Turning freelance offers many perks. You’re effectively running a business and calling the shots. You’re the boss, setting your own schedule and making decisions about which projects to choose and how to promote yourself.
Crucially, though, you’re also in charge of paying yourself.
Cash flow is a vital issue for any business. And as a freelancer, you’re less like a retail store where random customers can walk in and bring you income.
You’re more like a general contractor, often facing lengthy delays in getting paid. In fact, the need for smooth cash flow means construction businesses frequently sell receivables to a factoring company.
New freelancers aren’t operating anywhere near that sort of scale. Regardless, you’ll need to figure it out even as you get your feet wet. Otherwise, you could be heading back to the office and working for someone else sooner than you’d hope.
Re-evaluate your rates
Beginners in any endeavor often seek to emulate what others are already doing. This is especially true of the freelance industry.
The internet is so integral to what we do that it’s second nature to research our competition. We can find out what sort of work they are doing and how much they charge. Those with freelance contacts can ask them directly.
Learning from your peers can provide a useful starting point for pricing your services. But you still need to compute your rates based on innate value.
One way to do this is through a basic exercise in calculating your cost of living. Determine how much money it costs to support yourself and any dependents, on average, each month. Project how much work you’ll be getting within the same period, and you’ll have a better idea of how much you need to charge to make a living.
Another method is to compute the value of time relative to opportunity cost. This is particularly useful to those who have multiple income streams or are considering quitting an existing job to be a full-time freelancer.
Time spent doing freelance work is time not spent earning from other sources. How much money you could be making per hour doing something else can thus serve as your starting point for determining rates. You’d need to charge more for freelancing to be worth it as a replacement or an additional job because there’s more on your shoulders in this line of work.
After establishing their rates using those methods, many freelancers would leave it at that. They might make adjustments based on inflation or perhaps allow for exceptions based on client relationships or the chance to do work that brings intangible benefits.
The problem with stopping at this point is that you’ve only taken into consideration your inherent variables. You haven’t factored in the demand, size of the audience, or amount of competition. Without knowing these things, you’ll still run into problems with your cash flow.
Set your price too high, and though you may get clients that pay what you want, they might not come along often enough to sustain you. Too low, and you might not have enough time to handle the high volume of projects to make up for what you’re missing in value.
The ‘time equals money’ conversion is useful, but it’s just a reference. If you don’t go beyond and account for market factors when charging for your services, you’ll be constrained by it instead.
Find your sweet spot
Finding your real market value means intentionally hunting for projects that maximize the relationship between your time spent and money earned.
Efficiency is a big part of this consideration. What sort of work are clients willing to pay for, that you can knock out in less time than your competitors, without compromising quality?
If you identify that area, you can deliver results that satisfy your clients without gouging them. You’ll be able to pay the bills without having to undercut competitors and overwork yourself.
Alternatively, what’s the unique skill or combination of skills you offer that could be of considerable value to a specific client?
For instance, building a website is a common skill. Being a great content creator and savvy with your use of social media adds further layers of value to that. Clients might pay a premium for your services as an effective all-in-one solution.
Even if it’s early in the game, don’t fall into the trap of simplistic calculations for your rates. Solving cash flow matters can be a headache for any business. But as you’re already a business of one, better take the professional approach to it, and find your sweet spot on the freelance market.