So, by choice or circumstances, you have found yourself freelancing. Your business plan consists of “making as much money as possible!” Will that work?
I’ve seen plenty of articles on the formula for figuring out what you need to make to turn a profit yet none of them ever really deal with ALL of the expenses, income and realities in the world to show the reality of the situation. They are, after all, formulaic. So are compound chemical mixtures in a lab situation that blow up or create a virus that turns humans into flesh eating zombies. What do you need to figure out if a freelance career is possible and can it be maintained?
I know plenty of married couples where one of them has a great job with at least an earning potential to cover most or all of the bills for a comfortable lifestyle. The freelancing member of the couple provides not only a bit of extra income, but is also the caregiver for the kids, grocery shopper, house cleaner, cook, etc. If that works for you, then that’s wonderful! Some may call it a “paying hobby” but whatever works for a happy and fulfilled life should only matter to you.
What, however, is the cost of working this way? There is always a cost involved with any type of freelancing. You may be at home with expenses covered for life but business expenses are different and can add up quickly… and usually costing more then the income it generates.
First of all, you need a computer and the software that isn’t delivered at night by generous digital pixies and elves. You will need to keep updating software and purchasing new computers and printers, etc. every 2-4 years. That can add up for any business.
Then, there’s printing business cards and assorted paper goods you’ll need to seek out clients. You might want to join a business networking group or graphic/web design group by paying yearly dues. A printer needs ink and replacing those little cartridges is like buying a used car. There’s electricity for all of this, space in your house or apartment, a desk and other furniture, gas for the car or public transportation costs for going to see clients and some other costs we’ll look at later in the section for running a freelance business as a primary income.
So, with all of these expenses and some more as yet unexplored, can you generate the income to cover it all? Can you make even more so it’s not just an egotistical waste of time?
When sitting down with a spouse and going over bills and budget, how much can you smile if your freelancing is running in negative numbers?
A friend of mine had a spouse who ran a business sewing beads onto clothing bought at stores… expensive clothing! The end product, however, never sold for the cost of the clothing and so, the “business” was a losing proposition but the spouse said it was a good feeling to be busy with not just housework and it went on. My friend was not happy and it came between the couple.
The answer would have been to find another hobby that was less expensive or would actually turn a profit. The first rule in business is to turn a profit!
By choice or by turn on circumstances, you must freelance. Perhaps you need to be the sole support for just yourself or for your family. Whatever the situation, you have to earn enough to live AND have a life that won’t end in poverty and pain.
I’ve spoken to many senior art students at schools across America about freelancing and always insist they understand that they are opening a small business. Like a pizzeria or a clothing shop or whatever, they need to understand finances and how to run a business. There were always a few students who would run into the dean’s office, crying about how no one ever told them it would be that hard. Well, that’s most art schools for you!
As with any business, there are considerations such as rent, taxes, insurance, supplies, advertising, salaries, benefits and those little surprises that come up every now and then that drain a healthy bank account. When you hear about a big car company running at a 30 million dollar annual loss, you have to wonder where that money comes from. They make cuts to cover losses that come from cash-on-hand savings. As a freelancer, you will need to do the same but your bank account is a bit smaller then that of a giant corporation, so try not to run at a deficit.
The formula put forth in other articles about making a freelance income list certain expenses that have to be taken into consideration to then calculate your “hourly rate.” Let’s look at some expense categories you must consider before we calculate an hourly rate.
Forget about the deduction for business use for now. Consider your out-of-pocket costs.
Talk to an accountant to find out what you need to consider in terms of estimated quarterly taxes and deductions you can count on for that tax year as a freelancer.
Public transportation may not have maintenance fees for you but there’s a daily cost that can go up every year as well as the occasional taxi. At what a train ride costs these days, figure this out well or you will be under by several hundred dollars each year!
“Working nine to five” is an old song and a concept employers have long since forgotten but the forty-hour work week is still the standard by which you’ll figure out your needed hourly rate. Sure, most of us work fifty to sixty hours a week at our full-time jobs, so let’s just say you have a forty-five hour week for the sake of argument.
Take all the expenses you have carefully figured out from the expenses listed above and add 10% for anything that’s not listed because something will come up when least expected. Multiply 45 (number of hours per week) by 49 (which allows for two weeks vacation and the odd holiday observed by every business). Now divide the entire income needed figure by 2205 (45 X 49) and THAT is the minimum hourly rate you must charge a client. The catch 22 of this all is that you won’t be working 45 hours every week. Some weeks you will work non-stop and others you won’t work at all.
Seem like you’ll never be able to ask that hourly rate from a client? Can you get that rate but wonder what you’ll do on those weeks when you have no work? Eyeing that butcher knife in the kitchen and rubbing your throat to judge the resistance of flesh and muscle to sharpened steel? Welcome to freelance!
When I first started freelancing, between full-time gigs and odd jobs that had nothing to do with creativity, I didn’t care to figure out what I should charge. Clients gave me their budget with a “take-it-or-leave-it” ultimatum. In the best-case scenario, I would finish the assignment quickly and supposedly make a profit. I usually made enough to pay my bills and enjoyed a simple life. I certainly enjoyed the income and health insurance through my full-time jobs but hated the daily BS associated with lunatic bosses, commuting and design-by-committee. It felt as if both situations had their strengths and weaknesses. These days, there aren’t so many options and art training isn’t exactly applicable to most job listings when it comes to employment to survive. So, freelancing has become the last option to many.
One can only try and succeed or fail. Starting out won’t give you the income you need. I’ve known many people who were laid off from their full-time position yet received freelance assignments from their former employers and claimed they were making more money from freelancing. Unfortunately, in every case, it didn’t last more then a year or so.
The problem with freelancing is gaining and keeping a stable of clients and flow of work to keep you working at least the 45-hour work week. Unlike a full-time position, that check won’t arrive at the same time every week and there’s some fighting to get paid, even from the best client. Nature of the beast.
The market will only bear what other designers are charging. If you’ve been offended at being offered fifty dollars to design a web site, you have to understand that the competition will accept that fee, which is why freelancing is so unpredictable. Sometimes, in the face of lower rates, you must make hard decisions that include cost cutting in life and other avenues of income.
In a recent article of mine, “Part-time jobs for creatives that help your business sense,” I outline the need for some to supplement a freelance career with another income. There’s no shame in working a part-time job to provide for your family. It only makes sense and is a sound, adult decision. In a way, a steady part-time income allows you to get over the hump of non-paying clients and slow times.
One should also look at creating self-initiated projects. In slow times, taking a chance and the risk of creating, say, a branding for a local company with horrid branding and pitching the completed package can bring in a quick payment.
On sites like Café Press and Zazzle, you can upload illustrations and designs to place on products to be sold to the general public. It can, if successful, generate what is called “beach money” (while you lie on a beach somewhere, your designs are generating income). Using social media in the slow times can help generate sales of these items. A mere posting on Facebook, with reposts from your friends list can really spread the word.
One can also use their creativity outside web and graphic design for anything from sock monkeys to jewelry and such. The need for income is essential to survival for freelancers. All of these creative tangents are better then working as a waiter or waitress… not that there’s anything wrong with that kind of work when it comes to supporting yourself or your family. Survival comes first and pride should come last.
Congratulations if you can meet the rate needed to truly run a profitable business! Some years will be better then others but that goes for any business. Having a fund to carry you through the dry times is a good idea one should not forget and if you can build a savings fund for such times into your hourly fee, all the better.
As your work increases past the point where you can handle it yourself, hiring people on a freelance basis is the next step. With a freelancer, you don’t have to worry about paying benefits such as health care costs and any taxes your government might demand for an employee. Continue growing your business and when the time comes, an accountant will figure out your new hourly rate and what you can afford to pay employees. THAT is how freelancers become small studios. Small studios that are run correctly become large design firms.
Yes, it is possible to make the rate needed to have a successful freelance career! There will be good times and bad, headaches and joys, great clients and… not so great clients but in the long run, you will feel good about steering your own destiny. Just remember – although you don’t have a boss looking over your shoulder, clients are, in themselves, bosses and you will always have to answer to someone else.
Also, if you think you can set your own hours, perhaps working at night and sleeping all day like a vampire, forget it. The world functions during business hours. Chances are, you’ll be working both night and day, weekday and weekend. You’ll be working harder then any staff position but the fact that you set the standards of your own studio, like wearing bunny slippers or playing loud music, you’ll start the day with a smile. Chances are you’ll also finish the day with a smile. Can you say the same for your staff position?