Thanks in part to globalisation and the state of the world economy, the number of
freelancers and freelance opportunities have grown rapidly in the past
For individuals, freelancing offers the possibility of an
entrepreneurial lifestyle and a level of self-determination that is hard
to find at a nine-to-five.
For businesses that may not have the luxury
of hiring a full-time employee or need expertise that is hard to find
and/or develop in-house, retaining a freelancer may be the most
attractive way to get a job done.
But freelancing isn’t all roses. Most individuals who become freelancers
aren’t billing themselves out at thousands of dollars a day, and many
fail to earn more than they used to earn (or could
earn) as full-time employees.
Some, sadly, are unable to find their way
and are forced out of freelance-dom.
For those wanting to ‘make it‘, here are 11 life-saving tips.
Dot your i’s and cross your t’s
While few freelancers like dealing with legal issues and attorneys, having a formal agreement in place for each gig can help protect you against non-payment and avoidable legal headaches.
As such, savvy freelancers will seek out competent legal counsel early on, and at a minimum, invest in the drafting of a solid template agreement that can be applied to common projects.
Demand a deposit for every project
New freelancers in particular are often hesitant to require an up-front deposit from clients, believing that it will cost them business. But the truth is that no reasonable client will refuse to pay a reasonable deposit, making the deposit one of the best tools for filtering out the clients most likely to be deadbeats.
Once a long-term client relationship is established, it may be appropriate to consider alternate arrangements, but it’s wise to treat those arrangements as you would a loan that doesn’t require a down payment.
In other words, understand what you could lose if the loan is not repaid, and make sure that loss is tolerable.
Don’t get distracted by the “hourly versus fixed price” debate
While it’s not always the case, the general belief is that freelancers love hourly engagements and clients love fixed price engagements.
At the end of the day, however, the “hourly versus fixed price” debate is usually a red herring. If you’re billing hourly for a project, your client is going to want an estimate of how many hours the project will take to complete.
And if you’re billing a fixed amount for a project, you’re going to base the amount on an hourly rate and the number of hours you believe the project will take to complete.
The key is making sure that you have enough information to establish the scope of the work required, and that you have enough skill to accurately estimate work time based on scope.
If scope isn’t established and/or you’re not capable of estimating accurately, the project is at risk regardless of whether you’re billing by the hour or for the whole shebang.
Invoice well, invoice religiously
One of the most common reasons individuals fail at freelancing is that they don’t generate the cash they need when they need it. In other words, they have clients and gigs, but it’s a constant struggle to pay the bills.
Many freelancers find the lesson that strong revenue does not necessarily equate to strong cash flow to be a harsh one, but once learned, it’s much easier to address the matter.
Building strong cash flow starts with invoicing. First, you need to set fair if not favorable invoicing terms (hint: net 45 or 60, or higher, can be painful).
Then, you actually need to submit your invoices in a timely fashion (eg. when they’re able to be submitted or due), something that, surprisingly, many freelancers fail to do even though there are plenty of cost-effective tools that can make the process easy.
Minimize your ratio of new client acquisition to billable work
Freelancing can be very profitable — when you’re billing. But many freelancers spend a lot of time not billing, and for many of these freelancers, new client acquisition is the biggest source of non-billable time.
It shouldn’t be. While you probably don’t want to be dependent on one or two clients, if you’re spending more than 25-30% of your time each month looking for new ones, you may eventually find it hard to be successful.
Find your optimal rate
One of the best ways to minimize the amount of new client acquisition you need to engage in is to find your optimal rate and pricing structure. Charge too little and you’ll find it hard to thrive. Charge too much, however, and you’ll find that your clients may send you a lot less work than they’d otherwise like to.
At the end of the day, finding your optimal rate is effectively the same thing as maximizing your revenue. A freelancer who bills 120 hours a month at $100/hour makes more money than a freelancer who bills 60 at $150/hour, and incidentally, is probably more likely to be staying sharp and working on interesting things.
Focus on what you do best and what you want to do, not on what you can do
Many freelancers make a huge mistake: they make their sole criteria for taking on a project the answer to the question, “Can I do this, and make money?” Instead, it pays to focus on what you do best and take on work that’s aligned with your long-term positioning and goals.
Everything else can distract you from getting to where you want to go, even if it helps pay a few bills in the short-term.
Be realistic about scale
Service businesses have unique scaling challenges, and individual freelancers will obviously find it difficult to grow revenue beyond their hourly rate times the number of hours in a working day.
For ambitious, established freelancers, building a team or outsourcing may seem like a good way to grow revenue. But growing the number of hours you can bill in this fashion and maintaining quality can be very difficult to do.
Also consider that this type of expansion may force you to do more project management, so make sure your project management skills are sufficient and, more importantly, than you’re willing to trade some of your ‘real‘ work for project management.
Don’t underestimate the importance of location
The stereotypical freelancer lifestyle can be attractive, but don’t get too infatuated with the notion that you can live on the beach in some exotic, inexpensive land while billing out design or development work at London day rates.
The market for freelancers is competitive, and location can matter. If the majority of your clients are based in, say, New York, and you’re based in Phuket, the distance between you and your clients could eventually become a major liability.
Don’t be afraid to part ways with clients
Few things are as rewarding than long-term client relationships. But that doesn’t mean that you should maintain a client relationship for the sake of maintaining the relationship.
If a once-solid client becomes a headache (eg. they’re not paying you on time or are treating you disrespectfully), you shouldn’t feel obligated to keep providing your services. And sometimes, your areas of focus may diverge from a client’s needs.
In these cases, doing what’s right for you (moving on), as difficult as it may be, is probably also what needs to be done if you’re going to do right by your client.
Become a business owner
Most freelancers start off thinking of themselves as a ‘freelancers‘, but at some point, a successful freelancer should recognize that she’s really a business owner.
That means learning about, and taking responsibility for, business activities like bookeeping, accounting and marketing. Doing this can often mean the difference between success and failure, as there are many talented freelancers who fail to succeed because they’re poor business owners.
As an example, consider the importance of building a cash position. A good business owner will try to build a solid cash position, as this can provide a safety net for a rainy day, expansion capital, or the ability to offer more flexible payment terms to clients.
A freelancer who is not a good business owner, on the other hand, is less likely to think of her freelancing operation as a business for which a strong cash position is desirable or necessary.