How to set your consulting hourly rate
The most common mistake new consultants and freelancers make is doubling their previous salary's hourly equivalent and calling it a day. That ignores the gap between PAID hours (40+/week as an employee) and BILLABLE hours (typically 50-70% of working time once you account for admin, sales, proposals, and unpaid rework). It also forgets overhead (software, insurance, accounting, equipment) which a previous employer was covering.
The right way: back-solve from desired take-home. Pick the equivalent salary you want to earn (allowing for the loss of leave, sick pay, and employer super). Add 15-30% overhead to that figure to get total revenue. Multiply working weeks (52 minus your leave / sick weeks) by 40 hours by your realistic utilisation (50-70% solo, 75-85% agency contractor). Divide revenue by billable hours — that's your minimum hourly rate.
For most independent consultants, the right rate is typically 2.5-4x what their previous hourly salary equivalent was. The 2.5x covers a comfortable existence with similar take-home; 3-4x reflects the genuine premium for taking the income-volatility risk and bearing your own overhead. Below 2x, you're losing money relative to staying employed; above 4x is achievable but requires premium positioning. The calculator above does the maths.