What an Hour of Your Time Actually Costs (and Why It's Not Salary ÷ 2,080)

The number almost everyone starts from is wrong

Ask a freelancer how they set their rate and you will usually get some version of this: "I wanted about 45,000 a year, that's roughly 21 an hour over 2,080 hours, so I charge 40 and that feels like a good margin."

Every step of that is wrong, and the error compounds. By the end of this article the same person needs to be charging 70 an hour to hit the same take-home — not because they are greedy, but because arithmetic.

Step 1 — you are not the only thing you pay for

Before any of your money is yours, the business takes its share. Software, hosting, an accountant, insurance, hardware amortised over three years, training, bank fees, the domain renewals you forget about.

For a solo operator this lands somewhere between 6,000 and 12,000 a year. Call it 9,000. Your 45,000 target is now a 54,000 requirement.

Step 2 — tax is not a rounding error

Whatever your jurisdiction, some fraction of revenue never belongs to you. Add income tax, national insurance or equivalent, and pension, and an effective rate of 25–35% is normal for a profitable freelancer.

This is the step people skip, and it is the biggest one. You do not subtract tax from the target — you gross up to reach it:

You need to invoice 75,000 to take home 45,000. Not 45,000. Not 54,000.

Step 3 — you cannot bill 2,080 hours, and it isn't close

2,080 is 52 weeks × 40 hours. Nobody has ever billed it.

Start with the weeks. Take off holiday, public holidays and the days you are ill. 46 working weeks is realistic; 48 is optimistic.

Then the hours. You cannot bill eight hours of an eight-hour day. Six is the honest figure for focused client work, and that already assumes a good day with no meetings.

46 × 5 × 6 = 1,380 billable hours. That is your actual ceiling, and it is 34% below 2,080.

The number

75,000 ÷ 1,380 = 54.35 per hour.

That is your true cost per hour: the rate at which you exactly break even on your own targets, with zero profit and zero buffer. Below it you are subsidising your clients out of your own savings.

And it is 2.5× the 21.63 that "salary ÷ 2,080" produced.

Step 4 — the part that catches people who did all of the above

1,380 is the hours you can sell. It is not the hours you will actually sell.

Somebody has to write the proposals, chase the invoices, do the bookkeeping, take the discovery calls that go nowhere, and update the portfolio. That work is real and it is unpaid.

The share of available hours you actually bill is your utilisation rate, and for a solo operator it is typically 50–65%. Anyone claiming 80% is not counting the proposals.

At 60% utilisation you will sell roughly 828 hours, not 1,380. Which means the rate that actually hits your target is:

75,000 ÷ 828 = 90.58 per hour, or about 543 a day.

So which number do you charge?

Two, and they do different jobs.

Your cost per hour (54.35) is the floor. It is what you measure finished projects against, and it is the number that tells you a project lost money.

Your target day rate is what you quote. Take the cost-based day rate and add about 30%: the buffer absorbs the overruns, the client who pays late, and the month the pipeline is thin. Without it, a single bad project wipes out the year's profit.

What to do when the number looks too high

It usually does. The reflex is to decide the calculation is unrealistic and go back to the comfortable figure. Don't — the arithmetic does not care.

Only three things actually move, and they are not equal:

If the gap between what you need and what you earn is large, the honest diagnosis is almost always that you are underpriced — not that you are working too slowly.

The check that closes the loop

Knowing your cost per hour is only useful if you compare it against what actually happened. After each project, divide the revenue by the hours you really worked — including the ones you did not invoice, the calls, and the revisions you absorbed.

That is your effective hourly rate, and it is frequently a shock. A 9,800 project sounds excellent until you find it took 128 hours and earned 77 an hour.

Frequently asked questions

How do I calculate my true cost per hour as a freelancer?

Add your target take-home income, your annual business costs and your tax and pension set-aside, then divide by the hours you can realistically sell — working weeks times working days times billable hours per day. Use about six billable hours per day, not eight. For a 45,000 target with 9,000 of costs at 28% tax over 46 weeks, that is 75,000 divided by 1,380 hours, or 54.35 an hour before any profit.

Why is salary divided by 2,080 wrong?

It ignores three things: your business costs, your tax and pension set-aside, and the fact that a working year contains around 1,380 billable hours rather than 2,080. It also assumes every available hour gets sold, when a solo operator typically bills 50 to 65 per cent of them. The result is usually less than half the rate you actually need.

What utilisation rate should I expect?

Between 50 and 65 per cent is normal for a solo freelancer. Below 50 per cent means you are effectively running a sales and admin business that occasionally does client work. Above 75 per cent is usually either unsustainable or achieved by not counting proposals, invoicing and unpaid calls — and pushing past it tends to empty the pipeline, because the pipeline is built in the unbilled hours.

Should I charge my cost per hour?

No — that is your break-even floor, not your price. Add a margin of around 30 per cent to the cost-based rate to absorb project overruns, late payment and thin months. Your cost per hour is the number you measure finished projects against; your target rate is the number you quote.

My calculated rate is much higher than my market. What now?

Either the market is different from the one you are imagining, or the target income needs revisiting, or you are pricing against people solving a smaller problem than you are. What does not work is ignoring the number — the arithmetic is indifferent to what feels comfortable. Raising the rate is by far the strongest of the three available levers, because your costs do not rise with it.

Work it out on your own numbers

Every figure above comes from the Freelance Profitability & Capacity Planner — six Excel sheets that derive your cost per hour, then measure real projects and clients against it, show your utilisation week by week, and tell you the floor price a new project must carry to be worth taking.

If you also need the paperwork that protects the rate once you have set it — contracts, a statement of work, a change-order process — that is the Web Agency Toolkit.