A sensible hourly rate does not come from dividing the monthly income you want by 160 working hours. Freelancers and the self-employed also have to pay for time they can't bill directly to clients: finding work, writing quotes, bookkeeping, training, holidays, sick days and internal organisation.
If you want to calculate your hourly rate, you therefore need three figures: your annual revenue requirement, the hours you can realistically bill, and a sufficient buffer for profit and risks.
The basic formula for your hourly rate
As a simple planning formula:
required hourly rate = annual revenue requirement ÷ billable hours per year
Your annual revenue requirement should cover at least your running business costs, the income you want to pay yourself and a reasonable profit or safety buffer.
Important: this formula is business price planning. Personal income tax, VAT or sales tax and country-specific contributions have to be considered separately and to suit your own situation.
Why 160 hours a month is usually too high
A month with around 160 working hours does not mean you can sell 160 hours. Part of your working time typically goes on tasks you can't bill.
- Finding clients and first conversations
- Quotes and estimates
- Invoices and bookkeeping
- Emails and admin
- Training
- Internal planning
- Holidays, public holidays and sick days
- Gaps between projects
That's why your hourly rate should be calculated with hours you can realistically sell, not with all the time you spend working.
Calculating your hourly rate step by step
1. List your fixed business costs
These include all regular business costs, for example software, insurance, office, phone, internet, hardware, vehicle, marketing, bookkeeping or outside services.
2. Set the income you want to pay yourself
For price planning, decide what income your business should earn for you. For sole proprietors, this is not automatically a business expense in the books. For the calculation it is still an important target figure.
3. Plan a profit and safety buffer
A business shouldn't just cover its running costs. A buffer helps with unexpected expenses, weaker months, investments and growth. That's why a planned surplus makes sense.
4. Estimate your billable hours per year realistically
Subtract holidays, public holidays, sick days, training and internal work you can't bill from your available working time. The result is the hours you can expect to actually sell to clients.
5. Divide your revenue requirement by your billable hours
The result is your minimum hourly rate before the taxes and contributions that, depending on country, legal form and situation, apply to the selling price or the profit.
Example: a freelancer's hourly rate
A freelancer plans the year with these targets:
- income for themselves: EUR 48,000
- business costs: EUR 18,000
- profit and safety buffer: EUR 6,000
This gives a planned revenue requirement of EUR 72,000 per year.
If 1,000 hours per year can realistically be billed, the calculation is:
EUR 72,000 ÷ 1,000 hours = EUR 72 per hour
In this example the hourly rate is EUR 72, before any VAT or sales tax that may have to be added. The same method works in any currency.
Hourly rate or day rate?
For longer consulting or project work, a day rate is often used. You can derive it from your hourly rate:
Day rate = hourly rate × billable hours per day
At EUR 72 per hour and seven billable hours, for example, you get a day rate of EUR 504. Whether seven or eight hours makes sense depends on how you actually work.
Working out a project price from your hourly rate
Even with fixed prices, your internal hourly rate stays important. A simple project calculation can look like this:
Project price = estimated project hours × hourly rate + risk buffer
If a project is expected to take 20 hours and your internal hourly rate is EUR 72, that gives EUR 1,440 to start with. After that you can add project-specific risks, third-party costs or an extra buffer.
The final market price doesn't have to match this figure exactly. Experience, specialisation, value to the client, demand and competition also affect the price you can get. But the calculation shows the level below which the project becomes financially critical.
Germany, Austria and Switzerland: what stays the same?
The business logic is similar across the German-speaking countries: costs, desired income, available capacity and profit target determine the price you need. Differences include currency, taxes, social contributions, legal forms and invoicing requirements.
- Germany: check prices and tax treatment against your own legal form and VAT situation.
- Austria: likewise calculate with your own business costs and the tax rules that apply.
- Switzerland: the same formula works in CHF; consider VAT and personal contributions separately.
An hourly rate calculator therefore shouldn't try to apply one flat tax rate to every self-employed person.
The most common mistakes when calculating your hourly rate
- counting all working time as billable time
- not allowing for holidays and sick days
- forgetting software, insurance and admin costs
- not planning time for finding clients and writing quotes
- no profit or risk buffer
- mixing up net and gross prices
- not adjusting your rate to rising costs for years
- offering fixed prices without an internal calculation of hours and costs
How often should you recalculate your hourly rate?
At least once a year, and also when things change significantly: rising fixed costs, new insurance, additional software, less available working time, a new positioning or a clearly different income target.
A review after larger projects is also worthwhile. If you regularly need more hours than planned, adjust your future pricing.
From hourly rate to quote and invoice
In Freelancer Business Planner you work out your hourly rate with the built-in calculator, write quotes and track your time per client and project. If you need invoices as e-invoices (ZUGFeRD or XRechnung), you write them in Invoice Studio: add your hourly rate as a line item, enter the hours, done. Both apps run offline, with no account and no subscription.
View Freelancer Business Planner
You'll find more calculation tools under Finance and pricing.
Frequently asked questions about hourly rates
What hourly rate is appropriate for freelancers?
There is no generally correct figure. The rate you need depends on costs, billable time, income target, profit target, qualifications, industry and market position.
Should VAT be included in my hourly rate?
For your internal calculation, keep a clear line between your own net selling price and any VAT or sales tax that has to be added on top. How it is handled depends on your country and personal tax situation.
How many hours per year are billable?
That depends heavily on your business model. The key is not to automatically count all your working time. Finding clients, admin, holidays, sick days and internal tasks reduce the capacity you can sell.
Can I use my hourly rate for fixed-price projects too?
Yes. Your internal hourly rate is an important basis for working out the minimum value of a project from planned time and costs. The actual quote price can then be adjusted for risk, value and the market.
Note
This guide is general business orientation and is not tax, legal, financial or business advice. Taxes, social contributions, legal form and invoicing requirements have to be checked separately for your individual situation.