How to set your freelance day rate

To set your freelance day rate, add up what the business must bring in over a year, count the days you can actually bill, and divide. That gives your floor: the lowest rate at which the year still works. The trap is counting holidays, sickness or quiet weeks twice. Each non-billable thing goes in once, as money or as days. Below are the sum, a worked example, a sensitivity table and a worksheet to copy.

The sum behind a day rate

A freelance day rate comes from one division:

floor day rate = money the year must cover ÷ billable days

The money is everything the business has to pay for in a year, including you. The days are the days a client actually pays for. Two errors make the rate too low: leaving costs out of the money, and leaving non-billable time in the days.

The result is a floor, not a price. Below it, every day you work makes the year worse. Above it, you decide how far, based on the work, the client and what similar work fetches. That decision comes after the sum, never instead of it.

Step 1: the money the year must cover

Start with what you want to earn, and work out what the business must turn over to pay it. Three groups go in.

1. Your own pay, before income tax. Use the gross figure, because the income tax on it comes out of what clients pay you. If you are used to a salary, remember that nobody adds an employer's contributions on top any more. Paid leave is handled in Step 2, as days; if your old pay included a fixed yearly bonus such as a holiday allowance or a thirteenth month, include it in your own pay figure.
2. What an employer used to pay for you. Pension contributions, health and income-protection insurance, and any social contributions you now pay yourself. Employees in the EU are entitled to at least four weeks of paid annual leave under the Working Time Directive; as a freelancer, that leave is unpaid unless your rate pays for it. That is handled in Step 2, as days, not here.
3. Business costs. Software, hardware, an accountant, business insurance, a desk or coworking space, phone and internet, training courses, travel to clients.

Leave VAT out of all of this. If you are registered, you usually charge VAT to your client and account for it to the tax authorities; for a business client in another EU country the reverse charge often applies instead. Either way, VAT never belongs to you. Your day rate is always the amount excluding VAT.

Do not add a "buffer" percentage for holidays, sickness or quiet months here. Those are days you cannot bill, and they come off the days in Step 2. Adding them in both places is how a calculation quietly double-counts.

Step 2: count your billable days

Billable days are the days a client pays for. Start from the weekdays in the year and take off everything that is not client work, one line each:

1. Public holidays that fall on a weekday where you live.
2. Your own holiday. Decide how many weeks you will take, and count them as days.
3. Sickness. A few days a year is a sensible allowance; you will not know in advance which ones.
4. Training and learning that you do not bill to a client.
5. Gaps between projects. The days between one project ending and the next starting, when you are free but nobody is paying.
6. Selling and running the business. Proposals, calls with prospects, invoicing, bookkeeping, email. If you spend about one day a week on this, it is about a fifth of the days that remain.

What is left is your billable days. In the worked example below, more than a third of the weekdays drop out before a client pays for any of them. That is the point of counting: a rate built on an optimistic number of days only works in a year that goes perfectly.

Where each item belongs: money or days

Use this table to check that nothing is counted twice and nothing is left out. Each row has one "Yes", except VAT, which belongs in neither.

Training shows the rule clearly. The course fee is a cost, so it goes in the money. The days you sit in the course are days you cannot bill, so they come off the days. Two different things, each counted once.

One case needs care: income-protection insurance. The premium goes in as money. It pays out for long illness, so it does not replace the few sick days in Step 2, which cover the ordinary days you lose each year.

A worked example in euros

The person and all amounts below are made up for this guide. Replace them with your own.

Example

A freelance designer in Europe wants €50,000 a year before income tax.

Step 1: the money.

What the year must cover	Amount per year
Own pay before income tax	€50,000
Pension and income-protection insurance	€7,000
Business costs (software, hardware, accountant, insurance, coworking, course fees)	€9,000
Total	€66,000

No buffer for holidays, sickness or gaps is added here. They are all in the days below.

Step 2: the days.

Days in the year	Days
Weekdays (52 weeks × 5)	260
Public holidays on weekdays	−8
Own holiday (five weeks)	−25
Sickness	−5
Training days	−5
Gaps between projects	−10
Days left for work	207
Selling, proposals and admin (one day in five of the 207, rounded up)	−42
Billable days	165

Step 3: the floor. €66,000 ÷ 165 billable days = €400 a day, excluding VAT.

Step 4: the rate she quotes. She sets her quoted rate at €450 a day. The extra €50 a day is profit. Her ten gap days are her best estimate, and they stay counted in the 165 days; the margin does not replace them. If she bills all 165 days at €450, she turns over €74,250, which is €8,250 more than the €66,000 the year needs.

Step 5: the check. The margin also protects her if her day estimates turn out too hopeful. If she bills ten days fewer than planned, 155 days at €450, she turns over €69,750, still above the €66,000 the year needs. At her €400 floor, the same 155 days would bring in €62,000, which is €4,000 short.

How sensitive the rate is to each input

A day rate is a division, so the days you assume matter as much as the money. The table below changes one input at a time in the example above and shows what happens to the floor.

Example

Starting point: €66,000 ÷ 165 billable days = €400 a day. Each row changes one thing. Selling and admin are held at 42 days in every row except the one that changes them.

Change	Money per year	Billable days	Floor day rate	Change in the floor
None (starting point)	€66,000	165	€400.00	–
One more week of holiday	€66,000	160	€412.50	+€12.50
Ten more days between projects	€66,000	155	€425.81	+€25.81
Ten fewer days between projects	€66,000	175	€377.14	−€22.86
Selling and admin cut from 42 to 30 days	€66,000	177	€372.88	−€27.12
€4,000 more costs a year	€70,000	165	€424.24	+€24.24

In this example, ten fewer billable days raise the floor by about as much as €4,000 more in yearly costs. Each €1,000 of yearly cost adds about €6 a day (€1,000 ÷ 165).

Two things follow. First, the days deserve as much honesty as the money: in the example, a guess at gap days that is ten days too hopeful hurts about as much as leaving a sizeable yearly bill out of the costs. Second, getting better at selling, so that proposals take less time, raises your income without raising your rate. Run your own numbers through the same table before you decide which input to work on.

From day rate to hourly rate

An hourly rate calculator for freelancers does the same sum in hours. The shortcut is to divide your day rate by the hours you bill in a day.

hourly rate = day rate ÷ hours you bill in a day

The catch is "hours you bill". If your working day is eight hours but only six of them go on client work, and the rest on email and switching between tasks, then the six are what the client pays for. Divide by eight, bill the six hours you actually work, and two of every eight hours in your day go unpaid.

Example

With the quoted rate of €450 a day from the example above:

Hours billed in a day	Hourly rate	Rounded up to the nearest €5
8	€56.25	€60
7	€64.29	€65
6	€75.00	€75

Whatever you choose, use the same hours when a client asks for "half a day" or "a couple of hours", so that the hourly and day prices agree with each other.

Check the rate against the work and the market

The floor tells you what you need. It does not tell you what the work is worth to the client. Before you settle on the rate you quote, look at three things.

• What similar work fetches. Ask other freelancers in your field and country. A rate from a different country, field or level of experience tells you little.
• The value to the client. A day that saves a client a week of their team's time is worth more than a day that tidies a page nobody reads. The guide on how to price a website against its value shows how to set a project price against what it is worth, not only its days.
• Your floor. If the market rate for your work is below your floor, the answer is to change the inputs (costs, days, the type of work), not to work below the floor and hope.

Use the day rate in proposals

Clients buy an outcome, not days: your day rate is how you price that outcome underneath.

1. Estimate the project in days. Break the work into phases and estimate each in days, including calls and project management.
2. Multiply by your rate and add contingency. Then round. The website project pricing guide walks through this with a buffer for the unknowns of that project, which is a different thing from the leave and gaps already in your days.
3. Offer options instead of one number. Rather than lowering your rate to fit a budget you have guessed, show a smaller and a larger version and let the client choose. I learned not to decide for the client what they can afford: put the premium option in and let them opt in. The guide to good, better and best pricing options shows how to build them.
4. State your rate for extra work. Requests outside the scope will come. Leaving out the rate for work outside the proposal is a mistake: the proposal should already say what extra work costs. Put the day and hourly rate for it in the proposal itself.

Where the price sits in the document matters too. The guide on how to write a business proposal covers the price page and the payment schedule.

A day-rate worksheet you can copy

Fill this in once a year, and again when your costs or your pattern of work change.

Template

THE MONEY (per year, excluding VAT)

• My pay before income tax: €[ ]
• Pension, insurance and social contributions: €[ ]
• Business costs (software, hardware, accountant, insurance, workspace, course fees, travel): €[ ]
• Money the year must cover: €[ ] (add the three lines; no buffer for leave or gaps here)

THE DAYS

• Weekdays in the year: [ ]
• minus public holidays on weekdays: [ ]
• minus my own holiday: [ ]
• minus sickness: [ ]
• minus training days: [ ]
• minus gaps between projects: [ ]
• = days left for work: [ ]
• minus selling, proposals and admin: [ ]
• Billable days: [ ]

THE RATE

• Floor day rate = money ÷ billable days: €[ ]
• Rate I quote (at or above the floor): €[ ]
• Hours I actually bill in a day: [ ]
• Hourly rate = rate I quote ÷ hours billed: €[ ]
• Rate for extra work outside a proposal: €[ ] per hour / €[ ] per day

THE CHECK

• Each item above appears once, as money or as days, never both: yes / no
• If my day estimates are ten days too hopeful, the quoted rate still covers the year: yes / no

Mistakes to avoid

• Old salary divided by working days. It leaves out the pension, insurance and costs an employer used to cover, and the non-billable days.
• Leave or gaps counted twice. A percentage "buffer" on the money plus fewer days in the count is the same allowance twice. It prices you above what your year needs and hides which input is doing the work.
• Leave or gaps not counted at all. Dividing by every weekday in the year, as if you never take a day off.
• Eight billable hours a day. Calls, email and admin take time out of a working day.
• A rate set once and never revisited. Your costs, and the time you spend selling, change from year to year.

This is general information, not legal or tax advice. For your situation, ask a lawyer or accountant.

How Propozit helps

Once you have a rate, put it where your proposals can use it. In Propozit, your price list holds six product types, prices per currency or on request, deals, and rules you write yourself. You can add yourself with your day rate, and hourly rates or hour bundles for support and extra work. When you build a proposal, pick yourself from the price list, set the days, and a fixed-price project is priced by who works on it, with the day rate taken from your price list. See how pricing works in a deck.

In the deck you can then offer options and plan choices with live totals, payment plans the client picks, the days within which invoices are due, and an extra-work rate, so the price for work outside the proposal is in writing from the start. There is more on working alone in Propozit for freelancers.

Propozit is in early access and free to start.