Updated August 7, 2026. Quick answer: the rule of thumb is to double your old hourly salary rate, and the arithmetic below says the rule of thumb is roughly right for the wrong reasons — it lands near a defensible number by accident, and it breaks the moment your billable share is low or your overhead is real. The honest version is three adjustments: what the employer paid on top of your salary, what you now pay yourself for, and how few of your working hours are actually billable. That last one does most of the work and is the one people leave out.
The arithmetic, worked
Start with a $120,000 salary. The naive conversion is $120,000 ÷ 2,080 hours = $57.69 an hour. Now make the three adjustments.
Step 1 — add what the employer paid that you never saw. Their half of payroll tax, any retirement match, and health cover. You now carry both halves of a 15.3% self-employment tax rather than one. Add a conservative 25% to the salary as the employer-side cost: $150,000.
Step 2 — add your own overhead. Software, insurance, an accountant, equipment, professional fees. For a one-person consultancy call it $10,000 — use your own figure, but do not use zero: $160,000.
Step 3 — divide by billable hours, not working hours. This is the step that matters. You will not bill 2,080 hours. Selling, proposals, admin, invoicing and the weeks between engagements are all unbilled, and you are taking holiday nobody pays you for.
| Billable share of a 2,080-hour year | Billable hours | Rate to earn $160,000 |
|---|---|---|
| 80% (very high) | 1,664 | $96 |
| 65% (a good year) | 1,352 | $118 |
| 50% (common, especially early) | 1,040 | $154 |
| 35% (part-time encore) | 728 | $220 |
Read the table rather than the headline. The doubling rule gives $115 an hour, which sits almost exactly on the 65% row — so it is a fair answer for someone consulting close to full time and winning work steadily. It is materially too low for the part-time encore consultant, who is precisely the reader most likely to reach for it. At 35% billable, doubling the salary rate leaves you working for about half of what you were worth as an employee.
Why the billable share is the whole game
Every other input moves the rate a little; this one moves it by a factor of two across a plausible range. And it is the input people are most optimistic about, because the unbillable work is invisible until it is being done: the proposal that did not convert, the scoping call, the invoice chase, the month between a project ending and the next one starting.
The practical instruction is to set the rate on the billable share you have actually achieved, not on the one you intend to. In a first year you have no history, so use a pessimistic figure and revise it upward with evidence. Revising a rate up after a good year is straightforward. Revising it up because you under-priced is a conversation with every existing client at once.
Day rates, retainers and the minimum engagement
A day rate is the hourly figure times the hours you will actually give a day, and it should generally be higher than eight times the hourly rate rather than lower, because a booked day removes the possibility of anything else that day. The volume discount runs the wrong way for a one-person business: you have no economies of scale to pass on.
A retainer is worth a discount, because it does the thing the table above is really about — it raises your billable share by removing the gap between engagements. That is the one discount with an honest justification behind it.
A minimum engagement exists for the same reason: a two-hour job with a scoping call, a contract and an invoice attached is not a two-hour job. It also, usefully, makes the arrangement look like consulting rather than employment.
What this arithmetic deliberately omits
What the market will pay. Nothing above tells you whether anyone will pay $154 an hour for your work — it tells you what you need to charge for the year to be worth what the salary was. Those are different questions and the second one does not answer the first. If the number the arithmetic produces is far above what your market pays, that is real information: the honest responses are fewer, better-paid engagements, a narrower specialism, or a smaller income target — not pretending the overhead is not there.
It also omits the offsetting half: the earned income unlocks retirement accounts a pension cannot, which for many encore consultants is worth more than the rate difference they were arguing about.
Sources and limits
Every figure on this page is arithmetic, computed here from the stated inputs. The 25% employer-side loading and the $10,000 overhead are illustrative assumptions, not survey data, and are labelled as such — substitute your own and the method still works. We publish no market rate, no rate benchmark and no industry survey figure, because we have not measured one and every published consulting-rate table we are aware of is either self-reported or sold by someone with an interest in the answer. The self-employment tax rate cited is on its own page with its source. General information, not tax or business advice.
A rate only holds if the agreement says when it is paid: the payment trigger is the term people leave vague, and four plausible triggers produce four different dates.
For the employed comparison the arithmetic starts from, a growing number of states require the employer to disclose the range — useful evidence when you are pricing against what the role would have paid.