When a company hires someone, no matter what the circumstances there’s an element of risk. They are risking time, money and sometimes their reputation. With a demonstrable track record of success, that risk is reduced or eliminated and as such the higher rate is justifiable. When you’re just starting out, anyone who hires you is taking a chance on you. People typically want the lowest possible amount of risk. So in order to be the less risky option, you need to work at a lower rate for at least a while.
So when you’re starting out, it’s best to start somewhere in the middle. Our advice is to figure out the median rates for your market, and then price yourself slightly under (10-15%) to start, with the intention of raising them gradually as your profile and track record of success increases.
There are a lot of challenges with any business, and a freelance operation is no exception. If anything, being a freelancer is more difficult because you don’t have the support elements to help you with accounting, sales, accounts receivable, accounts payable, project management, execution, etc. Freelancers get stretched in all sorts of different directions and they have to handle everything. A few things to know going in:
- You don’t always know when you’re going to get paid next.
- You may go multiple weeks between paychecks.
- Agencies can be a steady source of work, but tend to pay lower rates and can be slow to pay.
- Direct clients will pay your full rate, but tend to have smaller budgets. The workload also tends to be less steady.
- You will have to fire clients sometimes.
- You will get fired sometimes.
- The sales cycle can be long – and tends to be proportional to the scope of the project. One-off types of engagements usually close right away; long-term contracts take longer to materialize. Again going back to that risk thing.
- You will have contracts end abruptly, despite having done everything right.
- You will have prospects and opportunities fall through after a lot of discovery and other significant time investments.
- Proposal writing is a full time job in and of itself.
- You will need to consider how you’re going to provide yourself with health insurance.
What? Becoming a freelancer still sounds like a good idea? OK then, here are a few tips to get you started (for more info, see this blog post about starting out):
- Approach agencies whose occasional needs for your services don’t necessitate a full time position. The advantage of a freelancer is that they are available on an ala carte basis even though they cost more per hour than a full-time employee.
- Approach agencies with complementary services. If you’re a marketing person, find firms that focus on design and development. If you’re a designer, find marketing agencies who occasionally need those services. This can be a great source of leads, but you also need to be prepared to send a few leads their way as well.
- Be everywhere. Attend networking events, happy hours, meetup/mastermind groups, etc. Demonstrate your expertise any way you can.
- Understand that sales is a big part of your operation. This is unavoidable. If you don’t like sales, freelance work isn’t for you. Sales and business development is a skill you can and will have to learn even if you’re not a ‘natural salesman’. But it’s not optional. You can’t not do it. In the past five months alone, we’ve seen four freelancers in our network close up shop in favor of taking full-time positions. While I wouldn’t use the word failure to describe their individual decisions to go ‘in-house’, the solitary reason their operations had to close was the same for all four of them: they couldn’t generate enough revenue to sustain themselves, which is a function of sales.
Lastly, for as rewarding as a freelance business can be, remember that it is a business and needs to be treated as such. It’s not something that you’re going to try while you’re between full time gigs. It’s not glamorous, especially at first. It’s a grind. And while you might make a lot of money right away, chances are you won’t. Most freelancers quit when a full time opportunity comes along for them to make roughly the same money for a lot less headaches.