4 Freelancing Mistakes That Are Costing You Cash (and How to Avoid Them)
4 Freelancing Mistakes That Are Costing You Cash (and How to Avoid Them)
Making the leap from being a WordPress developer in your spare time or for a boss to going freelance is daunting but exciting. If you’re like me, when you go freelance your focus will be on the work and not on the business side of things.
But thinking like that could be a big mistake. Once you make that step to becoming a freelancer, you’re self-employed and you’re running a business. You might even choose to set up your own company, which gives you even more boring business things to think about.
It’s not exciting, and it’s not the reason most WordPress developers decide to go freelance. But it is important. If you’re going to earn a living, be successful and stay sane, there are some basic business aspects of freelancing you need to get right.
In this post I’m going to identify four common mistakes made by freelancers when they’re starting out. I’ll give you some painful examples of where I’ve gone wrong so you can learn from my mistakes. I’ll quote some experienced freelancers who know how to get things right. And I’ll give you some tips on how you can avoid these mistakes. Learn from others’ mistakes so you don’t have to make them, too.
Mistake #1: Undercharging
Let’s say you’ve been working for an agency or company for a few years. You’ve built up some experience and you’re an experienced, accomplished developer. Maybe you’re using WordPress in your day job or maybe it’s your sideline.
According to the employment agency Reed, the average web developer in the UK will be earning a salary of around £40,324, which equates to $62,500 at today’s exchange rate.
Assuming someone in employment is working 40 hours a week, this works out at an hourly rate of approximately $30. So you start out as a freelancer and decide you need to charge more than this to cover overheads.
You might add 50% to your previous hourly rate, giving you a rate of approximately $45 per hour.
Forty-five dollars an hour, you think to yourself. That sounds pretty good. If you put in the extra hours (as you probably did without extra pay when in employment), you could work a 50 hour week and you’d be earning $117,000. The dollar signs start appearing before your eyes and you’re already planning an exotic vacation…
But stop right there.
It Isn’t That Simple
Let’s take a step back and think about how many hours you can realistically expect to charge in your first year as a freelancer.
If you work that 50 hour week you can only expect to be charging for about 30 of those hours at the most as a new freelancer. In the first couple of months that might be less, as you’ll be chasing work. Even if you’re lucky and get plenty of work, you’ll still need to spend time on non-chargeable activities like marketing, sending out invoices, managing your time and professional development.
So let’s be generous and assume you can work 30 chargeable hours a week.
On top of that you need to factor in time for vacations and sickness. If you get sick you won’t be able to earn. Let’s factor in 5 weeks’ vacation and a week’s sickness.
So now you’re working 30 chargeable hours a week, 46 weeks a year. At $45 per hour, that’s $62,100. A lot less than the $117,500 you were dreaming of.
But there’s more. You’ll have costs and taxes to factor in. In your first year, you’ll probably need to buy a computer and you may need to pay for a course or conference or two. You’ll need to buy hosting and software and may have the expense of hiring a workspace. This can cost anywhere from $3,000 to $15,000 depending on your requirements: let’s assume $8,000. Now you have profits of $54,100.
Finally, there’s taxes. Exactly what taxes you’ll have to pay depends on where you are and whether you set up a company or registered as self-employed, but on $54,100 profits a tax figure of $13,000 is realistic (I’ve based this on tax rates for the self-employed in the UK, where I’m based).
So that leaves you with $41,1000.
That’s $21,400 less than you were earning in employment – when you were being paid 50% less per hour and didn’t have the stress and uncertainty of freelancing!
Working Out Your Rate
So, what does this mean? It means you should forget about what you were earning before when deciding on your hourly rate. Instead, use this simple charging formula:
- Decide how much you need to earn per month and multiply it by 12 for your annual salary. Think about what you actually need for rent, mortgage, bills, food, transport, living expenses etc.
- Add a percentage to reflect the tax you’ll have to pay, based on tax rates where you live.
- Add a generous estimate for costs. Don’t just guess this but identify exactly what you’ll need to spend money on: equipment, software, subscriptions, phones, conferences etc. Include insurance and pension costs, too.
- The figure you have now is what you’ll need to earn each year. In your first year, you might decide this can be less than you previously earned, which would be realistic.
- Divide that figure by the number of weeks you’ll work per year, not forgetting to factor in time for public holidays and sickness.
- Finally, divide that figure by the number of hours you can realistically expect to charge each week (I’d suggest a maximum of 30 but 25 might be more realistic in the first year).
- You have your hourly rate.
So if you want to earn $62,500, you’d have to charge $73 per hour. Whether you can charge that as a new freelancer will depend on your experience, but it’s over twice the average for WordPress freelancer rates.
Mistake #2: No Contracts
So, you’ve decided on your hourly rate and it’s a realistic one. You’ve found a few clients who want to hire you and are prepared to pay you to work on their projects.
Finding your first freelance client is incredibly exciting: it’s the start of your new career and gives you a huge confidence boost. I remember getting a call from a brand new client on my very last day at my old job. I couldn’t wait to get out of the door and start working for that client! My old boss was pleased for me, too, as it meant she didn’t feel so bad about me being made redundant!
But again, you need to pause and take a breath. Before you get carried away with the excitement of finding your first paying client, you need to make sure you have a few things in place.
However much you like that client, and however trustworthy they seem, you need a contract. Even the best clients will experience cash flow problems themselves or may even go out of business. If that happens, they’ll want to find a way to avoid paying you, or at least to avoid paying you on time.
Anyone who’s self-employed or runs a business will tell you that cash flow is a bigger killer of new ventures than income: you can earn plenty of money in your first year but if it doesn’t come in as a regular income, then you won’t be able to pay your bills. Which could trash your chances of being a successful freelancer before you’ve even got off the ground.
So make sure your clients will pay you on time. Draw up contracts before each new project and don’t do any work until they’re signed. If the client needs work to start quickly, then they need to get those contracts signed quickly.
I was stung by this mistake once when I started out.
I was working freelance in my spare time while still in a job and I wasn’t too worried about the formal aspects of freelancing as I had a steady employment income.
But a few jobs in, I took on a retail client who, unbeknownst to me, was experiencing financial difficulties. I developed a website for them on the basis of a few emails and face-to-face conversations but didn’t take the time to draw up a contract.
Needless to say, when the time came for the client to pay me, I was very low down on their list of creditors. They owed money to some much larger, better-protected companies than me, as well as to their landlord. It took a lot of email correspondence, some unanswered phone calls from them (I wanted to get everything in writing), and finally a trip to their premises to pick up my payment in cash. Eventually, I got paid – but I didn’t get everything they owed me.
Heather Burns, a digital law specialist, stresses the importance of contracts:
“It’s essential to have a contract in place – in fact, don’t do one click’s worth of work without it. A contract formalises your business relationship with the client, holds you to a professionally accountable standard, and protects you from predatory clients. It should address the nature of the business relationship, the work you are doing, and your potential liabilities to each other.”
Now I have a standard contract that I insist clients sign before I start work. This includes details of rates, overall deliverables, payment stages and what happens if things don’t go according to plan.
Some freelancers I know incorporate this into their proposals. The important thing is to get a signature up front. Learn from my mistake so you don’t have to make it!
Mistake #3: No Project Brief
You’ve taken on a fantastic new client. You’ve chatted in person, talked through what they need from you, and agreed on a price. You’ve got a signed contract and are ready to start work. Based on the extensive conversations you’ve had, you get down to work, designing a website for them or using a third party theme or design to develop or create the site.
Everything’s fine until the client comes back to you with feedback. Maybe they say this isn’t what they wanted. Maybe they say it doesn’t incorporate everything they were expecting. Maybe (like my very first client), they tell you they don’t like the design after all, but don’t actually know what it is they want. That client actually told me “I don’t know what I want, but I’ll know it when I see it.” Frustrating!
Vagueness like this will eat into your time and your relationship with the client and could well land you with one (or both) of the following problems:
- The client keeps asking you to do more and more (referred to as scope creep or project creep). Since you haven’t formalized exactly what you’ve agreed to do for them in a project brief, it’s difficult to say no.
- The client changes the nature of the brief or adds so much extra work that you have to say no. The disgruntled client decides to take their business elsewhere.
Neither of these is the outcome you want, which is why project briefs are so important.
Freelance web designer Claire Brotherton says the best projects are those with a clear brief:
“Getting the brief right is a collaborative process between the web designer and the client, and requires asking the right questions early on. The best projects I have worked on have been the ones where there was a clear idea from the start of the project requirements, a sensible timescale, full cooperation with the client and good communication at all times.”
A project brief should include the following:
- A summary of the project.
- Time lines and what happens if either party fails to meet deadlines. For example, I charge for project stages if they haven’t been completed due to the client failing to provide content.
- More details on exactly what you’ll be providing, as discussed in your initial conversations. Include deliverables, timescales, project stages and a summary of any design concepts.
- Details of what the client will be expected to do and when. For example I have feedback stages built into my project plans, and make it clear that I can’t proceed without the client’s input.
- Details of platforms, languages and compatibility. For example, make it clear which browsers and devices you will test in.
- A clause detailing what happens if the nature of the project changes or the client needs you to do more. This will include costs for extra work and impact on delivery dates. Make it clear that major changes and additions won’t be incorporated into the project at this stage but will be kept back for future phases.
- Details of how a client’s site will be launched or hosted. Who has responsibility for this?
You may need more or less than this depending on the nature of the project. The important thing is to make it clear to you and the client exactly who will be doing what, and when.
Some freelancers like to combine project briefs with contracts, but I prefer not to as I use a standard contract while the project brief will always be different. But I do explicitly refer to the project brief in the contract, and ask the client to agree to both at the same time.
Mistake #4: No Deposit
Once you’ve decided on the right hourly rate, you’ve found a client, signed contracts and agreed a project brief, you’re ready to get to work, right?
There is another stage that you’ll find all agencies and a growing number of freelancers are now incorporating into their contracts, and that’s a deposit or down-payment before starting work.
This will vary from 20% to 50%, depending on the nature of the work and the length of the project. You’ll find that with shorter projects you can charge a larger percentage upfront, whereas if a project will last a year you can’t expect 50% at the beginning. For some very quick projects you might even charge 100% up front, but in my experience this is difficult to do with new clients.
Insisting on a deposit protects you if the client decides to drop the project before you’ve completed it or reached a milestone where you would charge for your work.
Don’t Be Like Me
In my very early days of freelancing I didn’t charge anything upfront. Instead I charged 50% on completion of the alpha stage of a website build and 50% on launch. But (guess what!) I got stung by this. I took on a client who signed a contract, agreed to the project brief and let me start work… and then mysteriously disappeared. I worked on design concepts for their site, created some mockups, sent them off to the client, and heard nothing back. I tried phoning the client and emailing them repeatedly, but they never answered my calls or replied to my emails.
It meant that time I’d spent working on their site design was completely wasted.
I tried invoicing for the work I had done but, of course, I heard nothing back. Luckily, at that stage I wasn’t charging very much and hadn’t done too much work, so I didn’t lose too much financially, but it was stressful and made me feel like a fool.
Now I don’t start work until the contracts are signed, the project brief is agreed… and the deposit has been paid.
Some clients will tell you they can’t pay the deposit yet because of their accounting cycle. Their accounts department only pays invoices at the end of the month, they’ll tell you, and they need you to start before then. Your response should be a polite but firm no. Tell them this is how you work, it’s standard practice in the industry, and it’s in the contract they signed (yes, make sure you include payment stages in your contracts).
If the project’s delayed because the client doesn’t pay the deposit quickly enough, then it’s not your problem. It’s theirs. Well, it might feel like yours if you then lose the work, but in reality that’s a blessing in disguise. If a client refuses to pay a deposit before starting work, then it’s safe to assume they’ll be reluctant to pay invoices at later stages too. In which case you’ve avoided a lot of stress, extra work, and cash flow issues. Move on and find a client who’s more amenable.
There’s More to Being a Freelancer
Being a freelancer is great. I’ve been doing it for some years now and get a lot out of it. But it will only work for you if you’re prepared to accept that there is a duller, more business-oriented side to it.
By avoiding some of the common business mistakes and protecting yourself from the risk of not earning enough, not being paid, scope creep or worse, then you’re far more likely to enjoy a long and happy career as a freelancer. Good luck!
How do you protect yourself as a freelancer? Share your stories in the comments below.