Most freelancers pick a day rate by looking at what other people charge and rounding to a nice number. That's how you end up earning less than your employed equivalent.
Here's the actual formula, and why the number you get is probably higher than you'd expect.
The formula
Day Rate = (Target Annual Income + Business Costs + Tax Provision) ÷ Billable Days
Simple. But each variable needs thought.
Step 1: Target annual income
What salary would you accept as an employee? Not your dream salary — your realistic comfortable number. Include pension contributions, because nobody's matching those for you anymore.
If you'd accept £50k employed, start there.
Step 2: Business costs
Things you now pay for yourself:
- Professional insurance: £300-800/year
- Accounting: £150-400/year
- Software: £500-2,000/year
- Home office: £500-1,500/year
- Phone/internet (business portion): £300-600/year
- Training/CPD: £200-1,000/year
- Marketing/website: £100-500/year
Conservative estimate: £2,000-5,000/year.
Step 3: Tax provision
As self-employed, you pay:
- Income Tax (20% on £12,571-50,270, 40% above that)
- Class 2 NI (£3.45/week)
- Class 4 NI (6% on £12,571-50,270, 2% above)
Rough rule: set aside 25-30% of your profit for tax.
Step 4: Billable days
This is where most people go wrong. A year has 365 days, but you can't bill for all of them:
- Weekends: -104 days
- Bank holidays: -8 days
- Holiday: -25 days (you deserve it)
- Sick days: -5 days
- Admin/marketing: -20 days
- Training: -5 days
Realistic billable days: ~198
Most people use 220 or even 250. That's how you undersell.
The maths
Using our example:
- Target income: £50,000
- Business costs: £3,500
- Tax provision (28%): £14,000
- Total needed: £67,500
- Billable days: 198
- Day rate: £341
Round up: £350/day.
If you're currently charging £250/day on the same assumptions, you're effectively earning £37k — less than many employed roles with benefits.
The utilisation trap
Even at 198 available days, most freelancers bill 60-80% of them. At 70% utilisation (139 days), that £350 rate gives you £48,650 gross — before tax and costs.
If your utilisation is below 70%, your rate needs to go up, not down.
Try the calculator
I built a free day rate calculator that handles all this automatically. Plug in your numbers, adjust the variables, see what falls out.
Also useful:
- Self-employed tax calculator — full tax/NI breakdown
- Profit margin calculator — what you actually take home per pound invoiced
What's your current day rate formula? Curious how others approach this.
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