The formula in one sentence
Your hourly rate is what you need to bring in per year, divided by the hours per year you can actually bill. You need to bring in your target profit plus all business costs. You can only bill the hours left once holidays, public holidays, sick days, training and admin are taken off. Most people underestimate the second half of the calculation, not the first.
A worked example
The numbers below are assumptions for one person who is self-employed full time. Replace them with your own.
What you need per year
| Assumption | Per year |
|---|---|
| Target profit before income tax and insurance | €60,000 |
| Business costs: software, hardware, coworking, insurance, tax advisor, training | €12,000 |
| Revenue needed, net | €72,000 |
How many hours you can bill
| Assumption | Days |
|---|---|
| Weekdays Monday to Friday in 2026 | 261 |
| Holidays | − 30 |
| Public holidays (7 to 9 on weekdays in 2026, depending on the state) and one bridge day | − 10 |
| Sick days | − 10 |
| Training | − 5 |
| Working days | 206 |
206 working days at 8 hours are 1,648 hours. Quotes, email, bookkeeping, sales and coordination come off that. If you assume 30 % of your working time cannot be billed, 1,648 × 0.7 = 1,153.6 billable hours remain.
The result
€72,000 divided by 1,153.6 hours gives €62.41 net per hour. In this example that is the floor at which the numbers just work out. Round up to €65 and full utilization brings €74,984 in revenue, almost €3,000 of buffer for a quiet month or a customer who pays late. If you miss ten percent of your billable hours at €62.41, on the other hand, about €7,200 of profit is gone.
How much of your time really cannot be billed is best seen in your own numbers. Track everything for a few weeks, email included. How to do that without much effort is in the guide to time tracking for freelancers.
Net, gross and VAT
The rate in the example is a net rate. If you write invoices with VAT, most services add 19 % (§ 12 (1) UStG): €65 net becomes €77.35 gross. Those €12.35 belong to the tax office, not to you. Business customers deduct them again as input tax, so for them only the net rate counts.
Under the small business rule you charge no VAT (§ 19 UStG). Your rate is then also the amount your customer pays. That makes you cheaper for private customers and changes nothing for business customers. The rules are in the guide to the small business rule.
What your target profit has to pay for
Your target profit is not a salary. Employees get their take-home pay after employer and employee have paid social security. When you are self-employed, you pay all of it out of your profit.
Health and long-term care insurance
If you are a voluntary member of public health insurance, your contribution follows your profit. In 2026 at least an income of €1,318.33 a month counts (§ 240 (4) SGB V), at most the contribution ceiling of €5,812.50 a month. The general rate with sickness benefit is 14.6 % (§ 241 SGB V). Your fund adds its own additional contribution, on average 2.9 % in 2026 (§ 242a SGB V). Long-term care insurance costs 3.6 %, or 4.2 % if you have no children and are 23 or older (§ 55 SGB XI).
In the example with €60,000 profit, so €5,000 a month, that adds up to 21.1 %, about €1,055 a month or €12,660 a year. Your health insurance fund tells you the exact rate. If you are privately insured, use your own premium.
Retirement savings
Most self-employed people have no duty to pay into the public pension scheme, so retirement savings are up to you. Plan a fixed amount each month, the same way you plan your rent. If you are insured as an artist or writer through the Künstlersozialkasse, the math is different. More in the guide to the artists’ social security fund.
Income tax
You pay income tax on your profit after insurance and other deductions. The rate rises with income (§ 32a EStG): up to the basic allowance of €12,348 in 2026 there is no tax, after that the rate starts at 14 % and rises to 42 % from a taxable income of €69,879. How much it comes to for you depends on your deductions and your situation. Set aside a fixed share of every payment you receive, so neither the back payment nor the advance payments catch you off guard.
Check and adjust your rate
- Compare with the market. If your result is far below what others in your field charge, your calculation is probably still missing some costs. If it is far above, check your assumptions about utilization and admin.
- Look again after six months. Only then do you know how many hours were really billable and which customers cost more time than they bring in.
- Raise it for new work. You state a new rate in your next quote. Running agreements apply until you change them with your customer.
- Price fixed fees from hours. For a fixed price, too, estimate the hours and multiply by your rate. Later you see whether the estimate held.
This guide explains the calculation in general and is not tax advice.
Common questions
How many hours can a freelancer bill per year?
With the assumptions above it is 1,153.6 hours, with 30 days of holidays and 30 % admin. With 20 % admin it would already be 1,318.4 hours. You only see your own number once you have tracked your non-billable time for a few months too.
Do I quote my hourly rate net or gross?
To business customers you quote it net, with the note “plus VAT”. Private customers expect final prices, so gross. Under the small business rule there is no difference, because you charge no VAT.
May I charge different customers different rates?
Yes, the price is an agreement with each customer. Many charge more for short jobs, rush work or weekends than for long projects they can plan. Put the rate in the quote or contract.
What if my calculated rate is too high for the market?
Check your assumptions first: maybe the admin time or some of the costs can come down. If that is not enough, take it as a signal to rethink the offer, the audience or the target profit before you work below your costs for good.