Why Most Freelancers Undercharge (And How to Fix It)
If you treat a 40-hour freelance workweek like a 40-hour employee workweek, you are losing money. Here is why your rate is probably too low and how to fix it.
Educational content only. This guide is published by the Blank Invoice Maker Editorial Team and maintained against primary-source references and in-product workflows. It is not legal, tax, or accounting advice. Read our editorial policy.
One of the most dangerous traps a new freelancer can fall into is the "salary division" method: taking their old full-time salary, dividing it by 2,080 (the number of working hours in a year), and calling that their hourly rate. It feels logical, but it almost guarantees you will be underpaid. Here is why the math breaks down and how to find your true rate.
The 40-hour myth
When you are an employee, a 40-hour workweek means you get paid for 40 hours. When you are a freelancer, a 40-hour workweek means you might spend 25 hours on billable client work, and 15 hours pitching, marketing, bookkeeping, and sending late payment emails.
If you only bill 25 hours a week but your rate is based on 40, your income drops by nearly 40% before you even factor in taxes.
The overhead you forgot about
Employees do not pay for their own laptops, software subscriptions, health insurance (in many countries), or office space. Freelancers do. Your rate has to cover your business overhead, which can easily consume 10-20% of your gross revenue. If your rate only covers your personal living expenses, your business is operating at a loss.
Unpaid time off
What happens when you get sick, take a vacation, or observe a public holiday? As a freelancer, you earn nothing. A sustainable rate must build in a buffer for unpaid time off, effectively spreading your income across the days you do work so you can afford the days you don't.
How to fix it
Instead of starting with an old salary, you need to work backwards from your target net income, add your expenses and taxes, and divide that by your billable hours. We built a free True Hourly Rate Calculator to do exactly this. Plug in your numbers and see what you actually need to charge to hit your goals.
About this content
Published by Blank Invoice Maker
Blank Invoice Maker educational content is published by the Blank Invoice Maker Editorial Team. The team writes from hands-on product knowledge and checks each guide against current primary-source references and in-product workflows before publication.
Frequently Asked Questions
- Why shouldn’t I just divide my old salary by 2080 hours?
- Because freelancers don’t work 2080 billable hours a year. You have to account for unpaid admin time, sick days, vacations, and business expenses. Dividing by 2080 will result in a rate that is far too low.
- How many billable hours should I plan for?
- Most full-time freelancers average between 20 and 30 billable hours per week. The rest of your time is spent on marketing, admin, and professional development.
- How do I calculate my true rate?
- Use our free True Hourly Rate Calculator in the Tools section. It factors in your target income, expenses, taxes, and non-billable time.