The calculator adds your desired take-home income to your annual business expenses, then grosses that combined number up for the tax rate you enter, since taxes and expenses both come out of revenue before you see a dollar of it.
That grossed-up revenue figure is then divided by your billable hours for the year, which is your working weeks (52 minus time off) multiplied by the hours per week you actually bill clients, not the hours you spend "at work." The two numbers are usually very different.
A designer wants to take home $70,000, spends $5,000/year on software and insurance, estimates a 27% combined tax rate, takes 3 weeks off, and bills 24 hours a week.
Revenue needed: ($70,000 + $5,000) ÷ (1 - 0.27) = $102,740. Billable hours for the year: 49 weeks × 24 hours = 1,176. Suggested rate: $102,740 ÷ 1,176 ≈ $87/hour.
That's the floor, not the ceiling. Rates below it mean working for less than the target income after tax; rates above it build in margin for slow months, scope creep, or simply charging what the market will bear.
Two mistakes account for most underpriced freelance work: using 40 billable hours a week instead of the 20-30 that's realistic once admin, sales, and unpaid pitching are subtracted out, and forgetting that self-employment tax runs meaningfully higher than a W-2 employee's withholding because there's no employer covering half of it.
Both mistakes push the "true" rate down and quietly shrink take-home pay. Running the numbers with honest billable hours is usually the single biggest lever in this calculator.
The calculator adds your desired annual income and annual business expenses, grosses that up for your estimated tax rate, then divides by your billable hours per year (working weeks times billable hours per week) to get an hourly rate.
Use your actual client-billed hours, not hours spent "at work": most freelancers bill 20-30 hours per week, not 40, once admin, sales, and unpaid pitching are factored out.
Include costs like software, insurance, equipment, and home office expenses: anything the business pays for on top of your desired take-home income.
No, it is a starting point, not gospel. Adjust it for your market, experience, and demand, and treat it as a floor to price above rather than a target to hit exactly.