The point of a floor rate
Your floor rate is not a market average. It is the minimum hourly number that keeps you profitable after expenses, taxes, and non-billable time.
If you do not know your floor, every quote becomes a guess.
The inputs you need
You only need three buckets:
- Monthly personal target: what you want to pay yourself
- Monthly business overhead: tools, software, insurance, phone, coworking, contractors
- Tax reserve: a conservative percentage you set aside
And one constraint:
- Realistic billable hours per month: not 160. A number that reflects sales, admin, meetings, context switching, and recovery time.
Step 1: Add your monthly target and overhead
Write these down:
- Personal target (monthly):
$____ - Overhead (monthly):
$____
Add them:
monthly_need_before_tax = personal_target + overhead
Step 2: Add a tax reserve
A common mistake is calculating your rate on pre-tax income and then feeling broke later.
Pick a tax reserve percentage (example: 25% to 35%) and convert it into a multiplier:
- 25% reserve → divide by
0.75 - 30% reserve → divide by
0.70 - 35% reserve → divide by
0.65
Formula:
monthly_need_after_tax = monthly_need_before_tax / (1 - tax_reserve)
Step 3: Divide by realistic billable hours
Now choose billable hours you can actually deliver every month.
Many freelancers land somewhere between 60 and 110 billable hours depending on pipeline, meetings, revisions, and energy.
Formula:
floor_rate = monthly_need_after_tax / billable_hours
That number is your floor. Anything below it is a slow loss.
Step 4: Build a range, not a single number
A single rate makes you brittle. A range makes you resilient.
- Floor: protects you
- Target: what you aim for on standard work
- Premium: for rush, high complexity, or high opportunity cost
If you do not have a range, you will underprice the work that costs the most.
Quick checks
What if my floor rate feels too high?
That usually means one of these is true:
- Your overhead is heavy relative to your current billable capacity
- Your billable hour assumption is too optimistic
- Your business model needs better packaging (retainership, tighter scope, fewer revisions)
Lowering the number without changing reality only delays the problem.
Can I use this for project pricing?
Yes. Convert scope into hours using conservative assumptions, then price from your floor upward. Your floor rate is the math that protects every project quote.
What about day rates?
Day rates are just hourly math with a different wrapper.
If you charge a day rate, back it into an hourly number and ensure it clears your floor.
Next step
Use the calculator to get your floor, target, and a sustainable range: