Profit Formula
Freelancers often estimate profit using a straightforward approach. Multiply your hourly rate by the expected hours, subtract expenses, then subtract any platform fee. The MathML representation is .
Using the Calculator
Enter your desired rate, the estimated number of billable hours, and any direct expenses such as software subscriptions or supplies. If you work through a platform that takes a percentage, enter that fee as well. The calculator displays your net profit so you can negotiate rates that match your income goals.
Accounting for Non-Billable Time
Projects rarely consist solely of billable production. Preparation, revisions, meetings, and client outreach all consume time that often goes unpaid. The Non-billable Hours field lets you model this overhead directly. By adding those extra hours, the calculator evaluates your effective hourly rate once all work—not just the invoiced portion—is considered. This encourages realistic scheduling and prevents underestimating effort.
Planning for Taxes and Downtime
Remember that not every hour of the work week is billable. Many freelancers set aside a percentage of each project for taxes and allow extra time for administrative tasks or client outreach. Use this calculator alongside your tax savings planner to ensure you cover all bases. The Tax Rate field estimates how much of your profit should be reserved for government obligations, giving a clearer view of take-home pay.
Evaluating Effective Hourly Rate
After deducting expenses, fees, and taxes, the calculator computes an effective hourly rate based on total hours spent—including non-billable time. Comparing this figure with your target income helps determine whether a project is worthwhile. If the effective rate drops too low, consider adjusting scope or negotiating better terms.
Negotiating and Scope Creep
Freelance work often expands beyond the original agreement. Keep an eye on how additional revisions or tasks affect the bottom line. By recalculating profitability whenever scope changes, you can decide when to request more compensation or set boundaries. Transparent math fosters healthy client relationships by grounding discussions in concrete numbers.
Understanding Hidden Expenses
Project profitability is more than the difference between revenue and direct costs. Freelancers often overlook smaller recurring expenses that chip away at earnings—things like design assets, web hosting, or workspace rent. While each item may seem minor, together they can significantly reduce take&home pay. Tracking these costs in detail helps you set rates that reflect the true value of your time and skills.
Another factor is opportunity cost. Time spent on revisions, client calls, or searching for new gigs is time you cannot bill elsewhere. To account for this, consider building a buffer into your hourly rate or project fee. A modest cushion covers unexpected revisions and ensures your effective hourly rate stays where you want it.
Taxes and Long-Term Planning
Self–employed professionals must handle their own tax withholdings. Depending on where you live, you may be responsible for quarterly estimated payments, self–employment tax, and local levies. Setting aside a portion of every payment—often around 25% to 30%—prevents surprises during tax season. Some freelancers open a dedicated savings account solely for this purpose, transferring a percentage of each invoice as soon as it is paid.
Profit is also the source of future investments in your business. Upgrading equipment, attending conferences, or purchasing advertising all require cash reserves. When the calculator shows a healthy surplus, consider how much to reinvest versus how much to pay yourself. Consistent reinvestment fuels growth and helps stabilize income between large projects.
Example Scenario
Imagine a graphic designer charging $50 an hour for a 60–hour project with $300 in expenses. If a freelancing platform takes 10%, revenue after fees is $2,700. Subtract expenses and you net $2,400. But if you spend 10 unpaid hours on revisions and client communication, your effective hourly rate falls to roughly $40. Factoring in 25% for taxes leaves $1,800 in true profit. Examples like this highlight why careful planning and realistic time estimates are essential.
Use the calculator to explore multiple scenarios. Adjust hourly rates, fees, or expenses and see how your bottom line changes. Over time you will develop a better sense of which projects are worth pursuing and which ones may stretch your resources too thin. Ultimately, knowing your numbers leads to more sustainable and rewarding freelance work.
Example Breakdown
| Item | Amount |
|---|---|
| Total Revenue | $4,000 |
| Expenses | $500 |
| Platform Fee (10%) | $400 |
| Net Profit | $3,100 |