What Is a Business Overhead?
Business overhead is the $12,800–$22,400 in annual costs a US freelancer carries — self-employment tax, health insurance, software, insurance, and equipment — that must be priced into every rate.
How business overhead works
Business overhead consumes $12,800 to $22,400 of a US freelancer's annual revenue before a single dollar becomes take-home pay. The largest line is self-employment tax, which runs 15.3% on net earnings up to $168,600 to cover Social Security and Medicare. Health insurance follows at roughly $5,000 to $9,000 per year for an individual on the ACA marketplace. Software subscriptions (Adobe, accounting, project management) add $1,000 to $3,000, professional liability insurance costs $500 to $1,500, and equipment plus replacement reserves run $1,000 to $3,000. These costs stay fixed regardless of how many hours you bill, so they spread across fewer hours during slow months and raise your real cost per hour. A freelancer who bills 1,000 hours a year carries $13 to $22 of overhead in every single hour before earning anything. The practical implication is direct: you set your rate by adding overhead to your target salary, then dividing by billable hours. A freelancer ignoring overhead who charges a $50/hour rate to match a $50/hour salary actually nets closer to $28 to $30 after the 15.3% tax and the fixed costs come out. Overhead is also why a freelance rate cannot equal a former employee's hourly wage; the employer previously absorbed half the payroll tax, the insurance premium, and the equipment. Pricing every project, retainer, and day rate to cover overhead first is what separates a sustainable rate from a slow loss.
Example
Maya the freelance designer prices in her overhead
Maya wants a $60,000 take-home salary. She tallies her annual overhead: self-employment tax at 15.3% on her net earnings (about $11,000), health insurance at $7,200, Adobe Creative Cloud and accounting software at $1,800, professional liability insurance at $800, and a laptop replacement reserve at $1,200 — totaling roughly $22,000 in overhead. Her revenue target becomes $60,000 + $22,000 = $82,000. She realistically bills 1,000 hours a year (after accounting for admin, sales, and downtime), so her floor rate is $82,000 / 1,000 = $82/hour. If Maya had instead charged $60/hour to 'match' a $60K salary, she would have grossed only $60,000, paid $22,000 in overhead, and netted $38,000 — a $22,000 shortfall and the exact mistake that pricing in overhead prevents.
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