Why freelancers underprice, and the one number that fixes it
Most freelancers do not underprice because they are bad at business. They underprice because the number they use to set their rate leaves out half of the picture. Here is the one number that fixes it, and how to work it out in two minutes.
The trap: dividing income by every working hour
Say you want to take home S$5,000 a month and you work 40 hours a week for 46 weeks a year. A quick sum, S$60,000 divided by 1,840 hours, gives S$32.61 an hour. It feels reasonable, but it quietly assumes every working hour is paid. It also ignores your business costs and any profit you need to keep.
The one number: your minimum hourly rate
Your minimum hourly rate is the revenue your business needs in a year, divided by the hours you can really bill. Three things change the answer:
- Billable hours, not working hours. Quoting, admin, learning, chasing payments and revisions are real work that nobody pays for. If 55% of a 40-hour week is billable, that is 22 hours, or 1,012 billable hours over 46 weeks.
- Business costs. Software, insurance, equipment and co-working add up. In this example they are S$700 a month.
- A profit margin. Money you keep for slow months and growth. Here it is 10% of revenue.
Required revenue is (S$60,000 + S$8,400) ÷ 0.90 = S$76,000. Divide by 1,012 billable hours and your minimum rate is S$75.10 an hour, more than double the quick answer.
Creative ways to use the number
- Run a yearly rate check-up. Each January, rerun the sum with your real costs and your real billable hours from the year just gone.
- Test your next holiday. Change 46 working weeks to 42 and see what it does to your rate before you book.
- Price new clients first. Quote the new rate to new clients, then move existing clients with advance notice.
- Sanity-check against the market. The free tool compares your result with broad ranges for your service type. They are indicative, not audited, so treat them as a prompt to look closer, not a verdict.
Pro (Business licence), coming soon: Compare hourly, fixed-price and retainer pricing side by side, see profit per client, and save scenarios to revisit later. Join the Pro waitlist.
Try it with your own numbers
The free RateFlow calculator gives you your minimum hourly rate, day rate, project price and retainer price. Once you have your rate, turn it into a quote with QuoteFlow.
Numbers in this article are examples in Singapore dollars; use your own. Income is take-home, and tax and social contributions are not included. Estimates only, not financial advice.