Pricing basics
The Freelance Rate Formula (Worked Example)
There's no mystery to freelance pricing. It's a formula: your costs divided by the hours you can actually bill, plus a margin. The reason most freelancers get it wrong is that they estimate the inputs badly — they use aspirational billable hours, forget half their costs, or skip the margin.
Let's work through the formula with real numbers. We'll use a fictional but realistic freelancer: a mid-level brand designer in Portugal.
The formula
break-even rate = monthly costs ÷ monthly billable hours
minimum rate = break-even rate × 1.3 (30% profit + buffer margin)
That's it. Two lines. The work is in getting the two inputs right.
Input 1: Monthly costs
Our designer lives in Lisbon. Let's add up everything it costs them to exist as a freelancer, per month.
Living costs
- Rent (1-bedroom, Lisbon): €800
- Food and household: €400
- Transport and phone: €120
- Health insurance (private): €80
- Subtotal: €1,400/month
Business costs
- Adobe Creative Cloud: €60
- Coworking space: €150
- Laptop amortisation (€1,800 over 3 years): €50
- Internet at home: €40
- Professional insurance: €25
- Accountant: €60
- Subtotal: €385/month
Taxes and social contributions
Portugal's self-employed social contribution (Trabalhador Independente) plus income tax varies, but a reasonable estimate for a mid-earner is 28% of net income. We'll account for this after we know the pre-tax rate — for now, we note it.
Unbillable time
This isn't a cash cost, but it's the biggest hidden drain. Our designer works 40 hours/week, but only 26 are billable — the rest goes to prospecting, admin, revisions, and communication. That's 35% unbillable.
Total monthly cost (pre-tax income needed)
€1,400 (living) + €385 (business) = €1,785/month in hard costs.
To take home that €1,785 after 28% tax, they need to earn:
€1,785 ÷ (1 − 0.28) = €2,486/month gross
Input 2: Billable hours
Our designer takes 4 weeks of holiday a year and loses another 2 weeks to sick days, public holidays, and gaps between projects. That leaves 46 working weeks.
At 26 billable hours/week: 46 × 26 = 1,196 billable hours/year, or ~100 hours/month.
The calculation
break-even rate = €2,486 ÷ 100 = €24.86/hour
That's the floor — the rate at which our designer makes exactly nothing beyond survival. Any lower and they're paying to work.
minimum rate = €24.86 × 1.3 = €32.32/hour → round to €35
€35/hour is the minimum viable rate for this designer. Below it, they can't cover costs, save for slow months, or invest in growth. Above it, they're building a business — not just surviving.
Checking against the market
Before finalising, check what the local market actually pays. For a mid-level brand designer in Portugal, freelance rates typically range €25–45/hour according to 2025–2026 industry data (design salary surveys and freelance platform aggregators).
Our €35 sits in the middle of the range — which means it's defensible. If the calculation had returned €60, we'd know either the costs are too high or the market won't bear the rate, and we'd need to adjust one or both.
Setting the three tiers
From the minimum viable rate, set:
- Floor: €25/hour (break-even — only for trusted repeat clients or pro-bono-adjacent work)
- Quoted: €35/hour (standard rate for new clients)
- Premium: €50/hour (rush jobs, difficult clients, or work outside normal scope)
What changes the formula
The formula doesn't change — your inputs do.
| Input | If it increases | Effect on rate |
|---|---|---|
| Living costs | You move to a pricier city | Rate must go up |
| Tax burden | Your country raises social contributions | Rate must go up |
| Billable hours | You get more efficient at sales/admin | Rate can stay flat while income rises |
| Market rate | Demand for your skill drops | You may need to cut costs, not just raise rates |
The most leveraged input is billable hours. If you can increase billable time from 26 to 32 hours/week (better sales, less admin, steadier pipeline), your break-even rate drops from €25 to €20 — and your income at the same quoted rate jumps 23%.
Common errors in the formula
- Using 40 hours as billable. Nobody bills 40. Use 25–28.
- Forgetting the tax gross-up. €1,785 take-home ≠ €1,785 gross. You need to earn more to keep that.
- Skipping the margin. Break-even is not a rate. Break-even + 30% is a rate.
- Not recalculating annually. Costs rise. If your rate doesn't, you've taken a pay cut.
Key takeaways
- Break-even rate = (monthly costs ÷ (1 − tax rate)) ÷ monthly billable hours.
- Minimum viable rate = break-even × 1.3 (30% margin for profit and buffer).
- Use 25–28 billable hours/week, not 40 — the gap is where freelancers go broke.
- Recalculate yearly. If your costs rise and your rate doesn't, you've cut your own pay.
For the broader framework behind this formula, read how to set your freelance rate. To understand why the margin matters and what your rate actually covers, see what your rate actually covers. And to get the formula run with your real numbers — costs, country, and skill — try the calculator free.
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