How to set your hourly rate as an interior designer

I've asked a lot of interior designers how they set their hourly rate. The honest answers worry me.

Most picked a number that felt right. Some asked another designer what she charged. A few inherited a rate from the firm where they used to work and never changed it. The ones who did the math usually skipped the most important part — figuring out what an hour of their time actually costs before adding anything for profit.

The result: an entire industry full of talented people who can't tell you, with any confidence, whether they're making money on their billable hour. Some are wildly undercharging. A few charge plenty and still lose money because they're billing fewer hours than they think. Most are somewhere in the middle, profitable by accident, with no idea what would happen if anything changed.

This post is about the math. How to figure out what an hour of your time actually costs you, what to charge on top of that, and how to do the same for everyone on your team. I'm writing it for interior designers, but the method is identical for a design-build firm or a general contractor.

If you've never done this exercise, expect surprises. A common one: a designer charging $150/hour learns her cost floor is $175. Every hour she bills, she loses $25 before she's paid a dime. That's not a market problem. That's math she's never done.

Here's how to do it.

What you're actually solving for: two numbers, not one

Most designers think about pricing as a single number — what do I charge? It's actually two numbers, and you need both.

Your cost rate is the floor. It's what one hour of your time costs to deliver, on paper. Salary, taxes, software, rent, insurance — everything. Divided by the hours you can realistically bill.

Your billable rate is what you charge. It's your cost rate plus profit.

If your cost rate is $160 and you want 25% profit on your time, your billable rate is $200.

Setting your billable rate without knowing your cost rate is the mistake almost everyone makes. The billable rate alone is just a guess at what the market will pay. The cost rate tells you whether the work is actually profitable. You need both.

The rest of this post focuses on the cost rate — because it's the part designers don't know how to calculate, and nothing else makes sense without it.

How to calculate your cost rate

Three things go into the cost rate: your fully loaded cost, your realistic billable hours, and your markup. Let's walk through each.

Start with your fully loaded cost

This is the total cost, per year, of having you in business. Three buckets.

1. Salary. What you want to pay yourself. Not what's left over after expenses — what you'd pay a competent person to do your job.

For most solo designers running a real practice, this is somewhere between $80,000 and $180,000. Pick the number you'd need to earn to feel fairly paid for your work. And pay yourself a real one — if you don't, your cost rate comes out too low, and you'll think you're profitable when you're actually just underpaid. I see this constantly: the "profit" was your own salary all along.

2. Taxes and benefits. Everything an employer would normally cover that, working for yourself, you now have to cover yourself:

• Self-employment tax — about 14% of salary. This is the Social Security and Medicare your employer used to split with you. Now you pay both halves.

• Health insurance — the biggest variable in the whole calculation. A single, healthy designer on a decent marketplace plan: $5,000–$8,500/year. A family plan: $18,000–$30,000. Use your real number here, not a hopeful one.

• Retirement — what you should be putting away, not what you actually do in a lean year. Aim for 10–15% of salary.

• Disability insurance — the one everybody skips and a few people deeply regret. About 1–3% of salary.

If you don't want to itemize, taxes and benefits run about 35% of salary for most solo designers. That's the rule of thumb.

3. Overhead. Everything it costs to run the business that isn't salary or taxes. This is where the guessing gets expensive, so go line by line:

• Office or studio rent — $0 from home, $3,000–$7,000 for coworking, $14,000–$40,000 for a dedicated studio.

• Software — Adobe, your CAD or SketchUp, rendering, project management, accounting, cloud storage, CRM. A real working stack runs $3,500–$7,000/year. Most designers guess about half that, then forget the three subscriptions auto-renewing in the background.

• Business insurance — general liability plus errors & omissions. $1,200–$2,500/year. Don't skip E&O. One disputed install pays for a decade of premiums.

• Marketing — $1,000 if you're organic-only, $2,500 with light paid promotion and one annual portfolio shoot, $6,000+ if you're running ads or working with PR.

• Samples, finishes, and trade memberships — ASID, IIDA, your sample library, the materials you buy for work nobody pays you for. $800–$2,500/year.

• Travel — local mileage plus one trade show like High Point or KBIS lands around $2,500. Add $3,000–$6,000 if you're traveling internationally to source.

• Professional development — NCIDQ renewal, CEUs, courses, books, the coach you finally hired. $500–$3,000/year.

For most solo designers, overhead lands around $17,000/year. Home-office bootstrappers run closer to $8,000. Established studios in major markets push past $40,000. Wherever you land, write down the real figure — this is the bucket that's quietly bigger than everyone assumes.

Add it all up. Here's a worked example for a solo designer paying herself $120,000:

That's the annual cost of being in business.

Divide by your realistic billable hours

This is where designers go wrong, and it's the single most expensive mistake in the whole calculation.

A full-time year is about 2,080 hours. Most people do this math by dividing by 2,000 — and walk away with a cost rate that's roughly half of reality.

You do not bill 2,080 hours a year. You bill the hours you spend producing work for paying clients. You don't bill the hours you spend on sales calls, sourcing, vendor outreach, invoicing, or rewriting the proposal that's still sitting unsigned. Those hours are real and they keep your business alive — but they're already paid for by your salary and overhead. You don't get to bill them twice.

A realistic billable target for a solo designer is 1,000 to 1,200 hours a year. Some designers with strong systems hit 1,400. Most don't, and the ones who swear they do usually haven't tracked it.

That's the rub: if you've never tracked your time, you're almost certainly overestimating. The biggest correction I see when designers start tracking is their real billable hours coming in 30–40% below what they assumed — not because they're working less, but because they were counting hours that were never billable to begin with.

For the worked example:

That's your cost rate. The floor. Charge less than $162.50 and you lose money every hour, before a dime of profit.

How to turn your cost rate into a billable rate

Cost rate tells you whether the work is sustainable. Billable rate tells you whether it's profitable. The difference between them is your markup.

For a solo designer, a healthy net profit margin is 20–30%. Below 20%, you're not earning enough to survive a slow quarter or fund any kind of growth. Above 30%, the market usually starts to push back.

For the worked example, at a 25% markup:

That's your billable rate. At $203/hour across 1,200 billable hours, you cover every cost of running the business and keep about $48,000 a year in profit on top of your salary.

Three things this number does not tell you, and it's worth being honest about all three:

What the market will pay. Your cost rate is what you need to charge. Whether your market will bear it is a separate question. A designer in a small market with a $300 cost-based rate is going to struggle. A designer in NYC charging $185 is leaving money on the table. The math tells you if you're profitable; the market tells you if you're competitive. You need both answers, and they come from different places.

Whether hourly is even the right model. Flat fees almost always beat hourly for defined work, because hourly quietly punishes you for being efficient — the faster and better you get, the less you earn. Your cost rate still matters here; you use it behind the scenes to price the flat fee. But that's its own conversation.

Whether you'll actually hit those hours. A rate isn't just a number. It's a forecast. Setting your billable rate at $203 is a bet that you'll hit 1,200 billable hours this year. If scope creep, slow approvals, and unbilled "quick questions" eat into those hours, your real rate is lower than the one on your proposal. More on that shortly.

How to calculate a billable rate for your team

If you have employees, run this calculation for every one of them. Not just yourself.

This is where small firms quietly lose money for years. The principal's rate gets set with care. The team's rates get set by gut — she's a senior designer, $125 sounds about right — without anyone ever checking what that employee actually costs the firm.

Here's the thing nobody wants to hear: an employee's salary is not what they cost you. Not even close.

For every person on payroll, you're also paying:

• Payroll tax — about 8% of salary (FICA, unemployment, workers' comp).

• Benefits — health insurance, retirement match, dental, vision. For a firm with competitive benefits, $10,000–$18,000 per person per year.

• Paid time off — holidays, vacation, sick days run about 12% of working hours. You pay for those hours and no billable work happens in them.

• Their share of overhead — your rent, their software seats, insurance, the admin time it takes to manage them. Divide total firm overhead by headcount.

Stack it all up and the fully loaded cost of an employee is roughly 1.4 to 1.6 times their salary. A designer you pay $85,000 actually costs the firm about $145,000 once you add it all in.

Divide by her realistic billable hours. A senior designer at a well-run firm might bill 1,500 — more than a solo, because she isn't also running sales, sourcing, and accounting on the side. So:

Bill her out at $90 and you lose money on every hour she works — while believing she's one of your most profitable people.

A faster sanity check that lands in the same place: bill an employee at 2.5 to 3.5 times their base hourly pay. A senior at $85K (~$41/hour) should bill at $100–$145. A junior at $55K (~$26/hour) should bill at $65–$90. If your firm is well below that range, you're losing money on every billable hour your team works — and the more they work, the more you lose.

What this math gets you — and what it doesn't

The exercise you just walked through tells you one thing very clearly: whether your current rate sits above or below your cost of doing business. A lot of people reading this will find their rate is a few dollars under the floor, and that their books have been politely hiding it.

But the math has a limit, and it's a big one:

A rate is a forecast, not a result.

The $203 in the example only becomes real money if every hour you logged as billable actually gets billed, gets invoiced, and gets paid. In practice, designers absorb hours all day long:

• The "quick question" call that ran 45 minutes.

• The four hours of revisions the client never really paid for, because nobody wanted to have the change-order conversation.

• The 90-day-late invoice quietly aging in your books.

Each one drops your real billable rate below the number on the proposal.

Which is why doing the rate math, by itself, is only half the answer. The other half is operational. Do you know how many hours each project actually consumed? Are you billing change orders, or eating them? Are invoices going out on time? Do you have a real utilization number for your team?

Most designers I talk to discover, doing this for the first time, that they have two problems at once: the rate is too low, and their operations aren't producing even the rate they thought they had. Both have to be fixed. Raising the rate without fixing the operations just means absorbing more dollars per hour of scope creep.

That second half — protecting the hours you priced, keeping scope tight, getting invoices out the door, making sure the project you scoped at 200 hours actually takes 200 — is the harder, less glamorous work. It's also the work that decides whether the number on your proposal ever reaches your bank account. It's the reason we built Materio: a project delivery system that holds your projects together so the hours you charged for are the hours you keep.

But that's a problem for after you know your number. First, get the number.

Run the Hourly Rate Calculator →

Your cost rate and billable rate in two minutes — for you and every person on your team. It runs the exact math in this post.