Working as a contractor--or freelancing as it is often termed--is both a great stepping stone to running your own business and a viable career in itself. For the uninitiated, there can be numerous hurdles to overcome on the way to starting and having a successful freelancing career.
As a former freelancer myself and having employed more than a few, I have observed some of these hurdles firsthand. This article discusses some of the ins and outs of both freelancing and running a small business.
What is Freelancing?
In medieval times when knights roamed the land and fighting was done on horseback with a long pole known as a lance, the mercenaries of the time were referred to as 'free lances'.
Today freelancing typically refers to writers, designers, programmers and so on. Freelancers are people who offer their services to employers without a long term commitment to them. They often charge by the hour, day or job and are essentially one person businesses.
The business conditions necessary to freelance differ around the world, but typically include some sort of business registration and tax setup to charge for your services. The main prerequisites to becoming a freelancer however are a high level of skill in your field and drive. Once you are out on your own there is no longer the shelter of senior employees to correct your mistakes or cover your faults. Freelancers are typically very well rounded in their skills as they need to operate as a one person team.
Beyond the basic regulatory conditions, the desire to freelance and the skill level required there are a variety of details that you need to consider from branding to rates, client liaison to the mechanics of accounting. This article will walk you through some of these.
One of the first things you will need to do as a freelancer is decide on a brand for yourself. It might be your name 'John Smith Design' or something more grand 'Eclipse Programming Services'. Whatever it is you will need a business identity to work under and for clients to know you as.
Along with your new name you will naturally need a logo, business cards and a website. Remember that you are now a business and all your materials need to be polished and professional. It's nice to be personal, but don't let your hobbies, rants or photos into the picture, particularly on your website.
If you're not a designer yourself, invest the money in someone who knows what they are doing as the difference is immeasurable and the impact of looking professional can make the crucial difference when your potential client hasn't yet had the chance to know you by your quality of work.
When it comes to your website, make sure you get a domain name that is:
- Easy to remember. Really long domains can be confusing, as can ones with odd acronyms or letters in them
- Easy to spell. If you have to say your web or email address over the phone it's always better if you don't have to say it letter by letter with things like dashes or underscores mixed in.
- Appropriately descriptive. A name that says something or ties in with your name or business name is best. Its easy to remember and immediately identifies you
Make no mistake, having a website and particularly a domain name is essential. Freelancing off a hotmail account just does not come across as professional or serious and impressions count.
When it comes to building your website, there are a few key pieces of information that must be on there, they are:
- An introduction of some sort - usually just a statement is best
- Your services, or else how will anyone know what you do?
- Examples of your previous work
- Contact details
You may wish to make more of your site, work on search engine optimization or make it part of your workflow process, but for the bare minimum those four items will suffice.
Where do you find work?
The key to getting started as a freelancer is to have work. But where do you find your first jobs and indeed your later jobs too? And what do you put in your portfolio if everything you've ever done belongs to your old employers?
FreelanceSwitch offers a job board which is hand-moderated so you only see the legitimate jobs that meet our standards. It's free to post jobs and $7 per month to apply to them, and get priority listing in our freelancer directory.
When it comes to getting your first job, its really a matter of using your contacts, and that means telling everyone you know that you are available for hire. If you do not have many leads then you will also want to make sure they know that you'll come cheap. It might be a good idea to send a mailer around to family and friends, or you might prefer to talk to people in person, whatever the case remember, no-one will hire you if no-one knows about you.
You can often also find jobs on the web on forums and job boards. Look for local sites as well as international ones. Here are some examples of places you could look:
Another good starting point for work are places that you have worked at before or where you know someone who works. Two of my own first clients were former employers who had overflow work. It padded out the portfolio and helped me ride out the lean early months.
If you have nothing to show for yourself for whatever reason then you had either better be a great talker or find something to put as a sample. This might mean:
- Creating an imaginary job for yourself and executing
- Offering your services for free to someone
- Talking your last employer into allowing you to show some of your old work for a specific period of time
In any case it's difficult for a client to hire you on the strength of your word alone. From time to time you will be asked to do what is known as free pitching, where the potential client will ask you to do some of the work prior to payment. My view is that this devalues your industry and indicates the potential client does not place much worth on your work. Consider if you went to see a doctor, would you ask for a sample health check free of charge, or would you get your mechanic to start fixing your car to see if you liked the way he worked? These things tend to happen in creative fields such as design and writing, but they should not. Keep these thoughts in mind, particularly in your early days when you are struggling.
Once you have worked a fair amount of jobs, you should find that you steadily get an increase in repeat work and referral work and that you depend less and less on new jobs. If this is not the case you are either too expensive, getting the wrong types of clients or not good enough at your work (which in turn means you're too expensive). You can and should generally anyway look for outside ways to get more work - advertising, yellow pages listings, getting your website found and so on, but if you have trouble retaining your clients or having them refer you on, then these are cosmetic fixes and you should be looking at addressing the main problem.
Quoting and Estimating
Once you have a job or a prospective job, you will need to provide an estimate or quote for the job. Estimates differ from quotes in their degree of fixedness. Estimates are not guarantees of the final price and in essence declare that the final cost of the work will be within about 20% of that price if nothing changes. Quotes on the other hand mean that the price you give is a firm amount that is agreed upon for the amount of work specified.
Most clients prefer quotes as estimates have a tendency of becoming more expensive by the end and hardly ever the other way around. Still estimates can work if you have a good reputation either generally or with that client specifically. They can also work if you guarantee that the price variation will be within a certain margin (10%, 20% etc).
Itemizing your quotes and estimates means laying out the quote so each part of the job can be seen separately. This is not only useful for your client who for example gets to see why a logo costs what it does, but is also good for you, as it will force you to think each part of the process out.
At the end of the job it is an excellent idea to review your original quote and compare the final times to your estimates. This will help you refine your understanding of what each job takes and make you better able to win jobs in the future.
There are plenty of good time tracking applications around like SlimTimer, Basecamp and a variety of others. Get one and use it.
From time to time a project will blow out its schedule. This happens for one of two reasons;
1. You underestimated how much work was involved
Unfortunately no-one said freelancing was easy, and nine times out of ten you just have to swallow and bear the cost for your mistake. If you have made it clear to your client for one reason or another at the beginning that you are unsure, then they may accept to pay further fees however generally speaking if you aren't competent enough yet to price your services, you are the one that deserves to carry the cost.
2. The client has miscommunicated what the project entailed
Clients do this for many reasons - they might not understand what's involved, might not know what you need to know, might be too busy or might just have gotten overexcited and started adding to the job midway. Whatever the reason, it is your job to pull them up. And it is here that an itemized quote will help you out. You can point to exactly what was quoted for. If there is something you are doing which is not in there, it is your right to ask to charge for that additional service.
When sending your initial quote it can be a good idea to send your terms of service along with it. “Terms of service” or “Terms and Conditions” are simply a set of terms that you set for the agreement. Generally speaking they work to protect you and your client from transactions that go wrong. They might include things like
- How long the client has to pay your final invoice - also called your Payment Terms
- How you deal with rebilling extra costs
- Deposits you take
- Copyright for the work you do
- Ownership before and after payment
- Your rights and responsibilities and their rights and responsibilities
You can choose to have these terms written up by your legal counsel, or simply have them in plain, clear and grammatically correct English. When attached to your quote or estimate, the terms and conditions are taken to be accepted when the actual quote itself is. That is once the quote is signed off on, then the terms of service are taken to be agreed upon.
Taking the time to make sure you have a set of terms that protect you and your client is important. When both you and your client have agreed on them it means you have a firm footing to work from. As a freelancer you will sometimes be asked to sign a contract or terms from your client as well, make sure you read them carefully as they often will have clauses to specify that they supersede your own terms.
Rebilling Other Services
Along with your own services you may find you need to rebill other services that your client requires. Examples might include hosting, printing costs, couriers, stock and specialist work. There are a few issues here:
- Never swallow the cost unless it is very small
Getting a client used to having things for free is a bad idea as one small item can soon become a string of items which will leave you with a bad feeling and eventually a bad relationship.
- Add a percentage on top of the cost
Adding about 25% on to the cost when you rebill is fairly standard and this covers the cost to you of hampering your cash flow and in some cases organizing the item (e.g. calling the courier, locating a web host and so on)
- If the cost is high, seriously consider letting the client deal directly with the supplier
As tempting as it is to think you are making an easy 25% commission on a large cost such as a big print job, what you are in fact doing is taking a huge risk. Swallowing a large supply cost that has gone wrong can break a freelance business very quickly. The best example of this is in the printing industry. Print jobs easily run into the thousands, and if the job goes wrong for whatever reason and you have a client who decides to bully you, you will find yourself stuck between a rock and a hard place trying to figure out how you can possibly pay for a reprint out of your own pocket. Rebilling this sort of large supply cost can work, but you do so at your own risk
How much is right?
That brings us to the hardest part of freelancing - deciding what to charge. Most freelancers work with an hourly rate. They will then either lease themselves out at that rate, or they will use that hourly rate to determine the price of a job by estimating how many hours it involves.
Finding your hourly rate involves the following considerations:
- What do others charge? Naturally finding the industry norms is probably the most important factor, especially when you first start out. If everybody else is charging $50 p/hr and you are $200 p/hr you may find work hard to come by. Ask around, particularly of people in the same specialization and skill level as yourself.
- What is the maximum you can charge? If your services really are worth $200 p/hr and there are sufficient clients who can afford that rate, then you would be foolish not to charge it. In essence your cost is what the market can bear. Finding this out however tends to be a matter of trial and error and overestimating can often lose you potential jobs. Do this over time in small increments.
- What do you need to charge? One way of determining your hourly rate is to work backwards and calculate how many hours you will be billing in a week, what your costs are and therefore how much you need to charge in order to meet those costs. This can be a good way to go about it, unless of course you have no idea how many hours you will be billing in a week because you are just starting out.
Another important consideration to take into account is that the hours you bill make up only a part of the hours you work. It is tempting to think of maths like this: $40 p/hr x 40 hours a week = $1600 a week. In reality every hour you work will accompany an hour of non-billable work such as accounting, client liason, searching for work, marketing yourself and other duties. Plus you also need to consider time you are sick, time you have taken for holidays and everyone's favorite - time when you just plain don't have any work to do. For these reasons your hourly rate should generally be higher than you would first guess when you are starting out.
On the other hand there are benefits to undercharging, particularly at the beginning of your career. Namely a low rate gets you work, repeat work and most importantly referral work. Since jobs are the lifeblood of your freelancing business, this value cannot be underestimated. If you are doing good work at a low cost, word will get around. Of course in the beginning you will have to work very hard to make ends meet, but what you can do is raise your prices just a little with each successive wave of clients. Eventually you should find yourself in a position with lots of work and a reasonable rate. In my own experience from the time that I first began freelancing until I stopped, my hourly rate multiplied by a factor of 6 - going from very cheap to now fairly expensive.
Another important facet of your charges is keeping track of exactly where your time goes, not just during client work, but generally. As mentioned previously find yourself a good timing program and monitor where every hour goes. This will help you understand what you should charge as well as what is actually happening with your time as opposed to what you think is happening.
Now it's all very well to get your price right, but at the end of the day quotes don't get paid, invoices do - most of the time. Getting your invoicing right can mean the difference between a healthy business and a defunct business.
So first of all, what is an invoice? It is simply the counterpart to a quote. Where a quote is a declaration of what the client will eventually pay, the invoice is the piece of paper that says 'pay this amount now please'. The exact format of an invoice differs in different countries, but generally involves a few components:
- Tax and Legal information. This might include your business registration, address and invoice record number.
- What needs to be paid. The final cost, often spelled out in an itemized fashion to match the quote.
- How to pay. It's good to make this as easy as possible! Offer multiple options such as a bank transfer, an address to send cheques to and a service such as PayPal to accept credit card payments.
- The due date for payment. Giving your client a fixed date when payment is due is crucial to having something to point to if things go south. The length of time you give a client varies, and is typically anything from cash on delivery to 90 days.
With a large job, you may wish to break it down into components and set what are called milestones, the completion of which will involve a partial payment. So for example you might split the job into three stages, then ask for a 25% deposit and a further 25% at the end of each stage. When you set the milestones make sure there are specific deliverables that the client will see at the end of each. You may also wish to estimate dates and provide a schedule of how it will happen.
The advantage to milestone payments are that your cash flow situation will be significantly more stable. Rather than waiting months for the job to complete and then waiting again another month for actual payment, you can be taking chunks of cash as you go. The other major advantage is that you decrease the chance of not getting paid for your work on a large job.
On almost any job it is a good idea to take a deposit at the beginning. This is particularly true of clients you are unfamiliar with or who have a history of slow payment. The deposit may range anywhere from 25% - 50%. Needless to say once you take a deposit you had better finish the job and finish it well.
Perhaps the most important point about invoicing however is to stay on top of it. Sometimes when you have a lot of work on it can seem like a tedious thing to do, but the earlier you send your invoice the sooner you get paid. Invoicing and chasing invoices should have a very high priority in your to-do list.
Unfortunately during your freelance career, there is a good chance you will find a client who either refuses to pay, tries to reduce their payment or delays payment for as long as humanly possible. These clients can cause significant problems for a small freelance business, particularly if their job makes up a large portion of your billable work during a specific period.
Before we discuss ways to ensure you get paid, it is worth noting that for this very reason it is a good idea to always keep a cash reserve in your business or personal account to weather such times. Not having enough cash to pay your daily costs while you wait for bills to be paid - also known as cash flow problems - is a major cause of small businesses closing shop.
When a client refuses to pay, you generally find yourself looking back to the original quotes, emails and invoices for assistance. It is a good idea to have clear, itemized quotes so that you can show that you have completed the work you were commissioned for. It is also a good idea if your invoice has a clear payment date that you can point to. If you have emails that show the client was satisfied with the work, this will also help to state your case.
So lets look at the three main scenarios:
Client takes as long as humanly possible to pay
On your quote and later your invoice you will have written your 'terms of payment', or in other words the length of time after your invoice is issued that payment must be made. This ranges from cash on delivery to 90 day terms. Clearly giving the client 90 days to pay your invoice really favours the client and for a freelancer I wouldn't advise such generous terms. Rather most freelancers should be looking at 0 - 30 day terms. Large companies can manage long waits for payment, you cannot.
Now if a client delays their payment outside your terms, it is your responsibility to begin reminding them and reminding them constantly. Remember the only people who should be embarrassed by this are the people who haven't paid, so if you feel a sense of shame about constantly calling or writing about money, swallow it and forget about it.
A weekly or sometimes in more extreme situations daily reminder about the payment almost always does the trick. There is an old saying 'the squeaky wheel gets the grease' and this is particularly true when it comes to receiving payment. If the client does get annoyed with you for asking to be paid, consider that this is part of their strategy to avoid paying you and also that they may not be a client worth working for.
One other solution you may try to guard against late payments is to institute a system of late fees. This may take the form of something like 1% late fee when the invoice becomes late and a further 1% for every calendar month after that. Do not set a late fee that is overly high, generally you will not want to go higher than about 12-15% per calendar year - similar to a credit card's rate of interest.
Late fees can work, however many clients will bristle at them, and they can create animosity, particularly if you are stringent and issue a late fee the moment an invoice becomes overdue. Similarly if you issue a late fee for a client who has always been good to you, there is a good chance you will receive an angry email or call!
Client tries to reduce payment somehow
In this scenario the client will often either state that they have not had delivered all that was asked for. It is for this reason that it is so important to have a clear and itemized quote. If at all possible it is good if your quote has been 'signed off' on - i.e. you have a printed copy which holds the client's signature on it. If you don't have a signed copy, generally a deposit payment or a some sort of written go-ahead will suffice to show that the client had accepted the quote.
The best thing to do in this situation is to visit the client in person. Rather than take an adversarial stance, go in with two thoughts in mind: (a) You wish to ensure your client's needs have been met and that if they are asking for reductions it may very well be for a good reason; and (b) You will also not cave in simply to please the client, you must ensure that you are firm without being aggressive.
Seeing the client or at least speaking over the phone, is the best way to clear up whatever issues have caused the problem. If you feel the client is simply trying to worm out of paying then point to the quotes and any other documentation showing that you delivered what was requested. If the issue cannot be resolved - which is an unlikely scenario - then you have escalated to the next scenario.
Client refuses to pay outright or avoids you
When your situation goes from a very late payment or a dispute over payment into a refusal to pay, it is time to seek legal counsel. Every situation is a little different and laws in different countries vary on how this plays out. Generally speaking you should always have a lawyer that you have some contact with so that in a situation you can call on their services.
You may also consider hiring a debt collector. Debt collectors take a percentage of the amount they are hired to collect and are usually very experienced at extracting money from rogue clients by both persistence and threats of legal or financial ramifications to their actions.
There are also times - particularly for small sums of money - where you write off the loss as a cost of doing business and avoid both that client and similar sorts of clients like the plague. This course of action usually results from the legal and debt collection costs outweighing the amount of money owed. It is frustrating and upsetting but sometimes is just simpler.
Recognizing Trouble Clients
Not all clients are the same, and with experience you will find you become adept at recognizing clients who may be troublesome later on down the track. Here are a few potential tell-tale signs - remember these are not hard and fast rules however:
- Clients who are overly protective of themselves. Sometimes you will get clients who ask you to sign lots of legal documents, such as non-disclosure agreements; terms of supply agreements; contracts and so on. Generally speaking these are not a bad idea with a lot of careful reading that is; however over time it has been my experience that clients who are worried about being ripped off tend to start thinking they are being ripped off. It is almost as if they create the situation for themselves or find evidence. This is not to say that any client who asks you to sign something is a bad client, but rather to be wary of a client who seems very worried that you might take advantage of them.
- Clients who ask a lot of questions about whether they will need to pay for things if they don't like them. This happens a lot in the design business, a client will say something like “What happens if I don't like the logo designs you do, do I still need to pay for them?” This shows the client does not value your time, does not trust your service, and almost always means they will be hard to deal with.
- Clients who say they just had a very bad experience with the last writer/developer/designer. Sometimes they really have had a bad contractor, however sometimes they were the problem themselves. This is a bit like people who seem to always have bad relationships; when you look carefully often the common factor in all their relationships is them. In business trouble clients will often have problems with other suppliers and contractors, and in many cases will even tell you this.
Paying attention for these and other warning signs may help you to protect yourself against trouble in the future. Though always remember every client is different and there are no hard and fast rules, so always give your client the benefit of the doubt if you are not completely sure.
Scoping, Delivery and Time Frames
When a client pays you to do a job, it is your responsibility to do not only a good job, but also to do it on time. In fact the quality of the job and the efficiency with which you do it all are almost equal in the sight of many clients and you will get an extremely high reputation if you always deliver on time. In business most people want something they can rely on, even if it means sacrificing some level of quality. Of course having the highest quality work delivered on time is even better!
Determining when work is due must happen at the beginning of the job. For this reason it is a good idea to do some form of scoping to determine what the job entails. This is more important in some fields of work than others; in particular software and programming often require very in-depth analysis before work commences.
Once you have a good idea of how much work there is to be done and you and your client have agreed upon its nature it is time to provide delivery dates and time frames for the work. These milestones will usually have deliverables for the client to inspect and can include payment schedules as was discussed previously.
After committing to a schedule it is absolutely imperative that you stick to it. I cannot stress how important delivering on time is and how much repeat and referral work it will get you.
Service, Accessibility and Saving the Day
There are four defining characteristics to a business; quality, price, reliability and service. If you can deliver all four, you will be much sought after. We deal now with the fourth and final of those characteristics: service.
As in any other business, service sets you apart, keeps the client and relationship happy and justifies your cost. In freelancing service takes four main forms:
- General Relations. This means the quality of your face to face relations, your phone conversations and your emails. It means being approachable, affable and easy to get along with. It means taking an interest in your client and their business above and beyond the job. It means being someone they want to work with.
- Accessibility. Clients want to be able to get in touch with you. There is nothing worse than not being able to get a hold of a person in a critical moment, so make sure you are available by phone, email, internet chat and possibly even at your business address. Different types of work will entail different levels of accessibility in terms of after hours, but all freelancers should be available during business hours at the minimum.Moreover if you are unavailable make sure you have an answering machine - which you respond to! If you are taking a vacation or are off sick, add a special answering message and/or had an auto responder to your email so that your clients know where you are.
Occasionally Over-delivering. Over-delivering on a job means going the extra mile for a client, it might be an extra feature in a software job, an extra application of their graphic identity, or some written copy they needed but didn't ask for. It is work that when delivered makes the client feel they are being taken care of and that you have their best interests at heart.
Notice also that I have said 'occasionally'. If you consistently deliver more than you stated, your client will simply get used to things being this way and it won't be over delivering any more. Additionally make sure (subtly) your client realizes that you have done this or else you lose some of the benefit - though you still get the knowledge of a job well done.
- Saving the Day. In freelancing you will often get the chance to save the day for your client and I recommend taking advantage of these opportunities when they come up. It occurs often for a freelancer because your client will often have their own client that they are working for, and all clients have deadlines. So when your client comes to you with an emergency deadline that no-one else can handle, it looks great if you can produce results at that critical moment.But a warning as well, saving the day over and over again will result in it becoming something the client will rely on. So use your powers sparingly to make them most effective!
Expansion and Becoming a Full-Fledged Business
Taking a successful freelance business and expanding out to hire employees in order to turn transform from a one-man-band to a full-fledged business may or may not have been your intention from the start. It is however a relatively common occurrence and is a very good way to get a larger business started without investing lots of capital.
The principle pitfall is that when you are working for yourself you only have one person to worry about - you. You know when you like to work, what your capabilities are, how much money you need, when you have been slack and when you are working hard. In other words you make your freelance business successful and you are totally under your own control. When you decide to start hiring freelancers and employees you are stepping into a much larger fish bowl where you will increasingly find yourself managing rather than practicing your primary skill.
There are many ins and outs to growing into a larger business and it can be very worthwhile. For the purposes of this article I will say my advice is to go slowly and not expand beyond your means. Additionally you should read a book called the E-myth which deals precisely with this situation.
This article is also available in French. Pour nos chers lecteurs de la langue Francaise, je suis heureux de vous informer que vous pouvez lire une traduction complete de cet article: Le guide complet du débutant freelance.
Note: A few times a month we revisit some of our reader’s favorite posts. This article was first published in April of 2007, yet is just as relevant and full of useful information today.
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