How to set an hourly rate that covers everything
5 min read · Updated 2026-10-08
The most common pricing error for self-employed people is dividing a salary by 40 hours a week and 52 weeks. You cannot bill every hour, and you have costs. Here is the version that includes them.
The formula
Hourly rate = (desired annual income + annual overheads) ÷ billable hours. Billable hours = weeks worked × hours per week × the share of those hours you can actually bill.
Worked example
A rate based on 52 full weeks at 40 hours would have come out at 34.62, about half, and you would have fallen far short of the income you wanted.
- Desired income: 60,000; overheads: 12,000, so you need 72,000
- 40 hours a week, 5 weeks off, so 47 weeks worked
- You can bill 60% of your hours, as the rest goes on admin, quoting and travel
- Billable hours: 47 × 40 × 0.6 = 1,128
- Hourly rate: 72,000 ÷ 1,128 = 63.83
Be honest about billable time
Track a few weeks of how you spend your time. Most owners find that a half to two thirds of their hours can be billed. Your figure may be higher or lower. The accuracy of that single number moves the answer more than any other input.
Then check the market
The formula gives the rate you need, not the rate customers will pay. If it is above what the market bears, you have three levers: lower overheads, raise your billable share, or move towards higher-value work. Try each in the hourly rate calculator.
Frequently asked questions
Should overheads include tax?
Set aside money for tax separately, according to your country's rules, or include it in your desired income. Ask an accountant.
How is this different from the rate I pay an employee?
An employee's cost per hour is what you pay them plus on-costs. Your charge-out rate must also cover overheads and non-billable hours.
Should I have one rate for all work?
Not necessarily. Rates often differ by type of work, urgency and customer, as long as the average covers your needs.
Put it into practice
BusinessPilotOS connects quotes, jobs, invoices, payments and costs, so the numbers in this guide come straight from your own records.