How much is $45,000 a year hourly? A common pitfall freelancers encounter is an error in calculation by merely dividing hours worked in a year with their expected annual income. Here’s what you should actually consider when setting your hourly rate.
Full-time employees have salaries that cover a wide array of business costs, including licensing, taxes, health care, and various business essentials. The same cannot be said when you are your own boss. As a freelancer, you are required to cover all of that and more.
Even if you charge flat-rate or value-based, freelancers need to know their minimum hourly rate to get a sense of how much their service is valued in relation to time spent working.
But what’s the best way to start? Let’s discuss the most common approach.
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How most freelancers calculate their hourly rate
To answer how much is $45,000 a year hourly, most freelancers make the common pitfall of merely dividing their salary with the number of hours worked each year.
There are 2,080 working hours per year if we assume that a freelancer works 8 hours every weekday.
Here’s how calculations are usually made:
- Determine the standard number of hours worked per year: 2,080
- $45,000 desired salary / 2,080 hours = around $21.6 per hour
The math here is sound, but the method needs rethinking. If your goal is to make $45,000 a year and charge only $21.6, you’re making the massive mistake of not considering the expenses involved in running your business.
Ask yourself: are you considering the fees that are required to make money?
Even if you pad your rate and add an extra 20% to cover additional expenses, you still run the risk of becoming unprofitable.
Making $45,000 a year in gross income (without expenses subtracted) is worlds apart from actually taking home $45,000 in profit.
To make $45,000 in net income requires a more thorough calculation of expenses.
To accurately set your hourly rate, our Freelance Hourly Rate Calculator considers all the expenses involved with freelancing including sales, travel, and marketing, software licenses, platform fees, business development, and days off per year. Here’s how to use it.
The right way to calculate your hourly rate
STEP 1: Access the Freelancer Nomads Freelance Hourly Rate Calculator
While full-time workers get the convenience of having an accountant to help them sort their finances, freelancers are left alone to figure things out.
So how much is $45,000 a year hourly? Without considering expenses, we’ve arrived at $21.6 per hour.
Our Freelance Hourly Rate Calculator automatically assumes that a freelancer will work 8 hours a day on weekdays for a total of 2080 hours a year.
With goals of helping you reach your desired annual freelance income, the calculator will factor in your business expenses, which include business development, software, marketing, and paid time off.
Since our calculator considers your expenses, we can expect an amount that is far greater than $21.6 per hour.
Most freelancers are oblivious to the many overhead costs associated with the freelance lifestyle, and the results may surprise you.
PRO TIP: Freelance calculators will give you an hourly rate based on your expenses so you can generate profit and support the quality of life you want. However, they won’t account for the value that you can provide to your clients.
A freelancer with five years of experience will charge a lot more than someone who is newly entering the market. A freelancer with an in-demand skill would charge higher than someone with a less demanded skill. Rates are complicated and we understand that.
Therefore, when using our calculator, don’t take the results literally.
Study your market value and see how a freelancer of your caliber should charge, then use the results from our calculator as a baseline for determining an honest rate – one that’s not only fair for you, but fair for the client.
STEP 2: Input Your Desired Annual Salary
How much do you want to make as profit per year?
Input the income you want to pocket after all expenses have been subtracted.
Let’s add $45,000 here as an example.
PRO TIP: Be fair about your desired net income. One of the pitfalls of setting your own rate is coming up with an unrealistic amount. You’ll be hard-pressed to find a job if your desired income is $100,000 as a neophyte freelancer.
Before finding out the answer to how much is $45,000 a year hourly, be aware of your market value so you can better determine a fair profit.
See Related: 5 Ways to Get Paid to Make Spreadsheets
STEP 3: Input your Sales, Travel, and Marketing Expenses
Lump your sales, travel, and marketing expenses together on the third box. If your freelance job requires traveling, your travel expenses should include approximate expenses for travel accommodation, flights, and living allowances while traveling.
Also include your expenses for sales, advertising, promotions, and other marketing endeavors.
A freelance writer who travels to a nearby coffee shop for work three times a week may have travel expenses of around $300 a year. Let’s include that amount in the calculator.
STEP 4: Input Software/License Expenses
To perform your work to the highest standards, you should be using the best software available. If you’re a graphic designer, this may include your expenses for the latest Adobe Suite.
If you’re a freelance writer, then you’re probably subscribed to an editing or proofreading tool like Grammarly.
If you’re handling your back-office accounting on your own, then you may be using Quickbooks. Find out how much you spend on the software you use and lump them all together in this section.
A freelance writer subscribed to Grammarly will dole out $139.95 per year. Let’s add that in.
STEP 5: Determine your platform fees
Most freelance platforms skim a certain amount from your earnings as commission. They may take as much as 20% off your hourly rate or charge a fixed fee for using their service.
Estimate how much you pay platforms for their services, and input your platform fees on the box provided.
PRO TIP: Upwork charges 20% for your first $500 billed client, and then 10% for billing between $500.01 and $10,000. For earnings that exceed $10,000, the platform charges 5%.
Fiverr, on the other hand, takes 20% of your earnings for every job you complete.
A freelance writer with an Upwork client will be charged 20% of his earnings per hour for service fees. Let’s add that in.
STEP 6: Calculate your business development hours in percentage
Before you are able to answer how much is $45,000 a year hourly, you need to figure out your non-billable hours throughout the year. Your non-billable time is the time that you spend trying to land more clients.
This includes browsing through freelance platforms and emailing new prospects – all endeavors related to making sure you have a consistent client base. Estimate the percentage of time you spend generating new business and add it in the box provided.
A freelance writer will most likely spend 15% of his time managing business development. Let’s include that in the calculator.
See Related: 8 Easy Freelance Jobs
STEP 7: Input your paid time off
Freelancers need time to rest too, so for good measure, include your paid time offs. Estimate how many days in a year you intend to take time off and add it in the box provided.
A freelance writer may want to spend 20 days a year as paid time off. Let’s add that in.
STEP 8: Arrive with your hourly rate
Using our freelance writer as an example, we can now answer how much is $45,000 a year hourly. After clicking on “calculate”, we’ve arrived at a suggested hourly rate of $33.25 per hour.
Compare that with our initial $21.6 per hour calculation – that’s an $11.65 difference.
It becomes apparent how easy it is to undervalue our services. If you aren’t aware of the hidden costs associated with being your own boss, it can be ridiculously easy to underprice.
The next steps to take
Now that you have an idea of how much to charge hourly to live a comfortable life, what’s the next step?
Compare this rate with the average market value.
Do your homework and compare your new hourly rate with how much freelancers of your caliber charge.
Is this rate less or more? If you’re overcharging, you’ll find it difficult to land new clients as you’ll be overshadowed by competition.
Remember, it’s better to land clients with a fair price than end up with none due to a bloated rate.
If you’re charging less, you’ll end up being unprofitable. Adjust your calculated rate accordingly to remain attractive to potential clients, even if that means a little give and take.
See Related: Can You Do Freelance Work on an H4 Visa?
Apply this rate in all the ways you do business.
Now that you have an idea of how much your hourly rate is, you now have a new perspective of how much you’re worth.
If you’re charging a fixed-price per project, ask yourself:
how many hours will I spend working on this project, and does it align with my hourly rate? If it doesn’t, adjust accordingly.
If you charge based on value, your calculated hourly rate should give you an idea if your value-based rate will account for your expenses.
You can factor in your newfound calculation in all the ways you do your business.
See Related: How to Register as a Freelancer
Periodically reassess your rates.
Spend time to review your expenses and compare them to the rates you’re charging at least once a year. While reassessing, determine if a rate increase is in order.
It’s a good idea to let your clients know that you reassess your rates annually before accepting a project.
This helps prepare your clients for the possibility that you may increase your rates sometime in the future.
Use your newfound knowledge in negotiation.
Most clients are unaware of the expenses a freelancer incurs from the service they provide – this may include the software you use, transportation costs, printing documents, or a cell phone plan.
Use the knowledge of your expenses as leverage when negotiating your rate with a client. Let your potential clients know that your asking price is warranted due to the expenses you’ll incur.
Explain that making money as a freelancer can be costly and that your rates are set to help cover those expenses.
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