November 4, 2014
The answer to making more money is not always getting more clients or charging more.
You can have dozens of requests from prospective clients, charge more, but make no money.
I’m talking about the clients who passed on hiring you and went with a competitor, weren’t interested or you couldn’t close the deal with. These are all missed opportunities.
For these situations, just “getting more clients” or “charging more”, isn’t the solution. Instead, you have to optimize your business to yield better results.
In this post, I’ll cover ways you can effectively optimize your business to close more projects and make more money.
The first thing you’re going to do is…
Stop Calling Yourself A “Freelancer”
I’ll admit it…I used to call myself a freelancer. However, I learned this was a mistake and quickly corrected it. To make more money, you have to stop calling yourself a freelancer and instead call yourself a consultant, strategist, professional, or something else that fits your expertise.
Whenever I hear the word “freelancer”, I think of a 17-year-old boy on summer vacation who’s looking to make extra money on the side. Or someone who’s doing it as a hobby, while backpacking around Europe. Do you want to be perceived as someone who is just doing things on the side? Of course not.
When you call yourself a freelancer, you devalue your skills and expertise. The client sees you as someone who is cheaper, less serious and potentially unreliable (will he/she be around in a few months?). These aren’t the types of people that serious and high paying clients want to trust with their business.
From now on, whenever you’re speaking to or working with a prospective client, avoid using the word freelancer. Avoid saying, “My name is John, and I’m a freelance designer.” Or, “My name is Janet and I’m a freelance writer.” Instead, you’re a design consultant, a strategic writer or marketing professional.
Your task is to pick a new word that will make you look more professional in the eyes of current and prospective clients. This won’t create a magical difference overnight, but will help you over time as you try to land larger and higher paying clients.
Create winning estimates
There was a point in time when I would send my project estimate to a client as a plain number, after a lengthy email conversation. My last reply to the email thread would be something like “OK, I can do all of this for $X.”
Sending a price through email is unprofessional, unorganized and the value you’re hoping to bring the client is lost between dozens of email exchanges.
For any project, no matter how big or small, always create an estimate (or proposal). When I started creating estimates and sending them to my clients as .PDF documents or a link to view on the web, I immediately began to win more business.
I use Ballpark, which allows me to create beautiful estimates with templates and my branding. For most of the web work my company does, estimates usually cover the following:
- Phases of the project and deliverables
- Pricing for each phase
- A link to a scope of work document that is pre-approved by the client. The price covers the work, requirements and expectations agreed upon in the scope. Anything outside this scope is extra and to be billed later.
- Rough timeline
- Fine print including out of scope charges and what’s not included
- Deposit/payment terms to get started
- Estimate expiration date (this estimate will expire if it is not signed within 15 days of being issued)
The estimate structure above works well because:
- Clients are usually shopping around with a few vendors at a time. The estimate helps the client understand what your process looks like and exactly what they’re paying for/getting against others.
- You take most of the guesswork out by providing what you’ll do for each phase, the pricing, a timeline, the outcome and other project details.
- It makes you look professional and builds up trust with the client.
There are probably more benefits to writing up a good estimate, but I’ve found those 3 to be key when pitching prospective clients.
I also combine each estimate with a short letter reiterating why they should hire us, how we’ll achieve their goals and how the price is an investment that will yield them a return (the return being whatever the goal of the project is).
If you aren’t doing so, I would highly recommend creating a written estimate or proposal for your next project. If you want to close larger projects and charge more, you need to come off as professional and make it easy for the client to understand what they’re paying for.
Don’t charge hourly
Charging hourly limits your revenue potential and comes with a myriad of other problems:
- Hourly rates have a ceiling; you can only charge so much per hour until a client pushes back
- There are only so many billable hours in a year, which caps your revenue
- An hourly rate is easy to negotiate/compare (“your rate is $100/hr? I can pay someone for $20/hr on oDesk for the same thing”).
- You’re selling yourself short if you work fast
- You’re selling time, rather than results or an outcome, which is what really matters to clients
Billing by the hour limits your growth potential and puts unnecessary focus on hours worked, rather than client’s business and outcome.
Instead, try billing your next project with one of the methods mentioned below. These methods will allow you to charge more because they focus on the outcome or deliverable of the project, rather than hours spent.
It’s also important to find out from each client what the goal of the project is. It could be making more money, increasing signups, or even getting more downloads. You should focus your efforts on how you plan to achieve that goal, which will make it easier to justify your pricing.
Charging per project
When you charge per project, you provide the client with a fixed price to do all of the work. Normally, you’ll need to have an in-depth discussion with the client to understand the full project scope, requirements and their expectations.
Charging per project is one of my favorite ways to bill, because the client knows the total investment up-front. With hourly, the client usually hears something like, “I charge $120 an hour and it will take anywhere from 80-100 hours.”
That can worry a lot of clients and they’ll stress over every single hour. They’ll also compare your hourly rate to their own or others in your field and try to lowball you. This is not the type of back and forth game you want to play.
Instead, charging per project makes it easier to bill a higher rate because there is no indication of an hourly breakdown or rate in the estimate. Plus, if you focus on the result or ROI you’re going to bring the client, they won’t look at the quote as an expense, but rather a valuable investment.
When you charge weekly, a client pays you a flat rate to work on their stuff for the week. The focus again should be on the deliverable or outcome, and not how many hours it takes to get there.
Patrick McKenzie wrote a great article on weekly billing and it goes in-depth on why you should consider charging weekly and how to begin doing so (he explains it better than I can here).
Charging by the month is as simple as billing a flat, month to month rate for the client to hire you.
I know a design consultant who charges $15,000 a month to work on client projects. The client gets a minimum number of hours per month (but normally this isn’t the focus) and the consultant dedicates time to the client’s business. This makes scheduling easy and provides predictable cash flow.
Charging monthly can also work great for retainers, where clients will need some type of maintenance, upkeep, 1-on-1 consulting, additional work, etc.
These are some common alternatives to billing by the hour on projects and I highly recommend you try one of these methods on your next project (if you haven’t already).
You can raise your rate and make more money, because the client won’t be looking at a column of hours and an hourly rate anymore (and trying to lower it). Instead, the focus turns to something along the lines of “this is the total cost for your project to achieve the result or goal that your business needs.”
Charge for project management
You should be charging for project management on every single project. All of those emails, phone calls, skype chats, Basecamp discussions and general communication with your client should come at an additional cost.
I add a 10% or 15% project management fee to the total of an estimate, which covers project management for the entire duration of the project.
I use a 10% fee when there is less than 2 stakeholders and the project scope is straightforward. For projects where I have to work with more than 2 stakeholders and/or the project is complex, I use a 15% fee, since those types of projects generally have longer “management” cycles.
For example, if I’m working on a complex project and the quote comes to $25,000, I’ll add “project management” as my last line item at $3,750, which would cover all project management for the project.
I also explain this fee covers phone calls, discussions, reviews and any other communication during the project. You can add this on your next project as a simple line item like I mention above, or bake it into each phase of your estimate.
Outsource when you’re booked
I’ve always worked directly with most of my clients, but as things started to grow I had less time to work on every project that came my way.
Outsourcing is the best way to take on more projects than you can work on personally. To do this, you need to network and find people in your industry that have similar skills and experience as you. When new projects come, you can delegate them, handle the project management and make a good profit.
Of course, this only works if you hire people with comparable skills as you. For every project that you outsource, you should have the same results and quality as if you were working on it, so there is no inconsistency in your business.
I also never mention the word “outsource” to a client. The word outsource makes it seem like you are taking their project and sending it somewhere very cheap without much oversight.
Instead, I always explain to clients that I have a small, remote team that works with me on projects, which are contractors I’ve built a close business relationship with. This has worked out great and I’ve never had a problem using this approach.
I always guarantee the same quality and manage the entire project, which makes the client comfortable and they’re usually more focused on the outcome, rather than who is doing the day-to-day work.
I’ve met plenty of freelancers who turn down projects because they’re booked, which is OK, but really they should outsource these projects to bring in additional revenue. Not everyone wants to outsource or “scale”, which is fine.
However, if you do want to take on more projects to make more money/scale then you should:
- Stop calling yourself a freelancer (as mentioned earlier).
- Position and brand yourself as a studio, collective or small agency (not just a one person shop).
- Register as an actual business, rather than working under your name (explained later).
I found doing these three things makes it easier to outsource because you look like a “real” company to the client, rather than a solo freelancer shipping work out.
Prospective clients almost always thank me for how fast I reply to their emails. I reply within minutes (normally less than 5) and this catches their attention because it shows I’m serious, reliable and sets a positive tone moving into the exploratory phase of their project.
Fast communication has helped my company make more money and is even a reason why clients choose us.
Think about it from a client’s perspective: if you’re going to pay someone thousands for a project, are you going to hire the consultant that takes 4 days to reply to an initial email or is a pain to get on the phone? Or the consultant who answers in 5 minutes, can hop on a call right away, and is ready to send an estimate by the end of the week?
The answer is clear and there should be no excuse for slow communication (especially if you work online!). This is something you can fix right away; just simply start answering your email faster, rather than ignoring messages for later. You’ll be amazed at how some clients react to fast email replies and it will lead to a higher project closing ratio, I guarantee it.
For those of you that are often busy or out of office, send a quick, one sentence reply that you’re tied up at the moment and will reply later. This type of gesture goes a long way and shows prospective clients how important they are to you (and again builds trust).
Iron out the details
Sometimes I receive new project inquiries where the scope is loosely defined or all over the place. This can make it hard to estimate the cost, timeline and even client expectations for the project. For these types of projects, I’ll normally do a bit more hand-holding after I’ve qualified the client.
I gather as much information from the client as possible for their project and then ask questions to find out what they really need and their goals. Normally, this is over back and forth email conversations, where things can get unorganized and sloppy.
When this is the case, I’ll take what I know and distill it into a scope document with Google Docs. I send that document to the client and they can comment or make notes back. Usually, this is a perfect way to organize and flesh out a project with a client who doesn’t have a concrete idea of what they want or a huge budget.
This process does require a bit of up-front work, but I’ve found when you put this much detail and effort into the client’s project (if they haven’t), they’ll likely hire you.
Plus, this is the best possible way to minimize risk when budgeting projects because the scope, requirements, deliverables and expectations are written out and agreed upon.
The next time you get a project that is unclear, create a roadmap or scope (or improve the current one), and the client will likely hire you because of the care and time you’ve invested.
Get a deposit
You should always require a deposit before beginning any work with a client. A deposit shows that a client is willing and able to pay, and tells them that you won’t work without being paid.
I normally require a 50% deposit for small projects and 20% (or per milestone) for larger projects. Deposits are non-refundable for work completed. I note this as early as possible to clients (in my estimates), so they know up-front what the billing schedule and expectations are.
If a client is reluctant to pay a deposit, then you shouldn’t work with them, plain and simple. Chances are they aren’t serious and probably won’t pay later anyway.
I know plenty of freelancers who have been burned on projects because they didn’t get money up-front, so don’t let this happen to you and start requiring a deposit upon contract signing.
Be a real business
If you want to make more money, you should register as a real business. This is especially true if you want to outsource work, scale and land higher paying clients.
There are a few reasons to register as a business wherever you live:
- Ownership of your company name
- Shows clients you are serious and legitimate
- Makes it easier to scale and outsource work
- Attract and work with established businesses (no longer coming off as a single person)
- You can build a real company brand, rather than working under your personal name
- Tax benefits and liability protection (depending on your country)
- Business banking (no longer doing everything from your personal account)
A lot of “freelancers” avoid registering as a business because it takes time and the process can be overwhelming.
However, if you’re serious about growing your business and making more money, then you should act and looks serious by becoming a real business.
These optimization tactics have worked really well to help my business grow and make more money. 2015 is right around the corner and a lot of you are looking to make a splash in the new year. If you haven’t already done so, consider implementing these now or for 2015 to level up your
freelance consulting business.
I’ve only listed a few strategies here and want to hear from you. What strategies and optimization tactics do you use to make more money and grow your business?
Post in the comments and we’ll reply back.