If there’s anything that keeps freelancers up at night, it’s money. According to the 2012 Freelance Industry Report, “finding clients” and “feast or famine cycle of work” are the two biggest challenges faced by freelancers. In a more recent survey conducted by Freelancers Union and Elance-Odesk, “[f]inding work and income instability are the top barriers to doing more freelance work.”
Given these problems, the solution seems to be to have profitable clients who can pay you consistently and pay you well. It’s easier said than done but, once you can find and keep more profitable clients, you can make more per project and even bring an end to the feast-or-famine cycle. Here’s a strategy you can use to get there:
Take a Long, Hard Look at Your Clients
Start by evaluating the most recent clients you’ve worked with. This will help you identify if there’s a type of client you tend to attract, and you can figure out how these types of clients are affecting your career and profitability. You can use the accompanying worksheet to do this exercise.
1. List All Your Clients for the Past Year or Two
If you work with more than a dozen clients a year, just list down your past 10 clients.
2. Which Industry or Field Do They Fall Under?
If you’ve redesigned a website for a local bank, then that would fall under “finance”, or if you develop in-house apps for shops, then your clients might fall under “retail”. If your clients are individuals rather than businesses, think about the industry or field you enter when you work with them. For example, if you’re a wedding photographer, you can write down “Weddings”. If you’re unsure how to categorize your clients by industry, this list from the Bureau of Labor Statistics might help.
3. What Is the Size of Their Company?
Are they individuals (one or two people), micro businesses (fewer than 10 employees), small business (fewer than 50 employees), medium-sized businesses (fewer than 250 employees), or large businesses?
4. Which Services/tasks Did You Perform?
If you provided several services, just list the top three services that you spent the most time on or were the most crucial from your client’s perspective.
5. How Much Are/were You Paid vs. the Market Rate for Your Services?
Find out how your rate compares to most of the freelancers in your field. Here are some resources you can use:
- There are many reports on average freelancer incomes, including the ones made by Payoneer and Ed Gandia.
- Hongkiat has an extensive salary guide for web developers and designers, sorted by country.
- Writers and editors can check out guides from Writers Market and the Editorial Freelancers Association.
- Photographers can use this pricing guide from SmartShoot.
- You can also use tools like PayScale and Indeed to figure out how your annual income compares with employees in your field. The Bureau of Labor Statistics also has data on hourly and annual wages from different professions.
6. What Was the Payment Schedule Like?
What schedule did you agree on and, compared to this schedule, are/were payments always delayed, early, or on time? Did they not pay you at all?
7. Notes on Financials
Think about the other finance-related experiences you had with the client that weren’t covered by the above questions. Consider both the positive and the negative.
- Positive questions: Did they give you recurring work? Were they receptive to additional tasks or projects you suggested? Did they give you raises, bonuses, or other perks? Did they spend on additional or upgraded tools or equipment upon your suggestion (even if you weren’t on the receiving end)?
Negative questions: Did they ever cut back your tasks or deliverables due to budget cuts? Did you ever propose additional tasks that were turned down because of budget constraints? Did they turn down your request for a raise or did you work with them for years without seeing a raise? Did they often need multiple reminders to pay your invoice?
8. Overall, How Satisfied Are You Working With This Client?
Give them one of the following scores: (1) Very Unsatisfied, (2) Unsatisfied, (3) Satisfied, (4) Very Satisfied. Would you be willing to work with them again?
Once you’ve filled up the worksheet, you’ll be able to see your client history much better and see how relevant it is to your finances. Look at the clients who were always behind on the payment schedule, what do they have in common? What about those who paid you below the average market rate, what do they have in common? More importantly, look at your own satisfaction levels. Which types of clients did you enjoy working with the most? Which ones were just a drain on your energy and motivation?
By seeing all of this information in a single page, you can better evaluate how your chosen target clients—and the demographic or markets they belong to—affect your financial and professional health.
List Your Ideal Target Markets
Given the worksheet you’ve filled out about your previous client experiences, you already have a rough idea of what types of clients can pay you well and can pay you consistently. The next step is to solidify that idea further by being concrete about who you want to serve.
Make a list of 2 to 5 target markets that you’d be interested in working with from now on. When coming up with this list, you can draw ideas from the pool of clients you just evaluated, or list down target markets that you’ve always been interested in working with but never had the chance to do so. Here are some criteria to consider:
- Industry/Field. Based on your previous worksheet, which industries did you have a good experience working with? Which industries were the most profitable for you? Finally, consider also which industries you’d be interested in working with in the future.
- Business Size. Again, looking at your previous worksheet, which size or type of businesses provided you with financially sustainable projects? Were they individuals (one or two people), micro businesses (fewer than 10 employees), small business (fewer than 50 employees), medium-sized businesses (fewer than 250 employees), or large businesses?
Add other relevant criteria to your target markets, such as their location, how long they’ve been in business, size and type of social media presence, and if they have a regularly updated blog. The extra criteria would depend on the services you provide.
Examples of target markets you might come up with:
- Tech startups that have been around for at least three years, with SaaS products targeted towards small to medium sized enterprises.
- Online retailers that create handmade products, shipping primarily to US customers.
- Medium-sized law firms in Australia.
- Dentists based in British Columbia, Canada, who don’t have a website yet.
The Three Main Questions That Measure Profitability
Now that you have a shortlist of target markets to pursue, evaluate these markets based on their profitability. You can use the attached worksheet to do this. Here are the crucial questions you should answer:
1. Does the Market Typically Have Paid Employees or Freelance Contractors?
Look through popular job boards—freelancing and otherwise—and see if these types of businesses are hiring. It doesn’t matter what the jobs are, or even if you want to apply to them. What’s important is to find proof that the businesses under this target market are willing to pay for extra help. Some resources you can use for research: Monster, Indeed, Craigslist, and Upwork.
2. Do They Spend Money to Make Money?
A business that spends money on customer acquisition and brand awareness understands that they have to invest to grow. More importantly, a business that continuously does this over the years is likely seeing some return on their investment. In other words: they’re profitable.
Here are some things to look for if you want to learn if your target market spends money to make money:
- Do they create and distribute press releases? You can check out sites like PR.com and PR Newswire and search for releases published by businesses in your target market.
- Do they have specific employees or departments in charge of sales, branding, or marketing?
- Do their sales, marketing, and branding materials look professionally designed? Do they use high quality materials?
- Do they spend money on ads? Check out the Facebook Pages of businesses under your target market and see if they have sponsored posts. Do a simple Google search on the target market and see if there are relevant ads that show up (see the “dentists in british columbia” example below.)
3. Do They Have a Solid Business Model?
For each target market on your list, figure out how the businesses under that target market typically make money. Here are some things you can look at:
- What is their pricing model like? Do they just make one-time sales, or do they have recurring sales (such as subscriptions or monthly/yearly fees)? Businesses with recurring sales, such as SaaS companies, gyms, and telecom companies tend to be profitable if they have enough customers. This is because their income and expenses are generally predictable month-on-month. If their pricing model is based on one-time sales, is this one-time sale expensive? For example, buying a home is a one-time sale but it is very expensive. Therefore, someone in the real estate business has the potential of making a lot of money just from one sale.
Are the businesses scalable? If the business suddenly has an influx of new customers or clients tomorrow, can they easily meet demand? If your target market is solopreneurs who provide consulting services, then their business model isn’t very scalable. But if your target market is in retail, or sells scalable products such as information products or software, then their business is more scalable. There are also businesses that are in the mid-range, which can be scalable to a limited extent, such as service providers with a team of employees (ex. medium-sized marketing firms, law firms, a dental clinic with at least 10 employees.)
Look at your target market shortlist. If you answer “yes” to all the three main questions for any of the items in your list, then that’s a profitable target market. You should then try actively pursuing clients under that market the next time you’re looking for work, as well as make an effort to pitch recurring work with these clients.
Follow the Money Thread
Though you’re already equipped with a framework to use for evaluating the profitability of your target market, there’s still one more exercise you need to master: following the “money thread”. This is crucial because not all clients under the same target market are equally profitable. Following the money thread acts as a shorthand for evaluating how profitable each opportunity is. You’ll just be tracing back the source of your income as far as you can. Here’s how to do it:
- One end of this thread is you, the freelancer. The money gets to you last. Most of us understand our part of the thread: You work, then the client pays you.
- The next point is your clients. For some reason, they have funds to pay you. Most freelancers stop at this point. As long as they are getting paid, they don’t think about the source of their clients’ money.
- Now, your job is to figure out the next point in the thread: Where will your client get the money to pay you? Do they already have paying customers? Do they have high margins for the sales of their products and services? Is their income from VC funding? Is it bootstrapped from their own pockets? Did they have to borrow money—from a bank or their friends and family—to afford business expenses?
Some possible scenarios:
- Product photographers will have to go beyond their clients and consider the end customer who is buying the product. How much are they willing to pay for these products? What’s their occupation and general income range? If you’re taking photos of products that are typically bought by high school students, they might not have the disposable income to make it profitable for your client to pay you above-average rates.
- Website designers typically have to consider the end users when planning and designing a website, so thinking about their financial backgrounds shouldn’t be that much of a stretch. Consider how much disposable income the end user might have, and how willing they might be to spend it on your client’s products and services.
If it’s not explicit where your clients are getting the funds to pay you, during your first client interview you can simply ask them to walk you through their sales process or to give you an overview of how their business works.
It also helps to evaluate your role in the money thread. Where do your services contribute? If your services didn’t exist, or if your output were done poorly, would the money thread between your client and their source of income just fall apart?
You can review your list of previous and current clients and apply the “Money Thread” exercise to them. More importantly, do this for future incoming clients to quickly gauge how profitable their business is.
Profitability Is Important, but It’s Not Everything
Though finding and securing more profitable clients can help you overcome most of the financial challenges that come with freelancing, at the end of the day, profitability isn’t the only measure of whether a client is a good fit for you or not. You also have to consider your personal interests, each client’s individual company culture, and how much you care about the project.
But, by keeping profitability in mind, you can make a clearer distinction between passion projects—the fulfilling, interesting projects that you enjoy working on regardless of your income—and know that you have the financial security from your more profitable projects.