Freelance Pricing: Billable Hours, Cash Reserves and Payment Gaps
A profitable contract can leave you short of cash before an invoice is paid. Calculate the revenue your hours must support, then test the cash you need between payments.
Build a budget before choosing a premium
List personal spending, business costs, replacement benefits and tax reserves. Keep each item on one line so it appears once. A flat percentage is a scenario allowance, not evidence of your actual insurance or tax costs.
For US contracting, IRS self-employment tax guidance describes a calculation involving net earnings and specific rules. A budget allowance does not calculate that liability or replace income-tax planning.
Divide by hours clients pay for
Suppose a budget requires $60,000 annual revenue. At 25 billable hours a week for 46 weeks, you have 1,150 annual billable hours and need $52.17/hour. At 20 hours over those weeks, you need $65.22/hour. The requirement is unchanged; fewer paid hours support it.
Exclude sales, administration, unpaid leave and expected gaps from billable hours. If those hours are already excluded, do not add another percentage for the same missing hours. A contingency for unexpected expenses is a separate assumption.
Distinguish markup from revenue deductions
A 20% markup on a $60,000 budget produces $72,000. A 20% deduction from revenue requires $75,000 to leave $60,000. The formulas are $60,000 × 1.2 and $60,000 / 0.8. Confusing them understates the required rate.
The freelance rate tool adds a markup to a salary target. The contractor comparison deducts overhead from revenue. Choose the interpretation matching your budget.
Check cash until payment
With $24,000 available and $4,000 monthly spending, no-revenue runway is six months. A $3,000 tax bill already due reduces cash to $21,000 and runway to 5.25 months. An unpaid invoice is not cash in the bank.
The CFPB's emergency-fund guidance explains that reserve needs depend on your circumstances. No single reserve or rate guarantees safety.
Run the runway and revenue buffer calculator with fewer hours and higher spending. Separately write down invoice dates, payment terms and bills due before payment. That reveals timing problems an annual rate cannot capture.