4 ways to cash in as a freelancer

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Most designers choose to freelance because they love their craft and they want the freedom to do it on their terms. That, or they loathe the foibles of traditional employment, like the nine-to-five grind, meaningless meetings, or how Greg from marketing thinks his wacky ties are the same thing as a definable personality trait.

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Whatever your reason for freelancing, it always comes with a cost: responsibility. Quite simply, the financial side of running your own business is difficult. There's a lot to know, and even more that can go wrong. That said, freelancing can empower more meaningful work, a better work-life balance, and a bigger bottom line. It's never easy, but it is almost always worth it. 

Here I'll explore the four most common financial challenges that freelancers face on a daily basis – and how you can overcome them effectively...

01. Define a pricing structure

The cliché formula is that time equals money. But as a freelancer, your time is worth more than just a financial figure: it's the opportunity to experiment, to build relationships, and to make room for what really matters to you.

That said, tying a financial figure to your time is an important aspect of making the most of your working hours and ensuring you don't go bankrupt. 

"Understand that you're really selling time, since services take time to provide," says Josh Hoffman of Epic Freelancing, an online community for freelancers. "Whether you actually charge per hour or not is one thing, but it's imperative that you get a handle on how much time you're investing relative to how much you're making." 

Assuming you're a full-time freelancer, the simple way to calculate your hourly rate is to take what you want to earn in a year and drop the zeroes. If you want to earn £45,000 this year, you need earn at least £45 for every hour you spend on your business. 

The maths to get to this figure is simple. If you take two weeks of holiday a year, then you've got 50 weeks in a year left. Working 40 hours a week, you've got 2,000 billable hours a year. 

Many new freelancers bill by the hour

Cut those billable hours in half because (at least) 25 per cent of your time will go into business upkeep, such as marketing your services and invoicing (and chasing) clients, and roughly 25 per cent of your income will go on things like taxes, a pension and insurance. These incidentals add up to approximately 50 per cent of your time. 

That's why you can take what you want to earn in a year (e.g. £45,000) and divide it by the 1,000 billable hours in a year to reach your hourly rate (e.g. £45 per hour). Remember, these are ballpark estimates, not fine-tuned figures. You can adjust this basic idea to take into account how much holiday you want to take, how many hours you plan to work per week and how much you pay out in tax, insurance, and so on. 

You can bill a client by the hour, day, week, or month. You can even bill by project or deliverable. In my experience, the most common billing method is by the hour. 

Charging by the hour makes sense when you're first starting to freelance because it's so simple and easy. Clients don't need an explanation for what's being provided; they are quite literally paying for your time.

However, hourly billing has shortcomings. Tracking your time in hourly increments can be useful, but it's also an easy way to lose focus. Clients tend to nitpick the details of your invoice with this style of billing, which can become a time sink. 

This is particularly true with short billing periods, as you reveal more about how you're spending your time. It's easy for a client to look at your itemised invoice and systematically dismantle its contents. Some clients will begin to micromanage you, or even worse, undervalue what you do.

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Also bear in mind that as you move forward in your career, you'll get better at what you do. You'll be able to do it faster too. Your reward for being better should be working less, but instead, an hourly rate starts to slow you and your earnings down. It also discourages regular clients, because if you're better and faster than you used to be, you should be charging more – but most clients will squirm at a rate increase.

"If you can do the highest quality work, in half the time, you should be paid the same or more than the other guy," says Leif Abraham, co-founder of AND CO, an app that supports freelancers. 

"Instead of raising your rate, you should structure your gigs to charge for the value you deliver." That's why most first-time freelancers charge clients according to the time put into a project. More experienced freelancers charge for both time and effort, and are also better at convincing clients they can deliver value.

02. Understand and sell your value

Don't undervalue your work; plenty of clients will do that anyway

Designers with less experience tend to undervalue their work. Most clients have the same bias. To them, a logo looks like a few letters, a squiggly line or two, and some nice colours. They don't see the time, effort and training that went into the final product, nor do they necessarily appreciate why a logo is worth the bill. 

Ultimately, it's your job to bridge the client's 'understanding gap' and to communicate the value of your work. The best way to do this is to align your work with a client's concerns. A client's specific interests will vary from business to business and person to person, but clients usually care about the same two things: making money or saving money. 

"Connect the dots between how your services will put clients in a position to make more money, save more money, or ideally a combination of both," says Hoffman. 

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A logo is more than a two-tone symbol. It's more than a business' first impression, too. "It's an opportunity to catch people's attention in a noisy world," explains Hoffman. "By better catching people's attention, you'll be in a better position to compete in the attention economy, wherein attention is the foremost currency. In other words, you won't touch people's money if you can't command their attention." 

Freelancers who have things figured out charge for the value of their work. They take the time to explain this value in terms that matter to their client. 

To get better at this, when you first meet a prospective client, try to understand what problem led to them hiring a designer and what they are hoping for as a result. Perhaps their outdated logo sticks out on their site like a sore thumb, and they're hoping a new one will convince their customers to pay their premium prices. 

Once you have your information, leverage your work as the bridge between the initial problem and the potential solution. Doing this aligns expectations and positions you as the key to your prospective client's success. Whatever you charge, frame it with the negative implications of not fixing this problem and the positive benefits of having you solve it. 

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03. Figure out your client's problems

Work out how your clients will benefit from hiring you, and sell yourself on that basis

Freelancers typically bill according to what others are charging or what the freelancer has charged in the past. Instead, they should be billed to the client's needs or goals, such as, 'Why does the client need this?' and, 'What are they trying to accomplish?'

Even if you ask the client these questions, their answers may not be perfect. Ambiguities often arise because the client doesn't completely know the answer, or they haven't explored the issue in great depth. You should help them find out, and if they continue to be an obstacle, try to help them understand that you're not looking to rip them off; you're looking to meet their needs and goals in the most effective way possible. 

Brennan Dunn of Double Your Freelancing suggests asking yourself the following four questions: What series of events led the client to seek you out? What problem pre-empted contacting you? (Note that these first two are not always the same thing.) What effect will this problem, left unsolved, have on the client's business? And what will solving the problem do for the client and their business?

"Specifically," Dunn says, "what's the financial upside for the client if you solve the underlying problem?"

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The answer to those questions will inform how you quote the client. If a client is building a website to sell tens of thousands of dollars' worth of product, they should be willing to spend a portion of that profit to make sure the website facilitates this. 

Present yourself as a catalyst for the results that the client needs or wants. This way, you're not an expense: you're an investment in the client's business. They're going to spend a little money on you now because you're going to help them make more later. 

Keep in mind, more money isn't always the client's goal for the project, but it is almost always a factor in the equation. Whatever your client is looking for, present yourself as a guide for the client getting there. "No one has ever paid you for design," says Dunn. "Let that sink in for a second."

"Clients hire us because they need our design to do something valuable for their business," continues Dunn. "Once you internalise that, it affects how you market yourself, how you sell, what you deliver and what you charge for it."

04. Learn to negotiate your rate

Don't lowball yourself; start with a high price then let clients negotiate you down

Always avoid reducing your rate to accommodate a client. For a lower rate, you should be reducing the scope of your work or the deliverables. The only time your rate should be reduced without a decrease in workload is if you're getting something out of the deal that makes it worth it for you, such as a longer commitment from the client (so you don't have to spend as much time on marketing or finding new prospects) or better usage terms.  

If you must negotiate your rate instead of the scope of work, start at a high figure. Few clients will say no outright. Instead, they'll try to negotiate you down. "It's far easier to negotiate down than up," says Joe Phelan, a freelance designer with over 10 years of experience. "If a client thinks they are getting a good deal, more the better." In some instances, a client may forgo negotiations and just say yes. If that's the case, it's probably time for you to increase your base rate." 

When you enter negotiations, don't approach it as a cutthroat, you-against-your-client scenario. Instead, approach it as you would any other project. Work with your client to define the scope and deliverables, and negotiate your rate from there. This exercise gets the client mentally and emotionally invested in the idea of your services and what you can accomplish together. If the client's budget doesn't meet your rates, reduce the scope or deliverables, not your rate.

"With art and design being so subjective, it's best to outline the processes involved as much as possible," says Phelan. "Talk the client through your thoughts and ideas. Listen to theirs. Build trust and understanding."

You should always come prepared with evidence proving the value of your services. A case study that communicates how your work solves problems or meets clients' needs is a persuasive tool and a tangible proof of concept. Salary surveys are widely available and knowing that range is always worthwhile. Professional associations are also quality resources, as are others in your industry.  

Never reveal your past salary, even if pressed. Typically, a client will assign this value to you as a benchmark, and you'll be negotiating against your past self. Rather, focus on what you're worth right now. Always have your minimum acceptable rate in your back pocket and never negotiate below that.

Finally, don't underestimate yourself and your value. It doesn't matter is another designer is charging half what you are. You're not them. Your style and your various points of difference are why you command your rate, and that's why anecdotal evidence – even from quality salary surveys – should be a tool to use, not a rule to obey. 

This article originally appeared in Computer Arts issue 268; buy it here.

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