A few weeks ago Amber Weinberg wrote a post for Freelance Folder on Learning How to Freelance without Clients. It’s a topic that’s frequently on my mind and it’s the post that inspired me to write this series about running a freelance business.
The definition of a freelancer is a person who sells services to employers without a long-term commitment to any of them. We work for ourselves as a sort of traveling employee for others. For the companies it works because they may not need our services on an every day basis and can save money not having to hire full time and provide benefits.
For us it works for any variety of reasons. For me it comes down to the freedom and flexibility around how I work and the responsibility I have over my own career and life. I can only speak for myself, but I’m guessing most of you working as freelancers feel the same.
Most of us though, don’t make as much money as we could if we did take a full time job. We generally trade some of the financial perks for the freedom and responsibility. I’m fine with that tradeoff and I suspect you are as well, but do we really have to settle financially. I don’t think so.
The key is to rethink what it means to be a freelancer. Instead of being a someone who’s services are for hire, we need to think more like entrepreneurs and learn how to scale our business.
Trading One Boss for Many Bosses
By boss I mean the person or entity paying your salary. When we work full time we have one boss. When we work as freelancers each of our clients is a mini-boss. Each client is responsible for a given percentage of our overall earnings. Losing a client is better financially than losing a job, but it still means a hit to our finances.
Ideally you’ll build up your client list to the point where no one or two clients makes up such a large percentage of your revenue that losing one or both won’t be a major hit to your financial well-being. You’ll also learn how to sell more to your client list.
When working full time you no doubt experienced some very busy weeks and some very slow weeks. It’s no different when freelancing except when you work for yourself you don’t get paid during those slow times. Our income is directly tied to how many hours we work and so if you want to get paid during slow times you need to figure out a way to fill those times with work.
Does Your Business Scale?
The idea behind economies of scale is that you sell more at less cost. When you’re the size of Walmart you can buy in such large quantity that you can pay less for each individual item you sell. You can pass some or all of those savings on to the customer and either make more per sale or sell more at the same price. That’s not the only way they can reduce costs, but you get the general idea.
You and I can’t do that. If our business model revolves around selling a service we have only so many ways to increase our economy of scale and that increase is limited. We can:
- Work more
- Charge more
- Be more productive
That’s pretty much it. As far as working more it’s easy to see how that caps out. There’s only so much time in a day or week. Sooner or later there aren’t any more hours in a day. When it comes to charging more that also caps out. You can add more value to your services to increase your rates, but your clients will only pay so much for your services. You can probably charge more than you charge now, but there’s a point at which raising your rates will only lead to less revenue, not more.
We can and should all strive to be more productive, but even that has a limit. No matter who you are there’s only so much you’re ever going to produce in any given hour, day or week. There’s plenty of room to grow within the three things listed above, but at some point each maxes out.
What happens when you’ve filled every possible hour, are charging as much as you realistically can, and have wrung as much productivity as you can from yourself? At that point your business can’t scale without a significant change.
Assuming you keep the same business model (getting paid for providing a service) you have to start adding other people to your business. You can outsource or hire internally, but your business has to grow in terms of the number of people.
More people means more hours to fill and more production to maximize and you charge your clients more per employee hour than you pay your employees. Each person you hire or outsource to adds more cap space, though again things will max out and you’ll need to include more people in your business.
There’s nothing at all wrong with this approach. Your freelance design business becomes a design firm and it gives you more room to grow.
However, if you get back to the reasons many of us became freelancers we lose out on some of what’s important to us. Taking on employees or outsourcing means we’re no longer solely responsible and in order to manage those other people we have to give up some freedom and flexibility. You might even find that your time is mostly spent managing others than it is doing the work you love to do.
How else can we improve our economies of scale?
Tweaking Your Business Model
When you get down to it all business models revolve around either selling your own services or products or selling the services and products of others. Success or failure comes in the details, but you’re going to be doing one of the above.
The key problem we have with our freelance business is that money is always directly tied to time.
Selling Advertising and Affiliate Marketing
When you sell the goods and services of other companies you reduce your costs, one of our 3 ways to improve economy of scale. You’re not having to spend anything on producing those goods and you’re not having to spend the time offering their services. You do so for reduced amount of the price of the sale.
Advertising and affiliate marketing are two ways to sell the work of others. You still have work to do. You need to produce consistent quality content in order to attract enough people to make yourself attractive to advertisers or to increase the number of affiliate sales. To make either work you need to be able to continually produce great content that attracts readers and you need to be able to market yourself to continue to build an audience.
Numbers alone aren’t what makes for success with advertising or affiliates, but numbers never hurt. The more people visiting your site the more attractive you are to advertisers and the more potential clicks on your affiliate links. Increasing conversions on the clicks for both ads and links also helps and you can go as far to put your visitors in the right frame of mine to buy for those other companies.
There’s still an investment of time on your part in creating content and attracting an audience, but the revenue time relationship is no longer 1:1. You could create one truly great page that continues to attract visitors and revenue long after you stopped working on it.
Turning Your Services into Products
The other option is to sell our own products and services. We’ve already looked at selling your own services and the problems of scaling them. Selling your own products on the other hand can be much more easily scaled.
Consider a simple example. Instead of designing a custom website for one client, you develop a theme or template that you can sell again and again. You’ll make more on the one sale if you do custom work than you will on the sale of one theme. However you do get to sell the theme again and again. At some point the theme is bringing in more revenue.
Let’s put some numbers on it. Say you charge a client $2,500 to create a new design and develop that design as a WordPress theme. Now say you developed a theme for sale to whoever wants to buy it. You charge $50. Once you’ve sold 50 themes you’ve earned that same $2,500. With your 51st sale you’re making more on the sale of themes, the product.
Naturally if you only sell 49 you’ve lose money over what you could have made doing the custom work. I think most of us start out selling custom services because early on it easier to make one sale than to make 50 sales.
Let’s think again about how we improve our economies of scale.
We can be more productive to reduce costs. We’ll consider the time to produce either custom theme or theme for sale to be the same. They really aren’t, but for the most part it’s not going to differ all that much and you would do mostly the same things to be more productive producing either.
We can raise our rates or price. Sell that same theme for $75 instead of $50 and you now break even somewhere between the 33rd and 34th sale.
We can sell more. This is the key. For no additional cost or effort when it comes to production we can continue to sell more and more. There’s really no limit to how many times you can sell a digital product. The time it took to develop the theme doesn’t increase with additional sales. Your business now has much more potential to scale.
You’ve broken out our your revenue being tied to hours worked. Theoretically your theme could continue to bring in revenue for ever. It won’t, of course, but hopefully you can see how it scales better than the custom job.
Themes of course aren’t the only product you can sell. The main point to consider is that products scale better than services and this is especially true when it comes to digital products where the cost of creating a copy of the initial product is close to $0.
The Cost of Selling Products
It’s not all rosy. Selling a product comes with its own set of challenges.
I mentioned above one challenge is reaching the break even point where your product brings in the same revenue as the equivalent time and effort to sell it as a custom service. You need more sales to break even, which means a different approach to marketing and probably more effort in general. You’ll likely encounter more competition as you need more people to buy from you.
Depending on what you offer as a product you may find yourself spending more time offering support. Probably not the case if you sell an ebook, but certainly the case if you sell something like a theme. If you aren’t supporting your theme, then the next person who is gains an instant competitive advantage.
Again depending on the product you may need to continue to improve it. Unlike custom work, you won’t be getting paid for the time spent improving your product. If a client wants you to make changes to their site you get to charge them. When you spend time improving a product you only make more money if it helps to sell more of your product.
There are new costs and challenges to selling a product, but again the key to remember is that a revenue from a product isn’t a 1:1 relationship with time and that means as a business model it scales better.
There’s a lot to consider if you take the advice to turn your services into products. A lot more than I can cover here, but I wanted to offer a few practical tips.
- Don’t drop all your clients – I hope this one is obvious. Your clients are still paying the bills at the moment. They’re good people aren’t they? And there’s no reason why you can’t continue to offer custom services while also offering a product or selling advertising. In time you may reduce your client list or be more picky in any new clients you take on.
- Make use of the periodic downtime – More than likely your client work has peaks and valleys. When you have a lot of work from clients do that work. When you have a slow week or two spend the extra time developing a product or increasing your advertising potential.
- Listen to what your market is telling you – Many great products evolve because a group of people aren’t being served, by what’s currently available. Listen to the problems your clients are sharing. Listen to what others are having problems with. Then develop a solution.
- Develop something to solve your own problem – Many great products also evolve because one person was having a problem and decided to solve that problem. Odds are other people are having the same problem. The added benefit is you’ll likely feel more passionate about a product you develop for yourself and be more likely to work on it.
- Try a variety of business models – There’s no reason you can’t sell both services and products, offer advertising on your site and link to affiliate products. Each requires different skills to succeed, but much of the work overlaps. You may find that your skills and passion lead you to focusing on one or two business models, but you won’t know until you try. Also the greater the variety of ways you bring in revenue the less dependent you are on any one source.
The key to scaling your business is getting away from the 1:1 ratio of revenue to time. Time is finite. It’s much more limited than we even realize. I’m sure you’ve often wished there was more time in a day, but that’s not going to happen. There’s plenty of room to grow within the 1:1 relationship between revenue and time, but there is a reachable maximum.
Some of us will be happy within that maximum and that’s perfectly fine. However if you want to take your business past a certain point you need to understand that limit exists and how to break free of it.
Scaling your business by developing your own products or selling the products and services of others breaks you free of the 1:1 limit, but it also adds a new set of challenges, which may or may not fit with your interests and lifestyle. Think about what you want from your business and your life and determine if it makes sense for you to move away from services only in order to scale your business.
I hope you’ve enjoyed this series on starting, growing, and then scaling your freelance business. Your business will go through stages and at each stage there are different challenges to overcome to get you to the next stage. One very important thing to keep in mind is your business is your business. It’s not mine or anyone else’s. Ultimately you should do what’s right for your business and for you.
Don’t ever let anyone else tell you what you need to do with your business. We all become freelancers for different and often personal reasons. We likely share many of those same reasons, but your reasons are your own. What I do to grow my business may not not be appropriate for you and what you do may not be appropriate for me. The good news is we should both have plenty of room to do things our own way and be successful.
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