What Expenses Should Freelancers Include in Their Hourly Rate?

Setting your freelance hourly rate is one of the most important — and most stressful — decisions you'll make as a self-employed professional. Charge too little, and you're essentially subsidising your clients. Charge too much without justification, and you risk losing work.

The real problem? Most freelancers calculate their rate based only on what they want to take home. They forget to account for the full cost of running a business. When you work for an employer, payroll taxes, health insurance, software licences, and training costs are invisible to you. As a freelancer, every single one of those costs lands on your desk.

This guide walks through every category of freelance business expense you should include in your hourly rate — so you never find yourself working hard but barely breaking even.

Notice that business expenses sit inside the formula — they're not optional extras. Every pound, euro, or dollar you spend on your business needs to be earned back through your rate. Let's break down exactly what "business expenses" includes.

1. Software & Subscriptions

This is usually the biggest overlooked expense category, especially for designers, developers, writers, and marketers. Add up everything you pay monthly or annually to do your work.

2. Equipment & Hardware

Your laptop, monitor, headphones, microphone, camera, or any specialist gear all depreciate over time. Include an annual depreciation cost in your expenses — typically the purchase price divided by the expected lifespan in years.

A good rule of thumb: if a piece of equipment primarily serves your freelance work, a proportional annual cost belongs in your rate calculation. This includes home office furniture if you work from home — a proper desk and ergonomic chair are business expenses, not personal ones.

3. Insurance

This is one of the most commonly skipped expense categories, and one of the most important. Depending on your niche and location, you may need one or more of the following:

• Professional indemnity insurance— covers you if a client claims your work caused them financial loss
• Public liability insurance— if you ever meet clients in person or work on-site
• Health insurance— especially critical in countries without universal healthcare
• Income protection insurance— replaces a portion of income if you're too ill to work
• Equipment insurance— covers theft or accidental damage to your hardware

4. Taxes & Social Contributions

Unlike salaried employees, freelancers are responsible for paying their own taxes — and in many countries, social security contributions too. These are not optional, and they can be substantial.

The formula uses your effective tax rate on profit to gross up your income target. For example, if you want €50,000 net and your effective rate is 35%, you actually need to earn roughly €77,000 gross before tax. The difference (€27,000) is not income — it's a cost of being self-employed.

In the Netherlands, Germany, the UK, and most of Western Europe, combined income tax and social contributions typically range from 25–45% for mid-income freelancers. Always consult a local accountant for your precise rate.

5. Accounting & Professional Services

A good accountant saves most freelancers more money than they cost — but their fees are still an annual expense to include. Don't forget:

• Annual accountant or bookkeeper fees
• Tax filing services
• Legal advice or contract review (even occasional)
• Business registration or chamber of commerce fees

6. Marketing & Business Development

Landing clients costs money, even if that cost is subtle. Your freelance website has hosting and domain costs. Networking events have entry fees. A portfolio platform or LinkedIn Premium has a monthly price. Some freelancers also invest in paid advertising, content creation, or PR.

A reasonable marketing budget for an established freelancer is 5–10% of target revenue. For newer freelancers who are still building a client base, that figure is often higher.

7. Professional Development & Training

Staying competitive means continuously learning. Online courses, conferences, industry memberships, certifications, and books are all legitimate business expenses. If you're a developer keeping up with new frameworks, a designer learning new tools, or a consultant earning credentials — those costs belong in your rate.

8. Workspace Costs

Whether you rent a desk in a coworking space or work from home, there's a workspace cost to account for:

• Coworking space membership or hot desk fees
• Proportion of home internet and phone bills used for work
• Home office running costs (heating, electricity, etc.)
• Business travel and commuting to client sites

9. Retirement & Long-Term Savings

This one tends to get skipped entirely by newer freelancers — and it's a serious long-term mistake. Without an employer pension, you are entirely responsible for your own retirement savings. A common benchmark is setting aside 10–15% of gross income for retirement, but many financial advisors recommend more for self-employed individuals who started saving later.

This isn't really a "business expense" in the traditional sense, but it belongs in your rate calculation all the same. If you're not building it into what you charge, you're simply not accounting for the true cost of your time.

Putting It All Together: A Simple Annual Expense Audit

Before plugging numbers into your rate calculator, do a quick annual expense audit. Tally up your estimated costs across all categories:

• Software & subscriptions (total annual cost)
• Equipment depreciation (purchase price ÷ years of use)
• Insurance premiums
• Accounting & legal fees
• Marketing, website, and business development
• Training and professional development
• Workspace (coworking or home office proportion)
• Retirement contributions

For many mid-career freelancers, the total comes to €8,000–€20,000 per year — sometimes more. That entire amount needs to be recovered through your billing rate before you earn a single euro of take-home income.

The Bottom Line

Freelancers who undercharge almost always make the same mistake: they think about their rate as personal income, not as the output of a business. A sustainable freelance business has real costs — and every one of them should be factored into what you charge.

The good news: once you know your true annual expenses, calculating a fair rate is straightforward arithmetic. You're not guessing or benchmarking against what someone else charges — you're pricing based on what you actually need to survive and grow.

Use our Freelance Hourly Rate Calculator to enter your exact numbers and find your rate — one that covers your costs, pays your taxes, and leaves you with the income you deserve.