Coaxial rotors can generate high thrust with a small aircraft volume, which makes them an attractive configuration for small unmanned aerial vehicles (UAV), particularly for hovering and low-speed flights. However, the aerodynamic interference between the upper and lower rotors makes it more challenging to predict design trends for aerodynamic performance. Three-dimensional compressible unsteady Reynolds-averaged Navier-Stokes (3D URANS) solver can be a suitable choice, however, it requires burdensome computational cost for design optimization. One alternative that can alleviate the computational burden of design optimization with little loss of accuracy is lifting-line theory coupled with a free-wake method. Although the free-wake method provides a high degree of freedom in modeling the wake effects, a well-adjusted wake model can provide an accurate prediction of aerodynamic performance and design trends. In this study, the free-wake model has been adjusted to correlate the aerodynamic environment, such as sectional thrust, induced velocity, the effective angle of attack, and wake geometry, predicted by the 3D URANS simulation for the baseline coaxial rotor. By adjusting the physical model parameters of free-wake, such as core type, growth rate, and its initial strength, the free-wake model is adjusted based on the physical relationship, not the simple linear scaling factor generally used to inflow factor. The optimal coaxial rotor was derived based on the performance prediction of the adjusted free-wake model. The 3D URANS simulation was also conducted for the optimal coaxial rotor and compared the aerodynamic environments predicted by the adjusted freewake model. The performance index and aerodynamic environments predicted by both solvers also showed similar results for the optimal coaxial rotor. The present physics-based freewake adjustment can be an efficient design approach with consideration of the complex aerodynamic phenomena of a coaxial rotor system.