# A Freelance Rate Model in Excel: Why $95,000 Take-Home Needs $151 an Hour

Dividing a target salary by 2,080 hours gives $46. The real answer is three times that, because of utilisation, self-employment tax, and the benefits an employer used to pay. Here is the model built backwards from take-home pay.

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- **Canonical URL:** https://dothecalculation.com/blog/templates/excel-freelance-hourly-rate-model
- **Category:** Templates
- **Author:** Do The Calculation Team
- **Published:** 2026-08-03
- **Reading time:** 11 min read
- **Publisher:** Do The Calculation (https://dothecalculation.com)
- **Methodology:** https://dothecalculation.com/methodology

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## The Calculation Everyone Does First

Target income divided by 2,080 hours. For $95,000 that gives $45.67 an hour, and it is wrong by a factor of three. It assumes every working hour is billable, that no tax differs from employment, and that health insurance and retirement pay for themselves.

The right model runs backwards from what you need to keep. This one lands at $151 an hour, and every step between the two numbers is a real cost somebody used to absorb on your behalf.

Tool: [Try the freelance rate calculator](https://dothecalculation.com/calculators/freelance-rate-calculator) — Work from a target income, utilisation, and expenses to a defensible hourly rate.

## The first correction: billable hours

Selling, invoicing, admin, proposals that go nowhere, bookkeeping, and marketing are all unbillable and all necessary. Independent professionals typically bill 55% to 70% of their working hours.

**From working hours to billable hours**
| Line | Value |
| --- | --- |
| Hours a week | 40 |
| Weeks a year | 52 |
| Less holiday, 3 weeks | −3 |
| Less public holidays and sick days, 1 week | −1 |
| Working weeks | 48 |
| Working hours | 1,920 |
| Utilisation at 60% | 60% |
| Billable hours | 1,152 |

> **Utilisation is the biggest lever in the model** — Moving from 60% to 70% cuts the required rate from $151 to $129, a 14% reduction, without changing a single cost line. It is also the hardest thing to improve, which is why the rate has to be set on your actual utilisation rather than your intended one.

## The costs an employer used to pay

**Annual, before tax**
| Line | Amount |
| --- | --- |
| Software and subscriptions | $3,600 |
| Professional liability insurance | $1,400 |
| Accounting and legal | $2,400 |
| Equipment, amortised | $2,100 |
| Workspace | $3,000 |
| Professional development | $1,200 |
| Marketing and website | $800 |
| Total business expenses | $14,500 |
| Health insurance | $7,200 |
| Retirement contribution | $9,500 |

Health insurance and retirement are listed separately because they are not business expenses in the ordinary sense. They are compensation an employer would have provided, and leaving them out is how a freelance rate ends up below the salary it was meant to replace.

## Working backwards

Self-employment tax applies to net profit, at 15.3% on 92.35% of it, and half of it is deductible against income tax. That circularity is why the model has to be solved rather than added up.

**The chain, from revenue to take-home**

```
Profit = Revenue − BusinessExpenses  ·  SE tax = Profit × 0.9235 × 15.3%  ·  Taxable = Profit − ½ SE tax − Retirement  ·  Take-home = Profit − SE tax − IncomeTax − Health − Retirement
```
- In Excel this is a chain of five cells, and Goal Seek solves it in one step.
- Set the take-home cell to $95,000 by changing the revenue cell.
- An 18% effective income tax rate is used here; substitute your own.

**The solved model**
| Line | Amount |
| --- | --- |
| Required revenue | $173,576 |
| Less business expenses | −$14,500 |
| Net profit | $159,076 |
| Self-employment tax | −$22,477 |
| Income tax at 18% effective | −$24,901 |
| Health insurance | −$7,200 |
| Retirement contribution | −$9,500 |
| Take-home | $95,000 |
| Billable hours | 1,152 |
| Required hourly rate | $150.67 |

> **Where the $105 gap goes** — The naive $45.67 becomes $151. Utilisation accounts for the largest part, taking the effective divisor from 1,920 hours to 1,152. Self-employment tax, health insurance, retirement, and business expenses account for the rest. None of it is padding.

## Solving it with Goal Seek

- Build the chain with revenue as an input cell and take-home as the last formula.
- Data, What-If Analysis, Goal Seek.
- Set cell: the take-home cell. To value: 95000. By changing cell: the revenue cell.
- Goal Seek writes a value into the revenue cell, replacing whatever was there. Keep a copy if it held a formula.
- Then divide revenue by billable hours for the rate.

Goal Seek is the right tool here because the relationship is circular through the half-deductible self-employment tax. Solving it algebraically is possible and nobody wants to maintain the resulting formula.

## What actually moves the rate

**One change at a time, from a $150.67 base**
| Change | Required rate |
| --- | --- |
| Utilisation 50% instead of 60% | $180.81 |
| Utilisation 70% | $129.15 |
| Utilisation 80% | $113.00 |
| Take-home target $75,000 | $125.57 |
| Take-home target $120,000 | $182.06 |
| Business expenses $8,000 instead of $14,500 | $145.03 |
| Four weeks of holiday instead of three | $153.88 |

Utilisation dominates. A ten point improvement is worth more than halving the business expense line. That is a useful thing to know before spending a weekend finding cheaper software.

## Comparing against a salary offer

The same model runs in reverse. To compare a contract rate against a salary, convert the salary into what it costs the employer, then into what the equivalent contract revenue would need to be.

**A $95,000 salary and its freelance equivalent**
|  | Employed | Freelance |
| --- | --- | --- |
| Gross | $95,000 | $173,576 of revenue |
| Employer payroll tax | Paid by employer | You pay both halves |
| Health insurance | Largely employer-paid | You pay it |
| Retirement match | Employer contributes | You contribute |
| Paid holiday | 4 weeks paid | 4 weeks unpaid |
| Unbillable time | Paid anyway | Not paid |
| Equivalent hourly rate | $45.67 nominal | $150.67 billed |

Tool: [Try the hourly to salary converter](https://dothecalculation.com/calculators/hourly-to-salary-calculator) — Convert between an hourly rate and an annual figure to check either side of the comparison.

## What the model leaves out

- Whether the market will pay it. The model computes what you need, not what clients will agree to. If the two diverge, the answer is a different service, a different market, or a different business, not a lower rate.
- Income volatility. A rate that works at 60% utilisation across a year does nothing for the quarter where utilisation is 30%. Freelance income needs a larger cash buffer than employment does.
- The value of the work. Hourly rates price your time; some work is worth far more than the hours it takes, and fixed-price or value-based pricing captures that. The hourly figure is a floor, not a strategy.
- Tax specifics. Self-employment tax rates, deductible expenses, retirement contribution limits, and entity choice all vary and all change the answer. Confirm current rules before relying on the figure.
- Entity structure. Operating through a company rather than as a sole trader can change the tax treatment substantially in some jurisdictions.
- Unpaid invoices. A 5% bad debt rate is a 5% rate cut, and no line above accounts for it.
- Benefits with no price. Employment carries unemployment insurance, disability cover, and often training that the model treats as free because you no longer have them.

**Why is dividing salary by 2,080 wrong?**

It assumes every working hour is billable and that no cost differs from employment. Neither holds. Utilisation alone takes the divisor from 2,080 to around 1,150, and self-employment tax, insurance, and retirement add the rest of the gap.

**What utilisation rate should I assume?**

Measure it rather than assume it. Track billable and non-billable hours for a month. Most independent professionals land between 55% and 70%, and anyone modelling 85% is either exceptional or not counting admin as work.

**Why does the model need Goal Seek?**

Because self-employment tax depends on profit, half of it is deductible against income tax, and income tax therefore depends on self-employment tax. That circularity has no clean closed form, and Goal Seek resolves it in one step.

**Should I include holiday in the rate?**

Yes, by removing those weeks from the working year rather than by adding a percentage. Four weeks off means 48 working weeks, and the required rate rises accordingly. Unpaid time off is real compensation you are giving up.

**How much higher should a contract rate be than a salary?**

On this model, about three times the nominal hourly equivalent. The multiple depends most on utilisation. It is not a markup for being a contractor; it is the arithmetic of unbillable time plus costs an employer used to carry.

**Should I charge by the hour at all?**

The hourly figure is worth computing regardless, because it is your floor. Whether you quote it is a separate decision. Fixed-price and value-based pricing can earn considerably more on work where the value to the client is not proportional to the hours.

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_Source: [Do The Calculation](https://dothecalculation.com/blog/templates/excel-freelance-hourly-rate-model). Quote freely with attribution and a link to this page._