Freelance rate formula

Your minimum hourly rate is (income you need + business costs + buffer) ÷ realistic billable hours. Everything else is packaging and negotiation.

The core formula

Hourly floor = (Annual target + Annual overheads + Contingency) ÷ Annual billable hours

Day rate ≈ hourly floor × hours you define as a day (often 6–8).

Project fee ≈ estimated hours × hourly floor × risk factor.

Breaking down each input

Annual target

Money the business must bring in to fund your life and savings goals. Be consistent about whether figures are before or after personal tax.

Annual overheads

Software, hardware refresh, insurance, accounting, phone, co-working, marketing, professional development, banking fees.

Contingency

A percentage (e.g. 10–20%) for unpaid invoices, cancellations, and quiet months.

Annual billable hours

Start from workable weeks × hours/week, then subtract holidays, sick days, admin, sales, and learning. Many freelancers bill far fewer than 1,800 hours/year.

Worked example (illustrative only)

• Target: NZ$80,000
• Overheads: NZ$8,000
• Contingency ~15% on the combined base
• Billable hours: 1,000

Using a simple form: (80,000 + 8,000) × 1.15 ÷ 1,000 ≈ NZ$101 / hour. At 7.5 hours/day ≈ NZ$760 / day.

These numbers teach the formula — they are not a recommended NZ market rate. Run your inputs in the freelance rate calculator.

From formula to client price

1. Never quote below your floor unless it is a deliberate, time-boxed investment.
2. Above the floor, price for risk, scarcity, and speed.
3. Choose hourly, day, or project presentation — see hourly vs project pricing.

Broader process: how to price freelance work and what to charge as a freelancer.

Tax and GST are outside the formula

The formula helps cash planning. It does not compute GST, provisional tax, or company vs sole-trader outcomes. NZ freelancers often keep a separate set-aside — see freelance day rate NZ.

Billable hours — the lever people get wrong

Calendar maths lies. A year has ~52 weeks, but freelancers take holidays, get sick, do sales, write proposals, chase invoices, and learn new tools. If you pretend you’ll bill 40 × 52, your hourly number looks attractively low — until cash runs out.

A more honest approach:

• Pick workable weeks (e.g. 44–48).
• Pick hours you can sustainably work.
• Apply a billable ratio (often well below 100%).
• Revisit quarterly when your actual timesheets disagree.

Two ways to treat tax in the inputs

Option A: Target is after-tax take-home; increase the revenue need using a set-aside percentage so the business gross covers that set-aside.

Option B: Target is pre-tax revenue; handle tax separately in your budget.

Either works if you’re consistent. The on-site calculator exposes set-aside as an explicit input so you can see sensitivity — still not a tax calculation.

Sensitivity checks worth running

• −20% billable hours: does the rate still cover rent and basics?
• +20% overheads: still viable?
• One unpaid invoice equal to a month’s fees: do you have buffer?

If small shocks break the model, raise the floor or lower lifestyle costs before you promise clients aggressive discounts.