There are not many ways to improve your finances. You can make better investment decisions or save a little bit more money. Especially saving more and more money is often preached by other personal finance bloggers.
I agree that a conscious and reasonable spending behavior is the first and crucial step to financial success. However, you will reach a point at which it just doesn’t make sense to devote more time to spend less money. Sure, you can track every single penny. Sure, you can go out less and do stuff that doesn’t cost any money. But still, the effect that this will have decreases. There is a limit to saving money.
There is an alternative to creating the most complex budgeting system and spend many hours per week just to track and analyze your expenses! You could “simply” earn more money.
For earning more money, you have a ton of great options like creating a side-hustle, building a business or getting a raise. Anyway, most of them seem to be much harder than saving more money (that’s maybe also the reason why most bloggers just talk about cutting your expenses). Today, we will take a deep dive into creating a freelancing business that can easily make you more than $100k per year.
We will uncover most of the information that is needed to create a 6-figure business while doing a freelancing job that often allows you to work from home.
In detail, we will talk about:
- An introduction of myself as a freelancer (why I think, I should write this post)
- The advantages of freelancing
- The disadvantages of freelancing
- Most essential skills as a freelancer
- How to find a job field for your freelancing business
- How to prepare yourself before having your first project/client
- Find your first project/client
- What to consider during the project
- Which steps do you need to take after the project is finished
- How to scale up your freelancing business to 100k/year
An introduction of myself as a freelancer
So who am I to tell you something about freelancing? I’m a freelance iOS developer since January 2018. That’s not a long time. However, I started freelancing directly after my studies. So I didn’t have much work experience before starting out. Still, I’m making between 8,000€ and 10,000€ per month.
On my very first client project, I received a project extension from 6 to 13 weeks and the company I’m working for offered me a full-time job as they were impressed by my work. I refused that offer for sure.
I’ve outsourced tasks that would cost me too much time and my time is valuable (between 55-60€/hour). For example, I don’t create the balance on my own. Most tax stuff is done by my tax advisor. I also don’t look for projects and clients by myself. There is one company that does exactly this for me.
One of my favorite things about freelancing is that I’m working currently at home all the time. Sure, some projects require you to be physically in their office. Anyway, they still mostly agree on deals where you are only working at their place 2-3 days a week.
So now that you know who I am, let’s dive into my guide to build a freelancing business.
The advantages of freelancing
In my opinion, the main advantages of freelancing are:
- You are way more flexible
- The income is much higher
- You’re your own boss
- The more you work, the more you earn
Let’s look at them one by one.
If you’re working from remote this is quite obvious. You can work when you want and where you want. If you are one of those Starbucks lovers then feel free to work in one of their shops. On some days, I work from 8 AM to 4 PM. On others, I’m coding in the middle of the night from 10 PM to 6 AM.
If you are working 100% remote, you could even be in another country and traveling the world while they think you are in your office. Just make sure that you have an internet connection, they can’t see where you are, you are available in the meetings and still produce impressive results.
But still, it’s not just that. You want to work on a private project or you need a break from working? You can simply take some time off after you’ve finished a project. I will take 1 month off in the coming summer to travel to Serbia and Croatia. Maybe I will take another month off to improve my skills by coding an app for myself. Believe me, it’s really great not to stay within the boundaries of a 9-5-lifestyle.
Generally, your income is higher as a freelancer but this depends on where you are living. In Germany, it’s simply higher because the company doesn’t need to pay for your social security. Therefore, they can add that sum to your paycheck every month.
Mostly, you get into projects where they either don’t want to have a full-time employee that costs them money over many years and they may don’t have enough work for him. Another option is, that their employees can’t get the job done. You are like a firefighter that comes in an emergency and tries to save their project. As they are in a big need they are willing to give you a lot of money if they think you can finish the project in the best (or any) way.
You are your own boss
This is one of the best things when it comes to freelancing or building a business in general. There is no person who is telling you what to do and when to do it. Sure, you could be part of a team but still, you are free to leave the company in a short time-frame, you work more independently than others and you can go on vacations if the project is finished. There is no need to check how many days you were already taking off.
However, the main benefit is that you can leave the company if you don’t like your boss or your colleagues. For an employee, it’s mostly not that easy.
More work = more money
It doesn’t matter if you’re paid at an hourly rate or by finished milestones/projects. The more work you put in, the more money you will receive. If you’re paid for completing milestones, you will be able to do more milestones per year and therefore receive more money. On the other hand, if you are paid at an hourly rate, the more hours you work the more money you will get as well.
For an employee, this equation doesn’t work that way very often. Even if you do 9 hours or 10 per day, you will probably receive the same paycheck every month. This is also a reason why freelancers tend to have a better productivity. In a 9-5-job the only way to a higher paycheck is getting a raise. And you won’t receive much raises in general. So why should you do more than expected?
The disadvantages of freelancing
I want to be honest, freelancing is not simply an easy way to become rich.
In my opinion, the main disadvantages of freelancing are:
- More complicated taxes and business related things to take care of
- You need to find projects/clients
- Your income is zero if you don’t /can’t work
- A freelancing business doesn’t scale as good as an own company does
- You won’t stay for long in a company
- “With great power comes great responsibility”
Let’s look at them one by one.
Taxes and business administration
I’ve told you before that I’ve outsourced a lot of my tax-related work and there is a good reason for it. It takes a lot of time. It’s complicated and you need to understand this bureaucratic slang. There are many things to consider and believe me, it’s much more complex than doing that stuff privately. You need to register your company, make prepayments on taxes and write down all expenses that could be used as tax benefits.
With a good tax advisor, this won’t be too bad. However, you still need to be very disciplined here. Definitely a downside for freelancing.
You need to find projects/clients
This seems to be the biggest issue and depends heavily on your job field. For me, as a developer, this isn’t that bad as there is usually more demand than supply. At some point in time, this won’t be an issue anymore as you have a decent number of clients that continually want to work with you and recommend you. Then you don’t have to do any project acquisition. Until that time, it’s the hardest part of your freelancing journey.
Later, I will show you some ways on how to find your first clients. But for now, you should know that this is part of the process.
No work = zero income
If you don’t find a client, you won’t receive any money. That’s easy to see. But I’m not talking about that. If you’re sick you won’t be paid by your boss as you are the boss of your freelancing business. It’s not just that. Let’s assume you don’t want to work on during your vacations. This doesn’t just mean you will spend money for your vacations but also lose money because you’re not working. Every single holiday means less income for you. People in a 9-5-job love those days. You may start to hate them.
However, due to that fact, you also receive a higher paycheck. For me, 6 months of freelancing work make me more money than 12 months in 9-5-job. So that’s a good deal for us.
A freelancing business doesn’t scale as good as an own company does
That’s a huge downside. Building a company takes a lot of time. It’s the same for a freelancing business. Sadly, it doesn’t scale that well and you will reach a plateau in a few years. A regular company can add more employees, better machinery or automate parts of their production. There are thousands of ways to improve your company.
Let’s assume on average one employee makes $200 in profit for you. If you have 10 employees, they will roughly make $2000 for you. Now you add another 5. Then you should have around $3000. For sure, it’s not that easy. But it shows how you can scale up a company. There is usually no limit on how big your company gets. According to this article of Variety, Alphabet the parent company of Google has made a net income of $6.84 billion in Q4 2017. There is definitely no freelancing business earning that much money.
In some months, I will share a post with you, how to go from $100k to $200k. But again, this is limited. You are the bottleneck and you can’t change that even with all productivity and life hacks.
You won’t stay for long in a company
Well, for me that’s no downside. But for the sake of completeness. You can leave if you don’t like your boss or your colleagues. But if you really like them, they will also get rid of you sometimes. You are just too expensive to be kept as a ‘wannabe’ employee. As an intern, I’ve met freelancers that were in our company for 6 months and very close to the team. Then they were cut as there was not enough work. Later, they rejoined the team as full-time employees. But this won’t be possible all the time and shouldn’t be your goals when you want to create a freelancing business.
“With great power comes great responsibility”
As Spiderman has already said. “With great power comes great responsibility”. You need to take care of a lot. There is no boss that protects you and takes care of you. You can’t lay back and chill for some weeks. If you have trouble at home, no one cares. You are a service provider and they pay you very well to get the job done. So don’t think that 50% commitment will be enough. You have to work every single day as this is the last chance to show them how valuable you are.
You need a thick skin as well. They will criticize you. You will make mistakes and you need to stand up to protect your work. If you do mistakes in your balance sheet they won’t treat this like an error of a guy who doesn’t know anything about it. They will hold accountable for those things.
It’s not that bad. You will also get help from tax advisors and if you do a good job they will be very satisfied and be very nice to you. They will recommend you and get new clients for you without any effort on your side. But still, it’s not that easy as being in a 9-5 job.
You should have most of these essential skills as a freelancer
I don’t like to say it but not everyone is made to be a freelancer. You need at least some of the skills listed below to become a successful freelancer.
- Good negotiation skills
- You need to have a backbone
- Outstanding knowledge in your job field
- Solid communication skills
- High self-motivation
- Long lasting endurance
- Be a risk-taker
- Solid financial skills
I think there are two types of people in the freelancing business.
- The salesperson.
- The Nerd.
Sure, there is also something in between and no one is 100% no. 1 or 2. But mainly, these are these both types. Let’s look at them a little bit deeper.
The salesperson is great in selling himself. He has a large self-esteem and can negotiate perfectly as he really knows his value. His communication skills are incredible and he is very open and loved by the team on day one. He is also able to sell his work as good as himself so he won’t be questioned very often. They are willing to take a risk for higher returns.
These are people like me. They are quiet and analytical. They have outstanding skills in their job field and a large self-motivation. As a Nerd, you love your job and you would do this probably even if you are not getting paid for it. These guys usually take less risk as they are also less confident. Therefore, they also tend to join a company faster when they like the team and get an interesting offer.
One thing, you should have no matter in which group you see yourself is a solid financial knowledge. You earn a lot of money but your job involves a huge risk at the same time. You need to put money to the side so you can use that in bad times. But you also need to take care of your retirement. Financial literacy is needed. You can learn more about it on this blog, you may start by reading something about budgeting.
How to find the perfect job field for your freelancing business
Again, I need to disappoint you. You can’t do freelancing in every job field. A baker or a policeman won’t be able to do their job as a freelancer. So how do you find the perfect job field?
There are several things you can ask yourself.
What are you passionate about?
Maybe that’s already the answer to your question. If you are like me and love programming, you will be a great freelancing software developer. You’re the one who makes the wedding photos for all your friends? How about becoming a freelance photographer? You could be a freelance designer or writer. There are tons of hobbies that can be turned into a job.
What special skills do you have?
If you are good at planning things, you may want to become a freelance project manager. With special skills in your current day job, you could become a teacher for those things and help companies to educate their employees.
What does the job market offer?
There are tons of other things you could do. Create social media campaigns for companies, be an SEO expert or a data analyst. Just Google for ideas and you will probably find something that works for you.
It’s just important that you really like what you do. You won’t become good at something if you just do it for the money. If you won’t become good at something, you also won’t receive much money for it. It’s a vicious cycle.
How to prepare yourself before having your first project/client
There are a few steps you should take before having your first client like registering your company and finding a good tax advisor. However, this depends on the country you live in and I want to dive deeper on how to prepare yourself from a knowledge/skill perspective.
These are a few things you could do before reaching out to your first client:
- Get all certifications that are needed to work in that job
- Take live-trainings in your area that will teach you more advanced skills
- Take online courses that will broaden your skills (you could use platforms like Udemy, Udacity or Skillshare)
- Create a portfolio website where you can show off recent projects and some work samples
- Take a freelancing course (like this one of the legendary Seth Godin)
- Improve your productivity through tips of experts (e.g. described in the book Tools of Titans from Tim Ferriss)
- Read influential blogs and magazines of your job field
You may want to do several of the things listed above. In the end, you should have an impressive knowledge of the tools and things you are working with. People will pay you money for being an expert. Believe me, I’m not talking about being on the top shelf in your job field. But you should know what you are doing and be able to work without any help.
These steps shouldn’t be done once and then you forget about them. A huge part of being an expert is making sure that you stay in that position. So continue to teach yourself, take a training from time to time or read blogs on a daily basis.
Find your first project/client
This is the single hardest thing when it comes to freelancing. You need to find your first client. It’s hard to give you actual advice on this as it’s so different depending on your job field. For some jobs, you need to cold-call potential clients. For others, some profiles on job networks should be enough. Again this depends on supply and demand.
Here are some tips to find a first client.
Create profiles on job platforms
There are many great platforms like LinkedIn, Freelance.com, Upwork or Fiverr. One thing they have in common is that the more detailed your profile is, the more views you will get. Make sure to put your contact information in there and all of your current work. In general, you should update these profiles at least every 6-8 weeks. You can also use LinkedIn to post some job-related articles and show off your expertise to your target group. Make sure to join the relevant groups in your professional field and freelance groups. With that, you can increase the chance to be found by recruiters and headhunters.
Here is a great guide of HubSpot on how to craft the perfect LinkedIn profile.
Build a portfolio website
With a basic knowledge of HTML and CSS, you can simply create a website on your own. However, if you don’t have those skills, you can use website builders or Content-Management-Systems like WordPress (which this blog runs on) and install a theme that looks good and has great functionality.
On this website you can upload recent work samples, you can be found by search engines and link to this website from your job platform and private profiles. You won’t receive job offers on a daily basis. You will probably also receive some spam emails. However, after a while, you can get some traffic and this should help even more to find clients and show off your skills.
Note: If you need more information on that, feel free to contact me through the contact form of this website or add a comment below in the comment section.
Do jobs for free
Do you know what a great start to your career is? You do some jobs where you don’t get paid for. For sure, this shouldn’t be a full-time job, more like a side-gig. But at the very beginning, the money doesn’t matter so much. You can improve your skills, test if a freelancing business is what you like and maybe get one or two recommendations for other clients that will pay you some money.
You can do projects for yourself, for friends, family members or the friend of a friend of a friend. Just let your friends and your family know that you are looking for jobs and they should share this information. You will be impressed how large your network is and probably there is someone who needs your help on video editing, creating a song for his movie or making adding Google analytics to his website.
Keep in mind, money comes by itself after a certain time. Use your first steps to learn as much as possible and build your portfolio as well as testimonials.
Show that you are passionate about it
There are thousands of ways to show off your skills and that you are passionate about your work. If you want to be a blog consultant, you should have a blog that works pretty well. If you want to become a web developer, you may build some neat web tools that can be used by others.
You could write a blog about your job field, create a podcast, upload some videos to YouTube or even publish a paper about something related to your work.
Nothing of those things will create job offers on day one. But you can add links to these things on applications and your job platform profiles. If you consistently add content, you will receive at least some offers later on. Overall, this will make sure that you achieve one thing. You will stand out! This is one of the most important things in any application, for a 9-5-job and it’s even more important as a freelancer as you need to have many applications.
Visit locale meet-ups or networking events
There are many job fields in which there are locale meet-ups at least once a month in your area. Maybe you are lucky and you can go to one of those events. There are people like you who do the same job as you do. Why is this a good thing? Because you can share your knowledge and learn something new and at the same time build your network. If you have a good friend there and he is fully booked but has more clients that need his help, what will he do? Exactly, he will recommend you! These connections are very valuable!
There are also specific networking events with closed memberships. Everyone is telling something about himself for 30 seconds and on every meeting, one person is on the hot seat and allowed to speak for 20 minutes. There is mostly only one person per job field. The reason for this is that these 20-30 people will provide themselves with jobs and use their network. However, I doubt that the effect of this will be very high and personally, I think it’s a waste of time.
PRO TIP: Find a company that looks for clients on your behalf
This sounds too good to be true, right? A company that looks for jobs for you! You don’t have to take care of project acquisition! Even better, you don’t have to pay them!
Okay, that’s not 100% correct. But you only pay them if they are successful. I have a company doing exactly this. They find a client for me, instantiate the first contact with the client, conduct the negotiations for me and if the company doesn’t pay me, they will! But what’s in for them? They usually earn 5-10€ for every hour, I’m working on the project. I don’t know how much they will receive for my working hours. I have a contract with this company and there I see only my hourly rate. But I’m pretty sure that they will add another 10€ when they invoice this. So if I earn 55€/hour, the company that looks for jobs pays me 55€/hour and charges 65€/hour to the company I’m working for.
This is very convenient as I don’t have any work to do and less risk is involved. However, after some years and a lot of good recommendations, you may want to remove that middleman to earn more money.
What to consider during the project
There are many things to consider while working on a project, but I will keep it simple.
- Always deliver more than expected
- Stand out
- Work hard for your testimonial
- If you have some idle time, use that to increase your knowledge
On my very first project, we had a 2-day briefing. After that, we waited for access to the project to start coding. There were 3 freelancers and two employees of that company included in that project. One of the freelancers was less experienced but tried to understand how the web component does work. The other one sits around and only worked when someone gave him a job. And I did a test project including 85% of the features (with low-details) to make sure that everything should work as expected and reuse the code later on.
Do you know what happened? The one guy doing just what he was told do, gets kicked out of the project. The other freelancer and I stayed in the project. I became somewhat of the lead iOS developer and produced impressive results during the next few weeks. The other freelancer and employees just said things like he is a machine or it’s no big deal, we have Sir Budget, he will take care of that.
This is the best advertisement that you can get. I stood out. I delivered way more than expected and they offered me a full-time job at the company. After I denied and was booked for another 7 weeks, giving me the opportunity to work from home and having a guaranteed income for a decent part of the year.
Try to always deliver more than expected and impress them from day 1! The first impression is the most important one!
Which steps do you need to take after the project is done
There are a few steps you should take after the project is finished. Even if it was a good or bad project, make sure that you do these things:
- Ask for a feedback. This will have two benefits. You show that you are willing to improve and also you see what could be done better.
- If the project went well, ask for a testimonial for your website, job platform profiles, etc.
- Try to stay in touch and reach out to them from time to time. Try to stay in their mind. With that, you make sure that you are either recommended to other clients or be booked again by the same company.
- Tell them, that if they were satisfied, they are allowed to recommend you to other potential clients. This is a bit awkward, so make sure to ask this in a nice way.
How to scale up your freelancing business to 100k/year
This depends also heavily where you are starting from. I was lucky enough to start with an hourly rate of 55€/hour which will probably end up in a low 6-figure income in year one. However, if you start at a lower hourly rate, you should increase this from time to time.
So here are some steps to take:
- Increase your hourly rate slightly. This should be more of an increase than the inflation rate is and you should be able to justify this. Much more knowledge and a higher productivity are good arguments.
- Work more than before. In the beginning, there is a lot of things to do and you have many administrative tasks to do. At some point, you can work more focused. Use that, to increase your working hours but leave some time to rest and have fun.
- Outsource everything that needs to be done but you don’t like to do it and it can be outsourced. For me, these things are taxes and project acquisition. After that, you work less stressed and you also have more time to work. Normally, you should save money here, even if your tax advisor has a higher hourly rate than you because you are not so fast than he is.
- Work hard consistently and become a real expert in your job. Even if Robert Kiyosaki (the author of Rich Dad Poor Dad) would disagree with me on that point. I think becoming an expert is great if you want to build a business. But he is also right, as he wants to be the owner of that company and not the CEO.
Two pro tips on how to increase your income
There are two pro tips left that I want to share with you when it comes to increasing your income.
PRO TIP – How to increase your hourly rate: Increasing the hourly rate is strange sometimes. But it’s great to remove your bad clients or make them more bearable. At the end of the year, you can increase the hourly rate for those complicated clients and then two things can happen. Option 1, they don’t work with you anymore, so you are less stressed by them. Option 2, they pay the increased hourly rate and you are paid better for working with them which gives you a nice bonus for having to handle with them.
PRO TIP – Move to milestone payments: Move from an hourly rate to a milestone rate. An hourly rate is great in the beginning. You don’t know how long everything will take and most of the time your estimations are too low. This happens very often for software developers, but I’m sure that happens also to other freelancers. However, if you know how long the stuff will take, you are better off by getting paid a large sum for every milestone you reach. Therefore, you make your assumptions a little bit too high. Then you could even do some hacks like taking 3-4 full-time projects at the same time and increasing your income to an insane number!