How to Set Rates So You Don’t Undervalue Yourself (A Simple Formula)

A formula for freelancers to set confident rates; cover your salary, overhead, taxes, and profit then price packages that sell. Stop quoting hourly rates that make you resent projects you have to use this simple formula freelancers swear by.

You can’t run a business on vague feelings about value. Underpricing creates burnout, chases the wrong clients, and turns your talent into commodity labor. Use one repeatable math-backed method and negotiation scripts to stop guessing and start charging what you deserve.

A short micro-anecdote

I once quoted a rate I thought was “safe” and later discovered the project took twice as long as expected; I ended up working nights and feeling resentful. After rebuilding a simple rate calculator, I raised my floor by 40% and started choosing better projects and enjoying work again.

The real problem with underpricing

Underpricing is rarely about being “too cheap.” It’s about:

• Not accounting for non-billable time (marketing, admin, bookkeeping).
• Ignoring overhead (software, insurance, taxes).
• Failing to build a buffer for slow months and unexpected expenses.

When you price from emotion, clients sense uncertainty. When you price from a formula, you sound confident and confident pricing closes better.

The simple rate formula (step by step)

Core formula: Hourly rate = (Desired salary + Overhead + Taxes + Profit) ÷ Billable hours

Step by step mini-template(use this):

1. Desired salary is the take home you want for personal living (before business taxes).
2. Overhead is the annual business costs; subscriptions, insurance, equipment, marketing.
3. Taxes is the estimated self-employment tax + income tax you’ll owe (use conservative %).
4. Profit is the margin to save or reinvest (5–20% recommended).
5. Billable hours is your realistic hours you can bill per year (not total work hours).

Example calculation (do the math with me):

• Desired salary: $60,000
• Overhead: $12,000
• Taxes: $10,000
• Profit: $6,000 Total needed = 60,000 + 12,000 + 10,000 + 6,000 = 88,000.

Billable hours: 25 billable hours/week × 48 working weeks = 1,200 hours.

Hourly rate = 88,000 ÷ 1,200 = 73.333… → $73.33 per hour. (You can round to $75/hr or set $70–80 as your price band.)

Why does this works you might ask. It works because it ties your price to real money needs, not to what you think clients will pay.

Quick ways to adjust the formula

• If billable hours are lower: reduce expected billable hours (e.g., 15–20/week) and recalculate, your hourly should rise.
• If you want simpler pricing: calculate an equivalent daily rate by multiplying hourly × expected billable hours per day (e.g., $75 × 6 = $450/day).
• For project pricing: estimate total hours, multiply by your hourly, then add a 10–20% risk buffer (round intelligently).

Mini-template (spreadsheet columns): Item | Annual $ | Notes. Then compute total need and divide by billable hours. Easy Right?

Negotiation scripts that actually work

When you quote from value, language matters. Use these short scripts(this is what works for me).

Initial quote (confident): “Based on the outcomes you want, my rate for this scope is $X. That includes [deliverables] and [number] revisions.”

If they say it’s too high: “I understand, tell me which part of the scope is most important and I’ll show options to tighten the budget.”

If they try hourly bargaining: “My hourly rate is $X, but for this scope I recommend a project fee of $Y so you know the cost up front.”

Closing with a small concession: “I can offer a 5% discount for a 30% deposit and a two-week delivery window.”

It works because you reframe the conversation from your hourly to client outcomes and scope control.

Package pricing examples (3 simple tiers)

Packages anchor client expectations and reduce negotiation friction.

Basic; Good

• Deliverable: One deliverable (e.g., blog post or landing page)
• Timeline: 1–2 weeks
• Price: $300–$600

Standard; Better

• Deliverables: 3 deliverables (e.g., content + edits + small graphic)
• Timeline: 2–4 weeks
• Price: $900–$1,800

Premium; Best

• Deliverables: Strategy + 6 deliverables + two rounds of revisions + priority support
• Timeline: 4–8 weeks
• Price: $2,500+

Mini-package template:

• Package name | Deliverables | Revisions | Timeline | Price | Add-ons (extra $)

Tip: price anchors work. Show the premium first, then present standard and basic.

Practical pricing rules & checklist

• Never quote without a scope. Ask questions first.
• Ask for a deposit (25–50%) on projects over $1,000.
• Add a change-order clause. Extra scope = extra fees.
• Raise rates annually (5–15%) and notify existing clients in advance.
• Track actual time on the first project to learn how realistic your estimates are.

Short weekly habit: review 1 completed project and compare estimated hours VS actual and adjust future pricing.

Summary

Set rates that pay you like the professional you are: calculate your real annual needs (salary + overhead + taxes + profit), divide by realistic billable hours, then package and present those rates confidently. Use clear scripts and tidy packages so clients buy outcomes, not time.

Practical resources

• Google Sheets, copy a simple “Rate Calculator” template and plug your numbers into the formula above.
• QuickBooks, use it to track overhead and actual revenue so your next recalculation is fast.