[Hi folks, I originally posted this on /r/Entrepreneur , and I thought it would be of particular interest here - Enjoy!]
I thought it might be helpful to shine some light on what goes on behind the scenes at a small freelance business. We’ve been in business for just over nine years, in the proofreading and editing fields.
I certainly don't think we have all the answers, but we’ve learned a few things. I’m sure that many other freelancers have similar experiences, so please feel free to post your insights, or any questions.
About our business
We run a freelance editing and proofreading business, specializing in non-fiction (we don’t touch fiction at all). We’ve been in business for just over nine years; we were originally located in the UK and relocated to the US last year (although we’ve kept almost all of our UK clients.)
We employ two people, one full-time (my wife), who is our main editor and one part-time (me) - I look after anything that isn’t editing or proofreading (e.g. finances, admin, client relationships, marketing, projects, copy writing etc.) We occasionally have enough work that we have an “overflow” editor that we use about once every 4 - 6 weeks for small pieces of work. I’m not the proofreader, so please forgive any minor grammar or spelling issues in this post (!).
My background is in project management, business admin and communications, my wife’s is in journalism, editing and healthcare. I’m also a bit of a statistics geek, so I tend to measure everything that we do in the business. That lets us understand how successful we’re being and means that I can tweak things where necessary. (You can’t consistently improve what you can’t consistently measure).
I’m happy to share some of the details and figures behind the business. All of these figures are prorated over the year, but are fairly accurate. Although we make money in both pounds sterling and US dollars, I’ve converted everything to dollars.
Income
This year, we’re on track to take about $60,000 in revenue. (About $5,000 a month). Our revenue splits (roughly) as follows:
We spend around $1,000 a month on expenses:
After expenses, we make around $4,000 a month, pre-tax profit, or about $48,000 - $50,000 a year. Out of this, we’ll need to pay tax, employer expenses, healthcare and various other costs. That will probably be about 25%, leaving us with around $3,000 a month post-tax, money-in-the-bank pay.
It took us about six years to build up enough of a reputation and client base to have a relatively steady income.
When we started back in 2006, we were making around $12,000 a year (I had a full-time job at that time). We’ve grown revenue by about 20% each year.
Financial lessons learned
We only use Google AdWords for advertising, and we’ve been using it for about seven years. It’s proven extremely effective for us, and we see around a 3X - 4X ROI. We’ve tried other advertising (e.g. Facebook, Twitter, LinkedIn etc.) but it’s been nowhere near as effective.
We have around a 2% click through rate, and once people are on the site, around 5 - 10% of our visitors “convert” (get a quote, contact us etc.) Of those, around half will then go ahead and use our services. It can be tricky to setup Google AdWords in the most efficient way. If you don’t know what you’re doing, it might be worth hiring a professional.
Pricing
We always quote up front and price by the project rather than by the hour. We find that clients much prefer that, as it helps them keep control of their budget.
We did a number of time and motion studies on how long it took us to do work and priced according to that and our desired hourly rate. We price based on word count, turnaround time and a couple of other factors. Our hourly rate works out to (roughly) $40 an hour.
Pricing lessons learned
We have a split of around 40% business clients, 60% individual clients, although the revenue split is the other way round. (Business work is about 60% of our revenue).
Repeat clients are your best friends. Not only do you not have to pay to acquire them, but in larger businesses, they will often refer you to their colleagues, which can be very helpful.
Client lessons learned
The problem with our particular freelance area (proofreading and editing) is that it has a very low barrier to entry. Anyone can do a two week correspondence course and call themselves an editor.
Once that’s happened, they just put up a website, get some Google advertising credit and advertise their services at half of our prices. Almost all of these businesses are gone in less than a year (other competitors come along, they don’t have the right financial control, they realize it’s much harder than their correspondence course told them). We’re a tiny firm, and we have two or three editors emailing us every day, asking if we have extra work (we don’t).
Competition lessons learned
Some other, miscellaneous areas and lessons learned.
...That’s because it is. But - We love being freelancers. Yes, we could probably earn as much or more working for other, established businesses. It would certainly be less stressful, but let’s not forget why freelancing can be awesome…
We’re still working out exactly what to do next. The business is in a reasonable state, but we’re trying to decide. I’m under no illusions that the current business isn’t easily scalable, and I’m happy with it staying a lifestyle business. Any growth is likely to be fairly organic, including:
Over to you
I hope that you’ve found this interesting. I’m happy to answer any questions, or just to hear your perspectives on any of this, or your own experiences.
Thanks for listening!
Quick TL;DR
I thought it might be helpful to shine some light on what goes on behind the scenes at a small freelance business. We’ve been in business for just over nine years, in the proofreading and editing fields.
I certainly don't think we have all the answers, but we’ve learned a few things. I’m sure that many other freelancers have similar experiences, so please feel free to post your insights, or any questions.
About our business
We run a freelance editing and proofreading business, specializing in non-fiction (we don’t touch fiction at all). We’ve been in business for just over nine years; we were originally located in the UK and relocated to the US last year (although we’ve kept almost all of our UK clients.)
We employ two people, one full-time (my wife), who is our main editor and one part-time (me) - I look after anything that isn’t editing or proofreading (e.g. finances, admin, client relationships, marketing, projects, copy writing etc.) We occasionally have enough work that we have an “overflow” editor that we use about once every 4 - 6 weeks for small pieces of work. I’m not the proofreader, so please forgive any minor grammar or spelling issues in this post (!).
My background is in project management, business admin and communications, my wife’s is in journalism, editing and healthcare. I’m also a bit of a statistics geek, so I tend to measure everything that we do in the business. That lets us understand how successful we’re being and means that I can tweak things where necessary. (You can’t consistently improve what you can’t consistently measure).
I’m happy to share some of the details and figures behind the business. All of these figures are prorated over the year, but are fairly accurate. Although we make money in both pounds sterling and US dollars, I’ve converted everything to dollars.
Income
This year, we’re on track to take about $60,000 in revenue. (About $5,000 a month). Our revenue splits (roughly) as follows:
- Type of income: 40% from proofreading, 50% from copy editing and 10% from other sources (e.g. copy writing, consultancy etc. - The last area isn’t something we actively focus on, yet)
- New vs. repeat clients: 70% repeat clients, 30% new clients
- Type of client: 40% business, 40% academic (students), 20% others (individual writers etc.)
- Number of clients: We have about a dozen regular clients (that use us at least once every couple of months) and we normally do work for between three and seven new clients each month (most of those are one-off pieces of work). This year, we’ll send out around 200 invoices
We spend around $1,000 a month on expenses:
- Advertising - $350 a month (Google AdWords - We’ve tried others, but AdWords has, by far, the best ROI for us)
- Utilities, property tax, insurance etc: $200 a month
- Overflow editor (subcontractor): $200 a month
- Software, hosting, subscriptions, computers. office costs etc. $150 a month
- Other costs (credit card charges, sundries etc.) $100 a month
After expenses, we make around $4,000 a month, pre-tax profit, or about $48,000 - $50,000 a year. Out of this, we’ll need to pay tax, employer expenses, healthcare and various other costs. That will probably be about 25%, leaving us with around $3,000 a month post-tax, money-in-the-bank pay.
It took us about six years to build up enough of a reputation and client base to have a relatively steady income.
When we started back in 2006, we were making around $12,000 a year (I had a full-time job at that time). We’ve grown revenue by about 20% each year.
Financial lessons learned
- Always keep a cash buffer in the business - We try and keep at least six months of business expenses in our bank account at any time
- Always keep a personal cash buffer - We’ve also built up around six months of personal savings, so if the business doesn’t have a great month, we can afford to reduce how much we’re paying ourselves and still make our payments
- Revenue goes up and down, a lot - Revenues this year have varied between $2,000 in a poor month, to $7,000 in a good one. The nature of (our) freelance work is unpredictable, which is why we have the cash buffers in place
- Invoicing - We invoice each of our business clients on a monthly basis, on 30 day terms. Individual clients have to pay up-front
- Control your cash flow - Always know how much you’ve got coming in, how much you’re got going out and how much you have in the bank
- Understand expenses and taxes - Always look at your expenses to see where you can save money, and understand what you can write off against tax; this can make a big difference. If you don’t understand it yourself, hire an accountant that specializes in freelancers and small businesses
We only use Google AdWords for advertising, and we’ve been using it for about seven years. It’s proven extremely effective for us, and we see around a 3X - 4X ROI. We’ve tried other advertising (e.g. Facebook, Twitter, LinkedIn etc.) but it’s been nowhere near as effective.
We have around a 2% click through rate, and once people are on the site, around 5 - 10% of our visitors “convert” (get a quote, contact us etc.) Of those, around half will then go ahead and use our services. It can be tricky to setup Google AdWords in the most efficient way. If you don’t know what you’re doing, it might be worth hiring a professional.
Pricing
We always quote up front and price by the project rather than by the hour. We find that clients much prefer that, as it helps them keep control of their budget.
We did a number of time and motion studies on how long it took us to do work and priced according to that and our desired hourly rate. We price based on word count, turnaround time and a couple of other factors. Our hourly rate works out to (roughly) $40 an hour.
Pricing lessons learned
- Know what you are worth - Understand how much your time is worth. There are a few ways to go about this (e.g. looking at salaries of full-time jobs and working out hourly rates, looking at what other freelancers earn, working out how much you need to live) and price according to that
- If you can do it accurately, price by the project / flat fee; it helps you and your client understand budgets and pay
- Never be afraid to quote what you are worth - Don’t underprice your services. Be confident about the prices that you quote. If you take on work that you’ve seriously underpriced, you might end up resenting it and doing a bad job. That’s not good for you, your reputation or the client
- Don’t be afraid to say “no” - Some clients will just try and pay you as little as they can. Those are not the clients you need (they also tend to be the most demanding). Those are the people that you can say no to
We have a split of around 40% business clients, 60% individual clients, although the revenue split is the other way round. (Business work is about 60% of our revenue).
Repeat clients are your best friends. Not only do you not have to pay to acquire them, but in larger businesses, they will often refer you to their colleagues, which can be very helpful.
Client lessons learned
- Business proposals - We put together proposals for our business clients - Services, pricing, timescales, skills, experience etc. This gives people something that they can share with colleagues and also means that we, and them, are working to a common document
- Business clients don’t mind paying more for quality,reliability and flexibility - It’s not all about price, especially with business clients. There are (many) other editors and proofreaders out there cheaper than us, but we provide a consistent, reliable, flexible service. Ultimately, clients would rather pay a little more for a known quality of work and for freelancers that will meet their deadlines and do what they say they will
- Take opportunities - I will sometimes contact website owners and businesses “cold” or contact people via Reddit or other forums, explaining how I can help them and providing a small amount of work for free; that works around 20% of the time for generating more work
- Follow up - It’s always worth following up with clients that might have said “no” at first, or that didn’t respond to emails. Around 10 - 20% of our follow ups convert into more work
The problem with our particular freelance area (proofreading and editing) is that it has a very low barrier to entry. Anyone can do a two week correspondence course and call themselves an editor.
Once that’s happened, they just put up a website, get some Google advertising credit and advertise their services at half of our prices. Almost all of these businesses are gone in less than a year (other competitors come along, they don’t have the right financial control, they realize it’s much harder than their correspondence course told them). We’re a tiny firm, and we have two or three editors emailing us every day, asking if we have extra work (we don’t).
Competition lessons learned
- Embrace the change - It is tough being a freelancer. You’re never certain where the next paycheck is coming from, every client is your “boss” and there’s always going to be competition
- We all face the same challenges - These things aren’t unique to us, they apply to every other freelancer out there. The only thing we can really do about it is to be as good as we can be
- Don’t try and compete on price - If you’re a good freelancer, don’t try and be cheaper than everyone else. It’s a race to the bottom, and you’ll only end up devaluing yourself
- Compete on something else - Are you more responsive, do you provide higher quality work? Do you specialize in a particular niche or have unique experience and skills? Find something else that sets you apart (For us, it’s mainly quality, responsiveness and flexibility - We also specialize in a couple of fields - Healthcare and training, and advertise as such)
Some other, miscellaneous areas and lessons learned.
- If you subcontract, pay them fairly - From time to time, we do send out work to an editor that freelances for us. We decided from the beginning to pay our freelancers fairly. We currently pay between 60% - 70% of what we earn direct to them. The advantages of paying fairly are that they are more likely to take on the work that you send them, and also that they will often get the work completed more quickly (At least in our experience)
- Reduce the time you spend on admin - Any time you spend on admin is taking away from billable time or growing the business. Having fast, effective processes in place is a good way to reduce that. for us, that started with a good accounting app that makes invoicing, expenses, payroll and reconciliation much faster. We’ve also got pretty good client tracking setup and a few other processes to help everything go smoothly
...That’s because it is. But - We love being freelancers. Yes, we could probably earn as much or more working for other, established businesses. It would certainly be less stressful, but let’s not forget why freelancing can be awesome…
- It’s something that you built. Your success or failure is in your hands; that can be very empowering (or very stressful!)
- You set your own hours - You want to work harder, you get more money
- You’re not lining someone else’s pockets with your hard work (except, maybe, Google)
- Freedom - Freedom to take on particular pieces of work, freedom to say yes, or no, time freedom, freedom to go out in the middle of the day, freedom to (occasionally) take a day off at random...
We’re still working out exactly what to do next. The business is in a reasonable state, but we’re trying to decide. I’m under no illusions that the current business isn’t easily scalable, and I’m happy with it staying a lifestyle business. Any growth is likely to be fairly organic, including:
- Move more into other revenue streams - e.g. copy writing, consulting, etc.
- Get involved with other businesses by providing expertise for equity - e.g. startups etc.
- Hire more editors and keep doing what we do
- Find a way to commoditize and sell knowledge (the 4HWW approach)
- Something else
Over to you
I hope that you’ve found this interesting. I’m happy to answer any questions, or just to hear your perspectives on any of this, or your own experiences.
Thanks for listening!
Quick TL;DR
- Making a living as a freelancer can be tough, it can take years to generate a steady, reliable income
- Tight control of your finances is absolutely essential including a cash buffer in your business and your personal accounts
- Never undervalue what you do; find what you’re good at, know what you’re worth, and don’t be afraid to say “no”
- Competitors are a fact of life, and they have the same issues that you do; rather than focus on “beating” them, instead be better at dealing with those issues
- Ultimately, being a freelancer is as much about freedom and validation as it is about the money