fine.

You're not doing the same thing. Their $75/hr comes with employer-paid health insurance, matched 401k, paid vacation, sick leave, tools, and a full accounting department. Your $75/hr comes with none of that - and about 30% of the hours you work aren't even billable.

The True Hourly Rate Calculator does the arithmetic. Almost every freelancer who runs their real numbers through it finds their effective rate is 40-60% lower than the number they quote clients.

Where the money actually goes

Take a US freelancer billing $75/hr, 25 billable hours a week, 46 working weeks a year. Gross: $86,250.

Now the deductions:

• Health insurance: ~$550/mo individual ACA silver plan = $6,600/yr
• Tools and subscriptions: laptop lease, software, accounting, backups = $2,400/yr
• Self-employment + federal + state tax at ~30% effective = $23,175
• Retirement (10% of after-tax) = $5,408

Take-home: $48,667.

Divide that by the actual hours worked - 25 billable + 8 admin = 33 × 46 = 1,518 hours - and the real rate is $32.06/hr. Not $75. Less than half.

The unpaid admin hours are the killer

The tax bill is obvious. The hidden number is the unpaid work.

Every proposal, discovery call, contract negotiation, invoicing session, chase-email, bookkeeping hour, and slow week between projects is unpaid. Most solo freelancers spend 6-10 hours a week on this - a full working day.

You are, functionally, on a 33-hour week, of which only 25 hours produce revenue. Utilization = 76%. The consulting firms your clients compare you to run at 65-75% utilization and they pay their staff a salary, not a per-project fee. The billable-hour trap punishes you twice.

What to do with the number

Once you know your true rate, three things get easier:

1. Pricing. If your true rate is $32/hr but you need $50/hr to hit your income goal, your billed rate needs to be roughly $50 × (75 / 32) ≈ $117/hr. Not $85. Not "a small raise." That's the math.

2. Deciding on scope. A "quick 2-hour job" for $200 sounds fine at $100/hr. At your real rate you might be losing money on it once discovery, invoicing and context-switching are counted.

3. Comparing to a job offer. A $110k salaried offer with health and 401k match is roughly equivalent to a $95-$110/hr freelance rate for a solo - not $53/hr as the naive 2000-hours-per-year math suggests.

The compounding version

Take the take-home from the calculator and drop it into Compound Interest to see what you'd have in 20 years at 7%. Then run it again with a 20% higher billed rate. The second number is usually 6-figures larger. Raising rates is the highest-leverage thing a freelancer can do - and knowing your true rate is how you argue for it, both to yourself and to clients.

Related tools

• True Hourly Rate Calculator - run your own numbers.
• Salary Calculator - for the salaried comparison side.
• Compound Interest Calculator - long-run impact of raising rates.