A lot of freelance pricing starts with a number that feels plausible.
Maybe a former employer paid you $40 an hour, so you charge $50. Maybe someone in a Facebook group charges $100, so you charge $90. Maybe a client asks for your rate before you have one, and $75 comes out of your mouth.
The problem is that a freelance rate has to pay for more than the hour spent doing the visible work.
It has to carry the time spent finding clients, writing quotes, doing administration, maintaining equipment, answering emails, fixing mistakes, taking holidays and sitting through the occasional Tuesday with no billable work at all.
The useful way to set a rate is to work backwards.
This article is general information, not tax, accounting or financial advice. Tax obligations vary by individual circumstances and location.
How do you calculate a freelance hourly rate?
Start with the annual amount you want the business to provide for you before personal income tax.
Suppose your target is $90,000.
Now add annual business overhead that is not directly billed to individual jobs. For example:
- Software: $3,000
- Insurance: $1,500
- Accounting and legal: $2,000
- Equipment replacement: $5,000
- Marketing: $3,500
- Office and communications: $3,000
- Miscellaneous overhead: $2,000
That is $20,000 of overhead.
Your business therefore needs at least $110,000 in gross margin before considering a safety buffer or growth.
Now comes the part that changes the answer: billable hours.
How many hours can a freelancer actually bill?
Not 2,080.
That number assumes 40 hours a week for 52 weeks, with every hour sold to a client. A real business has holidays, sick days, administration, sales, bookkeeping, setup, learning and gaps between projects.
Say you want four weeks off. That leaves 48 working weeks.
At 40 hours a week, that is 1,920 working hours.
Now suppose only 60% of those hours are realistically billable. That leaves 1,152 billable hours.
Divide the $110,000 requirement by 1,152 and you get about $95.49 per billable hour.
If only half your working time is billable, the number rises to about $114.58.
That is why copying an employee hourly wage produces such misleading freelance pricing. The structure is different.
Should you add a profit margin on top?
If your target income already represents what you want to take from the business, you have covered one important goal. But a business that produces exactly enough to pay you and its bills has no room for surprises.
Equipment fails. A client defaults. A month goes quiet. You decide to hire help. A project takes 20% longer than expected.
Adding a buffer gives the business room to absorb those events.
You can build that into the target revenue before calculating the rate. If the $110,000 minimum becomes a $125,000 target, using 1,152 billable hours produces a rate of about $108.51.
You do not have to show a client any of this arithmetic. It is internal pricing logic.
What expenses should your rate cover?
Think beyond monthly subscriptions.
Your rate may need to carry:
- Computer and equipment replacement
- Repairs
- Insurance
- Professional fees
- Software
- Phone and internet
- Office or studio costs
- Advertising
- Education
- Banking and payment fees
- Bad debt
- Travel that is not separately billed
- Time spent quoting work you do not win
- Time spent collecting overdue invoices
Then consider project-specific costs separately.
If a job requires a $700 rental, you can show that as a project cost rather than hoping your normal hourly rate absorbs it.
This separation also makes profitability easier to understand. Revenue is not the same thing as profit.
A $5,000 job with $2,000 of direct costs is a different job from a $5,000 job with $100 of direct costs.
How much should you set aside for taxes?
There is no single percentage that is correct for every Canadian freelancer.
Your income tax depends on your taxable income, province or territory, deductions, credits and business structure. Self-employed people may also have Canada Pension Plan obligations, and GST/HST registration creates a separate sales tax responsibility once applicable.
So do not choose a tax percentage from a generic article and treat it as a fact.
Instead, estimate your own obligations with current tax information or an accountant, then keep tax money separate enough that it does not look like available spending cash.
For rate setting, the key point is that the amount a client pays your business is not the same as your personal take-home income.
Is hourly pricing better than project pricing?
Hourly pricing is useful when the scope is uncertain or the client controls how much work will be required.
Consulting, ongoing support, editing with unpredictable source material and open-ended technical work can fit hourly billing well.
Its weakness is that the client does not know the final cost unless you give an estimate or cap. It also ties revenue closely to time.
Project pricing works better when the outcome is clear enough that you can estimate the effort and take responsibility for delivering it.
If you can complete a valuable project efficiently, a fixed fee does not punish you for being fast.
Its weakness is scope risk. If you quote $4,000 for what you think is 30 hours and the project becomes 70 hours, the effective rate collapses.
The answer is not that one model is always better. Use the model that matches how predictable the work is.
When does a day rate make sense?
A day rate works well when the client is buying a meaningful block of your capacity.
On-site production, workshops, consulting sessions and certain trades often fit naturally into half-day or full-day pricing.
A day rate should not simply be your hourly rate multiplied by eight.
A booked day may prevent you from taking another job even if the client only uses six hours. Travel and setup can consume capacity too.
Define what a day means. Is it up to eight hours on site? Does travel count? What happens after the included time? Are expenses separate?
A clear day rate is simple. A vague day rate creates the same problems as a vague hourly rate.
How do you set a fixed project price?
Estimate the work internally even if the client never sees an hourly rate.
Break the project into stages. Estimate time for each stage. Add direct costs. Add a contingency for the parts that regularly expand. Then compare the result with the value and market reality of the project.
Suppose a project looks like:
- Discovery: 4 hours
- Production: 12 hours
- Revisions: 5 hours
- Administration and meetings: 3 hours
- Delivery: 2 hours
That is 26 hours.
At an internal target of $110 per hour, labour needs to produce $2,860. Add $400 of direct costs and a reasonable contingency, and a $3,500 to $4,000 quote may make sense depending on the work and market.
This is far better than starting at “$2,500 feels about right.”
How do you know when your rate is too low?
Being busy is not proof that your rate works.
Look at completed jobs.
How much did you bill? What direct costs did the job create? How many hours did it actually consume, including meetings, prep, revisions and admin?
Then calculate the effective rate.
A $3,000 project that takes 20 hours and has $200 of direct costs leaves $2,800 before overhead, or $140 per hour of your time.
A $3,000 project that takes 45 hours and has $900 of direct costs leaves $2,100 before overhead, or about $46.67 per hour.
Same invoice total. Completely different business result.
Ledger lets you record cost per line item so you can see margin rather than only what was billed. That is useful because pricing mistakes are often invisible when you look only at revenue.
For a deeper look at this, see job profitability: what did that job really make?.
How do you raise rates with existing clients?
Do it clearly and with notice.
You do not need to write an essay defending every increase in your own costs.
A simple message can say that your rate will change from $100 to $115 per hour for work booked after a specific date. If a client has an existing signed project, honour the agreed terms unless the agreement allows something else.
For recurring clients, reasonable notice gives them time to plan.
You can also change the structure rather than only the number. A client who has been buying scattered hourly work might be better served by a fixed monthly scope or project package.
Expect some clients to question an increase. That does not automatically mean it is wrong.
If every client accepts every quote instantly and your calendar is permanently full, price may be one of the levers available to balance demand.
Should different clients pay different rates?
Sometimes, because the work is different even when the job title sounds the same.
A rush job, a complex approval process, a high-risk project, extensive travel or unusual usage rights can change the price.
What is harder to defend is random pricing with no business reason behind it.
Create a baseline. Then adjust for scope, risk, cost, schedule and value.
That makes quoting faster because you are modifying a model rather than inventing a number from scratch every time.
Your rate is a business model in one number
A sustainable rate has to account for the hours you cannot bill and the costs the client never sees.
Start with the annual result you need. Add overhead. Estimate realistic billable capacity. Build in room for uncertainty. Then check the theory against completed jobs.
Your first calculation will not be perfect. That is fine.
The important change is moving from “this number sounds reasonable” to “this number is supported by what the business actually costs to run.”
Sources: Canada Revenue Agency on business expenses.