Issue 31 · Thursday, 20 August 2026
A reader who has spent eleven years on payroll wrote to ask what she should charge if she goes independent, and whether the “double your salary rate” rule of thumb holds. It does not, and the reason it does not is the most useful thing I can tell you about contract pricing.
The rule people repeat is: take your annual salary, divide by 2,000 hours, double it. On a $130,000 salary that gives $130 an hour. The doubling is meant to absorb self-employment tax, health insurance, unpaid holiday and the gaps between engagements. It absorbs those things and nothing else, which is why people who price this way spend their second year wondering where the money went.
What the doubling leaves out is utilisation. A salaried year is 2,000 paid hours. A contract year is not. Between engagements you are looking for work, and looking for work is unpaid. Inside an engagement, the hours you can actually bill are the hours you spend on the buyer's problem — not your invoicing, not your bookkeeping, not the two calls it took to scope the thing. Independents I have compared notes with land somewhere between 55% and 70% billable across a full year. The good ones, in their fourth or fifth year, with a referral pipeline, reach 75%. Nobody hits 100%, and your first year will be worse than your steady state.
So the arithmetic is: target income, divided by (2,000 × your honest utilisation), plus the overhead the doubling was supposed to cover. At 60% utilisation, 2,000 hours becomes 1,200. That alone moves $130 to $217 before you have paid for anything.
The number that matters is not what you charge per hour. It is what you charge per hour multiplied by the hours you can sell. People negotiate hard on the first and never measure the second.
Two things follow from this that are worth more than the rate itself.
The first is that a long engagement is worth a discount and a short one is not. A six-month contract at 90% of your rate beats a six-week contract at 110%, because the six-week contract costs you a search. Price the search into the short jobs and stop apologising for it. When somebody says your rate is high for a two-week piece of work, they are right that it is high, and it is high because two weeks of work costs you three weeks of your year.
The second is that day rates hide this better than hourly rates, which is why some sectors insist on them. A day rate implies a day, and a day quietly becomes ten hours when the deadline is close. If you quote daily, define the day. Mine is seven and a half hours, written into the statement of work, with anything past it billed hourly at the same rate. Nobody has ever argued with the clause. Several people have argued about the hours after the fact, which is the argument the clause exists to prevent.
One last thing, because it is the mistake I made. Your first contract rate is a ceiling, not a floor. Raising a rate mid-relationship is a conversation; setting it correctly at the start is a sentence. If you are unsure, quote the higher number and be prepared to talk about scope. Scope is negotiable in a way that your price, once stated, is not.
Written by Nadia Prewitt. Every issue goes to the list first and lands here a day or two afterwards. There is no tracking pixel in the email and there is none on this page; if you want me to know you read it, tell me.