Why your rate is not your salary divided by 2,000
An employee is paid for every hour they are at work. You are paid only for the hours you can put on an invoice, and you pay for your own software, hardware, insurance, pension and time off. Your rate has to cover all of it out of a much smaller number of hours.
A worked example
You want 3,600,000 a year and your business costs 400,000 to run, so you need to bill 4,000,000. At 25 billable hours a week over 46 weeks you have 1,150 hours to do it in, which puts your rate just under 3,500 an hour. Bill 20 hours a week instead and the same income needs a rate above 4,300.
Common questions
How many hours can I actually bill?
Most freelancers bill around 60% of a working week. The rest goes on pitching, admin, invoicing and the work that keeps the work coming. Putting 40 in this box is how people end up underpriced.
Should I quote hourly or a fixed price?
Quote fixed where you can — clients prefer it and you keep the gain when you work quickly. Use the hourly rate here as the floor you check every fixed quote against.
Where do holidays and sick days go?
In the weeks worked box. Forty-six weeks leaves room for a few weeks off and the odd bad week. Dropping it to 44 or 42 raises the rate you need accordingly.