Pedro is a designer and charges €20/hour. “It’s the market rate,” he says. But at the end of the month he keeps far less than he expected - and can’t work out why. The problem isn’t the market: it’s the formula. Pedro is thinking about what he wants to earn, and forgetting everything that leaks out along the way.
The classic mistake: pricing on the net you want
An employee thinks “I earn X a month”. A freelancer has to think in reverse: “to have X left over, I need to invoice a good deal more”. Between what you invoice and what stays in your pocket there are three leaks:
That last one is the sneakiest: a year has ~1,760 working hours, but many freelancers can only bill around 1,000-1,200 of them.
The formula
Work backwards - from what you want to earn to the price per hour:
Price/hour = (desired net + annual costs + taxes) ÷ billable hours per year
Step by step:
- Desired annual net - what you want in your pocket.
- + Annual costs of the activity.
- + Taxes - the “gross to invoice” has to cover Social Security and income tax (see how much of a receipt you keep).
- ÷ billable hours - the real ones, not the calendar ones.
Example: Pedro wants €1,500/month net
In other words: the €20/hour Pedro charges leaves him well under €20 in his pocket. To keep about €16/hour net (the €18,000 he wants over the year), he has to charge closer to €25/hour.
Careful: the tax part is an estimate - Social Security is the most predictable part (at the standard rate/base, 21.4% on 70%), but income tax depends on your total income, your household and your deductions, and only settles in the annual return. Use the formula so you don’t sell yourself short, and fine-tune the numbers to your reality. VAT stays out of the pocket calculation: if you charge it, the client pays it on top of your price.
Billable hours: the number almost everyone gets wrong
- 8h/day × 220 days = 1,760 h
- Divide everything by 1,760
- Artificially low price per hour
- Take out holidays, sickness, public holidays
- Take out prospecting, proposals, admin, training
- ~1,000-1,200 billable hours left
If you divide your costs and your target by 1,760 hours you’ll never bill, the price comes out low and you work in the red without realising. Divide by the real hours and the price rises to where it needs to be.
✅ In summary
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Price on the gross, not the net. Between invoicing and getting paid there are taxes, costs and non-billable hours - the price per hour has to cover them all.
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The formula: (desired net + costs + taxes) ÷ real billable hours (~1,000-1,200/year, not 1,760). Social Security uses the standard rate/base (21.4% × 70%); income tax is an estimate until the annual return.
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With FIZ you see what you invoice, what you pay in Social Security and income tax, and what’s left - so you know whether your hourly rate covers everything or whether you’re working for less than you think. See the plans.
