When starting a freelance design business do you need to create a business plan? You can easily find opinions for and against. For me it comes down to how you define a business plan.
If you’re asking about a formal business plan then no it’s not necessary. If you’re talking about business planning then I think it’s something important for success.
Last week Amber Weinberg posted why freelancers don’t really need a business plan. It’s one of the rare posts where I agree and disagree with most everything in the post. The reason for my apparent confusion is the advice really depends on how you define a business plan.
Note: One of my readers, Félix, translated this post into Spanish for those of you who might prefer reading it that way. 5 preguntas que su negocio debe responder
What is a Business Plan?
Both of the statements below are from the same Wikipedia article on business plans.
Business plan—A formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals.
Business plan—A decision-making tool. There is no fixed content for a business plan. Rather the content and format of the business plan is determined by the goals and audience.
The first is closer to what many people think of (and what Amber described) as a business plan. It’s a formal document that is written with a standard format. Here’s the format used in a sample plan at bplans.com for a service oriented business.
- Executive Summary (including Mission Statement)
- Company Summary
- Market Analysis Summary
- Strategy and Implementation Summary
- Management Summary
- Financial Plan
About the only time you would need one of these formal plans is if you’re seeking financing for your business and even then they may not be useful. (Note the headline in the image below)
The second definition above is more what I think of as a business plan. It’s a tool to give our business direction. It can take on any format you want. It’s business planning as opposed to a formal plan.
Mine helps me make decisions about my business and I consider it one of the most important documents I’ve created. It’s so important that I revisit and rework it every year.
While many freelancers start by declaring themselves freelancers and then looking for clients, I think the more successful freelancers take some time to plan how their business will function and grow.
Given that design is essentially formulating a plan, you can consider business planning as designing your business.
5 Questions You Should Answer When Starting Your Freelance Business
Regardless of whether you plan or not there are some questions you should answer when starting a freelance business. A few obvious ones are:
- What services will you offer
- How much will you charge for your services
- Where are you going to find clients
- How are you going to convince clients to hire you
You ask and answer these types of questions in advance to help you make decisions when they come up in practice.
Business planning for freelancers is an individual process. Only you can truly define all of the the questions and answers you need to ask, however I think there are few essential questions you need to think about and answer if you want to be successful.
Who is Your Market?
Your market isn’t everyone who needs a website. Thinking everyone is your market is a mistake many new freelancers, myself included, make.
The thought process is usually to cast the widest net possible as a wider net means more potential clients. You are never going to appeal to everyone and even if you could you wouldn’t have the time to serve them all.
Instead you want to more tightly define who your clients are. You can define your market based on demographics. You can define it based on location, type of industry, business size of the client, the platform you’ll develop on. etc.
The better you define a market, the better you can appeal to people in that market. Your market should be large enough to offer enough potential clients, but not so large as its definitions become too general.
How Can You Reach Your Market?
Once you’ve figured out who your market is you then need to figure out how to reach them. You have to let people know you exist before they can decide to hire you.
People in a market often spend their time doing similar things. They share needs and interests. They read the same magazines or join the same social communities. They probably search for similar things and visit similar websites.
To reach your market you need to be present in the same places they’re present. Join the same communities. Ask and answer questions. Get to know the people in your market.
One of the reasons I joined and now own a small business forum is because the people who typically frequent those forums are my market. In fact I built a client list by talking to people on a single forum. My client list has since expanded, but it all started with a handful of people on one forum.
What Differentiates You from Your Competition?
It’s unlikely you are the only business serving a market. You have competition for the same potential clients. Why you? Why should people in your market choose you over another freelancer?
Getting to know people will help as people generally prefer to hire people they know. Still you need to offer your market a compelling reason to choose you over everyone else who wants their business.
This can be a difficult question to answer, especially early on. I think the answer generally comes from one of three places
- You—What specific skills do you have both related to and outside your business. Whoever you are, you’re unique and have something to offer that your competition doesn’t.
- Your competition—If you spend some time studying your competition you can find things they aren’t doing or doing well. You can differentiate yourself by filling the gaps your competition isn’t serving.
- Your market—If you listen to your market you’ll hear them telling you what they want. They’ll tell you the problems they need solving. Be the person that solves those problems.
The main thing is to answer the question “why you?” If you don’t know, don’t expect that clients will either.
How WIll You Position Your business to Promote “Why You?”
Once you know how you’ll differentiate yourself from the competition you need to decide how you’ll get those differences across to your market. Will your advertising and general marketing convey why you’re the right choice?
What tangible benefits can you offer your market? Are you giving your market the features it wants? What compelling offer are you making to potential clients. What story are you going to tell?
This question is all about the specifics of how you’ll get across your differentiation and how you’ll be consistent in getting it across. This question is about building your brand and how you’ll turn it into the valuable asset it should be.
How WIll Your Business Generate Revenue?
The obvious answer is you’ll charge for services. By definition a freelancer sells services. However, there are a variety of ways you can generate revenue at the start or as you grow.
You can sell products you create like themes or plugins. You can advertise or sell affiliate products. You can create informational content with a price.
Even if you limit yourself to services, questions such as how much should you charge immediately require answers. A mistake I see many make is to try to charge less than the competition and use price as a differentiator.
Large businesses can do well competing on price. Freelancers will do better to differentiate on value. Price your services based on the value you offer to clients. I find this easiest to do when you’ve already asked and answered the 4 questions above.
Remember too that you’ll be paying for things like health insurance and a new computer when necessary. You have to account for all these costs when pricing your services.
How I Plan My Business
My business planning is about as informal as can be. I open a simple text file and I start typing.
Free writing, jotting down random thoughts, sketching something on paper, creating mind maps. All I’m trying to do is dump anything in my brain and record it somewhere.
I use the questions above as a guide, though I often meander my way to answers. I think about smaller details and larger concepts in no particular order.
Typically I’ll spend a few nights or a week thinking and writing all with the goal of answering the 5 questions above. I’ll flesh out notes, remove ideas that don’t fit, and generate new thoughts as the week progresses. After a few days I usually have the workings of a plan.
I tend not to revisit a plan after it’s written. The act of thinking and writing is enough for what I need the plan to do. Toward the end of each year I spend about a week going through the process again in order to plan how I want my business to grow in the coming year. Parts of my plan stay consistent from year to year and parts change.
For me the plan is all about getting me to think about the direction I want my business to go. It’s amazing how much more focused my business will be with even just a few hours of thinking about it over the course of a few days.
Is a business plan necessary for freelancers? It really depends on what you mean by a business plan.
Freelancers don’t need to create a formal plan. Those are created to convince banks to give you a loan. Freelancers will greatly benefit from planning their business, though.
It’s up to you the form your plan takes, but I think answering the 5 questions in this post is a good approach. You might even reduce all 5 questions to 2 general categories of thinking about your market and thinking about your brand.
Do you or did you plan a direction for your business? If so how often do you revisit your plan? Have you found business planning helpful or a waste of time?