Cole Henley looks at what we can do to turn our passion for the web into a sustainable, profitable career
Many of us get into the business of making websites through a hobby or personal interest. Lots of us love what we do and are in the rare situation of being able to make a living doing something we enjoy. Which makes it all the more harder to be objective about making money.
We often find it hard to talk about the financial side of our work. That is why I started the Freelance Rates survey in 2011 (netm.ag/2011-266). When I started working freelance I had no idea what was an acceptable rate to charge. I knew what I used to earn as an employee and how much I needed to survive, but not what I wanted – or even could – charge. It is a conversation few of us are happy to have in public, but one that is absolutely essential to our success in, and our enjoyment of, what we do.
WHAT WE SELL
To better gauge what to charge we first need to have a clear understanding of what it is that we sell. Although most of us think we are selling skills or services, whether you are a developer or designer, PHP or Ruby coder, content strategist or server manager, freelancer or agency employee, in all probability you’re actually selling two things: your time and your expertise.
Knowing we are selling time helps us take control of what we are charging. It helps us realise that time is a finite commodity. Then, once we know how much time we need, we can figure out how that can be broken down into billable chunks.
One of the most common mistakes to make is taking on too much work. Whether that is down to underestimating how long something will take, schedules slipping or simply an inability to turn down a project, taking on more work than you have capacity to complete can be one of the biggest barriers to being profitable.
So the first thing we need to know is how much time we have available. My grandmother always said there were 365 usable days in the year. However, in reality we only have a fraction of that available to work. Once we consider weekends (104 days), then factor in 10 per cent of the remaining time spent on management and sales (26 days), 10 per cent spent learning new skills and keeping up to date with tools and techniques (26 days), 10 per cent spent on time off (26 days) and 5 per cent on sickness and things you cannot plan for (13 days), then we are left with 170 days – less than half of the year.
This means that if you considered your daily rate based on what you want to earn, divided by 365 days, you need to double your rates from the outset. And that’s without even factoring in quiet or idle periods.
A further factor to consider is how much you want to work. Many people choose to go freelance or take on their own business because they want a healthier work-life balance. For some that means flexible working hours and time off. However, this does require you to be realistic and maximise the profitability and productivity of the time you do spend working. For those of us who primarily work on a project or client basis, this hinges on accurately estimating and controlling the work that you do.
VALUING YOUR TIME
Rachel Andrew at Perch (grabaperch.com) has written about the problems in accurately estimating time. “It comes down to discipline. Being disciplined in approach doesn’t seem to be very popular! There is no magic behind learning how long things take you, and being able to apply that to future work. You have to start to log the time you spend, including the time you spend not getting down to work, to be able to make those projections, ” she explains.
“That process can be quite uncomfortable. If you log the way you spend your time for a few weeks you see in black and white how much time is spent messing about on Facebook, Hacker News, Reddit or whatever. How often you dart between tasks. How many days you sit at a computer for four hours before actually doing any productive work.”
When we are in the business of selling time, the only way to know how much to charge is to monitor how long things take. And accurately knowing how much to charge means having a clear understanding of how much time is spent on what you do, as well as how efficiently you use that time.
Andrew feels that breaking your work down into bite-sized pieces can help make you more productive with your time: “The Pomodoro Technique (pomodorotechnique.com) is a great way to get down to work, but also to log whether your time estimates at the beginning of the day were accurate.” At the beginning of the day, break your task list into 25-minute sprints of work (known as ‘Pomodoros’), and write down how many sprints you think each task will take. At the end of the day you can see whether your estimate was accurate. “Do this for a week or so and you’ll soon see a pattern of which tasks you tend to estimate incorrectly. Logging your time is the best way to get good at estimating time, ” adds Andrew.
Measuring time is a critical tool to help both freelancers and agencies get better at gauging work and ultimately at being more profitable.
TACKLING BILLING
Once you have a clearer idea of how your time is being spent, you need to work out how best to bill for that work. Some people bill hourly, others on a day rate, while others work on a fixed-cost basis. Rob Harr at Sparkbox (seesparkbox.com) thinks the best approach is to bill hourly.
“This helps align our goals with our clients’ goals. In a typical fixed pricing model, the client is pitted against the agency. The client is trying to get as much for the fixed price as possible, while the agency is trying to get the project done as quickly as possible … fixed-cost projects seem to have the worst outcomes because they don’t allow for changes.”
Harr say one of the benefits of hourly pricing is that it makes estimating easier. “Estimates are hard for two reasons. Clients are always continuing to define what they need as a project progresses and those of us writing the estimates (designers and developers) are always optimistic.”
Like the Pomodoro Technique, hourly billing helps build flexibility into a project by breaking down tasks into manageable sprints of work. “Hourly billing means the scope can adapt to the needs of the project, ” he continues. “Each change has to be accompanied by client conversations about impact to the budget. Sometimes this may mean that things take longer than anticipated, and sometimes they take less time. This also allows things to be prioritised as we go.”
INVOICING
Harr talks about the importance of weekly invoices for keeping both the clients and the creative team accountable to the spend. This is an idea echoed by Andrew Clarke in the way his agency, Stuff and Nonsense (stuffandnonsense.co.uk), bills for work: “We both schedule our work and invoice our clients in one-week increments to make our time and project management easier, our cashflow better and our financial risks lower.”
One of the benefits of weekly billing is that it means regular conversations with the client. “You have to communicate with your clients extremely well to make this work, ” Harr says. “Sometimes things will take longer than estimated, this is fine, but surprises at the end are not.”
Good communication is critical in order to be profitable. This means being clear from the off about how you work, and ensuring regular contact throughout the project. Constant conversations mean you avoid surprises, help keep a project moving and minimise slippage. “Not communicating the budget well with clients is one of the biggest pitfalls when companies move to an hourly model, ” explains Harr. “We are very transparent on the hourly spend, and we empower our clients to make budget decisions. I have seen many agencies afraid to talk about money. This is crazy to me. We have to be willing to have healthy conversations about money with our clients.
“We use Google Sheets spreadsheets all of the time. I love having the ability to collaborate with internals and clients in real time. When approaching a new project, we collaborate with our prospective client to create an estimate in Google Docs. This helps potential clients understand from the start that they will help create and impact the way we’ll work.”
GETTING PAID
One of the ways of managing how you work with clients and ensuring you get paid is to have a contract before starting work. This should outline your expectations for working together, ownership of the work and payment for it. In our net magazine survey, 38 per cent of respondents said they didn’t normally use contracts.
Contracts help you outline payments on a project, how much you expect up-front to secure your time, how payments are to be scheduled, what value is due on completion and who owns the work until final payment is made. Using a contract doesn’t have to be expensive, and although a contract drafted by a lawyer will offer better protection, adapting a templated contract is better than not using a contract at all. For example, 45 per cent of survey respondents used a contract adapted from a template, such as Andrew Clarke’s Contract Killer (netm.ag/killer-266).
Contracts can be critical for ensuring cashflow through outlining payment schedules. Whether you are a freelancer or an agency, it is essential that you ensure a steady reserve of cash through prompt payment of completed work and securing deposits for work up-front. Alarmingly, 32 per cent of survey respondents did not request a deposit ahead of starting work on a project, and 33 per cent of respondents expected payment more than 14 days after completion. Both these factors can have a massive effect on cashflow.
Cashflow was one of the reasons Andrew Clarke moved to weekly billing at Stuff and Nonsense; both for the agency’s sake and for its clients. “It’s common for clients to make a deposit payment of between 25 and 33 per cent, and the balance of a project’s costs on completion. This can put a strain on the cashflow of small and medium size businesses, ” says Clarke. “Our SME clients appreciate paying weekly as it puts less strain on their cashflow than a large payment at the end of a project. Scheduling and paying weekly gives them a greater understanding of what we’ll be working on together and what’s achievable within a week-long sprint. Should they choose to change their mind or change direction, they know that they can roll those changes into an additional sprint and they also know the cost of that work in advance.”
Having a clearer idea of cashflow helps with scheduling work and making sure you don’t take on too much. However, an important part of securing and sustaining work is knowing what to charge and making sure your rate is competitive, whilst being able to support your lifestyle.
KNOWING WHAT TO CHARGE
A final component of understanding profitability is knowing what to charge. This breaks down to understanding what you need to survive (your outgoings and overheads) as well as the rate you can command (the market).
Understanding our overheads is important. In the web industry, many of us can work from anywhere with a laptop and a wireless internet connection. However, this can be dangerous. We need to be realistic about the outgoings – both professional and personal – which need to be covered.
It is also critically important to get into the practice of saving some of what you earn. This will help keep some money in reserve for quieter or difficult periods, but also make sure you have enough saved for fulfilling your tax obligations. On this note, never underestimate the value of a good accountant. If you value your time they should be a worthwhile investment.
The other facet of knowing what to charge is understanding market rates. When I went freelance in 2011, I didn’t have the slightest clue what day rate I could command in my new position. I had an idea of what my earnings had been as an employee, but nothing apart from anecdotal information about the rate that somebody with my skills and experience could charge.
This was one of the motivations behind the freelance rates tool (ournameismud.co.uk/fraq) I created off the back of my first survey in 2011. Taking the data from survey respondents, it was possible to get a snapshot of how rates varied across location, skillset and experience. Such resources and data give us more confidence in what we can charge for our time - and ultimately what you can charge boils down to confidence.
It is great to hear from people who felt the survey gave them the confidence to charge more for their services, and also those who used it as a resource they could point their clients to if they were accused of charging too much. Tools like this help us as an industry have a more open conversation about what to charge for what we do.
I’ve created a simple tool based on the responses from our net magazine survey (netm.ag/survey-266). Obviously this should be taken with a pinch of salt, but it should help paint a very broad-brush picture of what folk are charging across the globe based on their status, location and expertise.
Explore further
TIPS
- Break your work into manageable sprints, for example 25 minutes. This will help you focus and keep track of how your time is spent
- Bill hourly and invoice weekly. This will help both you and your clients manage cashflow
- Be clear up-front. Use a contract and set out key milestones, expectations and payment terms
RESOURCES
- RescueTime (netm.ag/rescue-266) – RescueTime is a great tool for monitoring your activity in the background. It gives a realistic indication of where your time is spent and helps you understand when you are most productive
- Pomodoro (pomodorotechnique.com) – Pomodoro is a great technique for breaking your work down into manageable chunks, helping you to focus on core tasks as well as schedule in regular breaks
- FreeAgent (freeagent.com) – 50 per cent of respondents who used accounting software used FreeAgent. An invaluable tool for keeping track of work, expenses, banking and invoicing (netm.ag/emails-266). If you are in the UK it will even help you calculate and submit your tax return.