Are you unsure how to calculate your ideal freelance hourly rate? Here you will learn how to calculate your hourly wage correctly in order to cover all costs and be profitable at the same time. We will show you which factors you need to take into account and give you practical tips for optimization.
The most important things at a glance
- A well-calculated hourly rate is crucial for financial stability and should take all costs and conditions into account.
- Freelancers should analyze their productivity to find out how many hours are actually billable before setting their hourly rate.
- Tools and resources such as tax calculators and invoicing software can help optimize hourly rate calculations and better manage financial affairs.
Freelancer hourly rate: tips for calculation and optimization
A well-calculated hourly rate is crucial to covering your living expenses and ensuring long-term success. Determining the hourly rate takes into account both the productive working time and the necessary expenses for your business. Taxes must also be taken into account when calculating the hourly rate, as they have a significant impact on your net earnings.
A common mistake freelancers make is confusing the hourly rate they charge clients with their own hourly wage. Setting an hourly rate that is too low can make it difficult to increase it later, which can lead to client dissatisfaction. It is therefore important to analyze your own productivity to determine how many hours are actually billable.
Introduction
In the IT industry and other areas such as marketing and communication, reasonable hourly rates are crucial to achieving financial stability and working successfully as an IT freelancer. A freelance life offers many advantages, but also challenges, especially in terms of calculating and optimizing the hourly rate. The Freelancer Compass can help you make the right decisions.
Many factors play a role, such as the order situation, your own experience and qualifications, but also your personal circumstances. This guide will help you take everything into account so that you can calculate your hourly rate realistically and successfully.
Why is the right hourly rate so important?
A well-calculated hourly rate is important when you are self-employed in order to be able to live off the income each month. Setting the hourly rate correctly is crucial to ensure that all running costs are covered and that your livelihood is secured. This includes not only your direct business expenses, but also your personal living expenses.
Long-term success as a freelancer requires that you analyze your productivity and understand how many hours are actually billable. Determining your hourly rate requires precise calculations and an understanding of your own cost structure. This is the only way to ensure that you remain financially stable even in difficult times.
Average hourly rate for freelancers
The average hourly wage for freelancers is 102 USD. However, the hourly rate varies depending on the industry and qualifications; IT freelancers can charge higher rates than artists or editors.
Interestingly, women earn an average of 98 USD per hour, while men earn 102 USD. The gender pay gap among freelancers was 10 USD in 2023, but has regulated itself in 2024. A recommended hourly rate to achieve an average salary is 62 USD per hour as a self-employed person.
Factors that influence the hourly rate
When setting your hourly rate as a freelancer or self-employed person, you should consider the following factors:
- Your own qualifications and experience
- Specific costs such as taxes and social security contributions
- External factors such as professional experience
- Training
- projects and project duration
- Geographical location
- company size
The hourly rate of a freelancer or self-employed person depends heavily on these factors.
A higher level of education usually leads to a higher hourly rate. Personal circumstances, such as place of residence and marital status, can also affect the hourly rate charged. Freelancers should consider market conditions and average industry wages, as these influence the expectations of potential clients.
Step-by-step instructions for calculating hourly rates
A realistic calculation takes into account both your own living expenses and the direct costs of the work environment. Freelancers must include their operating costs in the calculation of the hourly rate in order to work in a financially viable manner.
In the following sections, you’ll learn how to calculate your working days per year, list your monthly expenses, and set a profit margin to determine your ideal hourly rate.
Calculate working days per year
A year usually has 248 working days for freelancers. However, you should consider about 30% of your time as unproductive. It is important to analyze your own productivity to determine how many hours are actually billable.
Freelancers should plan an average of 24 days per year for further training. The training time varies in different industries: engineers and consultants need 1-2 days, media and IT 2-3 days per month. Specialists also need time for their further training. A plan that lists all the days in the year and deducts the absences is helpful here.
List monthly costs
Monthly expenses for freelancers can vary considerably, from 500 euros to several thousand euros. A realistic calculation takes into account both your own living expenses and the direct costs of the work environment.
Important costs that must be taken into account when calculating the hourly rate are operating costs such as rent, work materials and advertising. It is important to estimate these costs realistically and include them in the hourly rate calculation.
Setting profit margin
The profit margin is important to cover financial risks, as freelancers carry a higher risk than employees, including possible illness and lulls in orders. To earn an average salary, an hourly rate of 62.00 euros is recommended, with the specific amount of profit depending on factors such as the competitive situation, negotiating ability and benefit to the client.
The hourly rate calculation should also include reserves for unforeseen expenses, such as broken equipment. A healthy profit buffer will help you remain financially stable even in difficult times.
Consider insurance and social security contributions as a self-employed person
Freelancers must also consider their insurance premiums when calculating their hourly rate. Here are some important points to consider:
- The statutory pension insurance obligation mainly affects freelancers in creative professions.
- Other freelancers can voluntarily pay into the statutory pension insurance scheme.
- Professional liability insurance protects freelancers against financial losses that may be caused to third parties as a result of their professional activities.
It is important to include these aspects in the calculation to ensure realistic pricing.
Marie also has to include her insurance contributions, estimated at €10,125 per year, in the hourly rate calculation. In order to achieve the necessary turnover, freelancers have to take into account not only their salary but also all operating costs.
Factor in taxes
Thorough tax planning is crucial for a freelancer’s financial stability and expense management. Freelancers must pay both income tax and sales tax, which are calculated individually and affect net earnings.
It is advisable to leave out sales tax and calculate hourly rates using net prices. The Federal Ministry of Finance offers a free tax calculator that helps freelancers calculate their tax obligations. The Kontist business account can provide valuable support with tax matters for the self-employed.
Long-term goals and financial buffers
Setting financial goals at the beginning of self-employment helps freelancers to calculate their hourly rate appropriately and motivates them to achieve their goals. Taking long-term financial goals into account helps freelancers to plan realistic income and determine the required hourly rate.
A financial buffer is essential to cover unforeseen expenses, such as medical costs, and thus ensure financial security. The hourly rate calculation should also include reserves for unforeseen expenses such as defective equipment.
Fixed project prices as a lucrative alternative to hourly rates
Instead of just selling the time spent, freelancers can communicate their actual added value much better through fixed project prices. A concrete example from practice: Recruiting staff via social media, also known as social recruiting , is particularly popular with many companies. The reason for this is that traditional methods such as job portals or agencies are often slower and more expensive, while social media enables candidates to be approached more quickly and in a more targeted manner.
Companies invest large sums in this method because it allows them to target skilled workers who they can hardly reach through traditional channels. Social media makes it possible to recruit in a targeted and precise manner in certain industries or positions, which greatly improves the quality of applicants and at the same time reduces the cost per hire.
For example, companies often pay between 5,000 and 10,000 euros for a social recruiting campaign that requires around 10 hours of work – and for good reason. The actual added value of a successful campaign that brings the right candidates to the company far exceeds the time spent. The freelancer not only helps to save time and money, but also contributes directly to the long-term development of the company.
Practical example: hourly rate calculation
A freelancer needs to calculate their hourly rate carefully to ensure they cover their costs and remain financially stable. Take Marie, a freelance copywriter, for example. She lists all of her monthly and annual costs, including rent, insurance, and business expenses. Additionally, personal expenses such as living expenses are included in the calculation.
Marie also takes into account the taxes she has to pay on her income. Furthermore, expenses for insurance and social security contributions are an important part of the cost analysis.
Marie determines how many hours she can actually work to cover her costs and plans a profit margin of, for example, 20%. The final hourly rate is the sum of the costs and the desired profit margin divided by the number of available working hours per year.
Arguing hourly rates in front of customers
When defending your hourly rate to clients, confidence and courage are crucial. It is important to charge a reasonable hourly rate to justify the calculations for your own compensation. Many young freelancers often sell themselves short due to difficulties in negotiating fees.
Instead of justifying your own price, you should clarify the added value of your services. During the negotiation, it is important to clearly communicate your strengths and emphasize the value of your services. Customers usually understand market-oriented adjustments to the hourly rate.
Tools and resources to support
Determining an appropriate hourly rate can be supported by Excel calculators and templates. The Federal Ministry of Finance provides a free calculator that helps freelancers calculate their income tax. The Kontist business account for freelancers is recommended to help with tax issues.
Qonto offers invoicing software to manage and create invoices for freelancers. These tools and resources can help you optimize your hourly rate calculation and better manage your financial affairs.
Summary
Calculating your ideal hourly rate is not an easy task, but with the right approach and tools, it can be accomplished successfully. Remember, a well-calculated hourly rate will not only cover your costs, but also secure your livelihood and provide you with long-term financial stability.
Go through the steps for calculating your hourly rate thoroughly, consider all relevant factors and use the tools and resources presented to ensure your success as a freelancer. With this information, you are well equipped to achieve your desired hourly rate and make your career as a freelancer successful.
Frequently Asked Questions
How do I calculate the number of working days per year?
To calculate the number of working days per year, simply count the total number of days and subtract unproductive days such as vacation and sick leave. For freelancers, this comes to an average of around 248 working days.
What monthly costs should I consider?
Think about all your monthly expenses like rent, work materials and your living expenses. This will help you keep track!
Why is a profit margin important?
A profit margin is important because it helps you manage financial risks and cover unexpected expenses like broken equipment. Without it, it becomes really difficult to stay in control of your finances.
How can I justify my hourly rate to clients?
To justify your hourly rate to clients, you should clearly communicate the added value of your services and emphasize your strengths. This will quickly make it clear why you are worth your price.
Which tools can help me calculate my hourly rate?
Excel calculators, the tax calculator from the Federal Ministry of Finance, Kontist and Qonto are good choices for calculating hourly rates. These tools help you keep a close eye on everything.