Start with the business model, not a competitor’s number
Market rates matter, but they answer a different question: what buyers appear willing to pay. Your own rate floor starts with what the business needs to earn. If you copy a competitor’s rate before you know your costs and capacity, you can win work that is structurally unprofitable.
The practical sequence is: define the annual income you want the business to support, add annual business expenses, decide how much working time can actually be billed, then add a reasonable safety or profit buffer.
The core formula
This is the same structure used by the Earnquo calculator. It is deliberately transparent so you can challenge every assumption.
Worked example: from €50,000 income goal to an hourly rate
Suppose you want €50,000 of annual income before personal income tax, expect €8,000 of annual business expenses, work 46 weeks per year at 40 hours per week, can bill 60% of that time, and want a 10% buffer.
| Input or result | Value |
|---|---|
| Desired annual income | €50,000 |
| Annual business expenses | €8,000 |
| Revenue target after 10% buffer | €63,800.00 |
| Annual working hours | 1,840 |
| Annual billable hours at 60% | 1,104 |
| Calculated hourly rate | €57.79 |
The important part is not the exact result. It is that every euro of required annual revenue is spread only across hours that are realistically invoiceable.
Choose the income goal carefully
The “desired income” field is not automatically your take-home pay. Earnquo does not estimate personal income tax, social contributions, pension saving or VAT. Decide what the number means in your own planning model and keep that meaning consistent.
A useful way to think about it
- If the income goal is meant to fund your personal life, make sure you have separately planned for taxes and personal reserves.
- If you want the business to fund pension contributions, paid leave or a stronger emergency reserve, include those needs either in the income goal, expenses or buffer—but avoid counting the same item twice.
- If your expenses are volatile, use an annual estimate based on a normal year rather than only this month’s subscriptions.
Billable percentage is usually the most underestimated input
A 40-hour week does not create 40 invoiceable hours. Sales, proposals, client communication, revisions outside scope, administration, bookkeeping, learning, marketing and idle time still use capacity. The lower your billable utilisation, the more revenue each billable hour has to carry.
Track actual time for a few months if you can. Until then, a conservative assumption is safer than pretending every working hour is billable. The billable utilisation guide shows the sensitivity in detail.
Separate your internal floor from your quoted price
The calculated rate is an internal planning number. A client-facing price can be higher or structured differently. Fixed project fees, retainers, day rates and value-based pricing may all be better commercial formats than exposing an hourly rate directly.
If the market will not support your calculated floor, the answer is not automatically to discount. Revisit the business model: reduce unnecessary costs, improve utilisation, specialize, sell higher-value outcomes, change project structure or target a market where your skills are more valuable.
Common mistakes that make a rate look cheaper than it really is
- Dividing desired annual income by 52 × 40 and ignoring non-billable time.
- Leaving software, insurance, hardware, bookkeeping and professional services out of annual costs.
- Using 52 working weeks while also expecting holidays, sick days and time between projects.
- Adding a “profit margin” twice—once inside the income goal and again as a large buffer.
- Treating the calculated rate as proof that the market will pay it.
A simple review routine
- Recalculate when your annual costs change materially.
- Compare planned billable utilisation with actual tracked utilisation.
- Review whether your quoted prices are consistently above your internal floor.
- Increase the rate or change the offer if demand is strong and capacity is full.
- Document the assumptions so a future rate change has a reason, not just a feeling.