Freelance Glossary

Hours worked on client projects that can be charged to the client, as opposed to non-billable hours spent on admin, sales, or professional development.

The minimum revenue or billable hours a freelancer must achieve to cover all business costs without profit or loss.

A measure of how much profit a specific client relationship generates after accounting for all time spent — billable and non-billable — on that client.

A fixed price charged per day of work, commonly used by consultants and contractors on project-based engagements.

A cash reserve set aside to cover essential living expenses during income gaps, typically 3-6 months of expenses for employees and 6-12 months for freelancers.

The amount a freelancer charges per hour of work, calculated to cover expenses, taxes, and desired income.

A formal document sent to a client requesting payment for goods or services rendered, detailing the amounts, descriptions, and payment terms.

UK tax legislation designed to combat disguised employment — determining whether a contractor working through a limited company should be taxed as an employee.

Interest charged on overdue invoices, calculated as an annual percentage of the outstanding amount applied to the number of days past the due date.

A freelancer's total earnings after deducting all business expenses and taxes — the actual profit the business generates.

The fixed business costs a freelancer incurs regardless of how much client work they do — rent, software, insurance, and other ongoing expenses.

The percentage of revenue that remains as profit after deducting all business expenses — a core measure of freelance business health.

Estimated tax payments made four times per year by freelancers to cover income and self-employment tax owed to the IRS.

A recurring monthly payment from a client in exchange for guaranteed access to a set number of hours or deliverables.

The gradual expansion of a project beyond its originally agreed deliverables, often without corresponding increases in budget or timeline.

The 15.3% US tax paid by freelancers covering both the employer and employee portions of Social Security and Medicare.

The net income a freelancer keeps after paying all taxes, business expenses, health insurance, and other deductions from gross revenue.

The percentage of total working time spent on billable client work, a key measure of freelance business efficiency.

A pricing strategy where you charge based on the business value or ROI your work creates for the client, rather than hours spent.

Value Added Tax — a consumption tax added to the price of goods and services at each stage of production, collected by businesses and remitted to tax authorities.