Sunday, October 04, 2009

Starting a freelance career: revenues estimating and time management

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Starting a freelance web designer/developer career is an exciting challenge to attempt. In this post I want to reply to several requests I received in the past about this topic, in particular how to estimate potential revenues and manage time during the start-up phase of your freelance activity.

Revenue estimating
A frequently asked question is: how much can I earn in one year with my freelance activity? Find an answer to this question is not simple because there are a lot of factors that affect your potential revenues, for example: market conditions, your commitment, your appeal to attract customers, competitors, ...

Some of these factors can't be directly controlled by you (for example market conditions and competitors) and require a complex analysis that, in this post, is not in scope. Anyway, elaborate a realistic estimate of your potential revenues could be not so simple... but you can quickly find an answer in two simple steps.

Step 1. Try to think in this way, asking you: "What could be my monthly target in terms of revenues?". This value is simple to determinate analyzing your needs and defining a realistic value, for example $ 1,800/month.

Step 2. Then: What's the effort I have to spend to reach that value?

The leverages you can use to reach your monthly target value are fundamentally two: the quantity of projects on which you can work on during a month and the fixed price for each project. For example, if you want to reach a monthly value equal to $ 1000 consider the following two scenarios:

In the first scenario (high quantity - low price), you decide to fix a low price ($ 100) for your services but consequently you have to work on a lot of projects during a month (10) to reach the expected value in terms of revenues ($ 1000).
In this case, other things being equal, you have a big advantage respect to your competitors: you offer the same their services (with the same quality, this is absolutely important) at a lower price. This is a recommended strategy during the start-up phase in order to attract new customers, offering them a more attractive price respect to your competitors. But, how much lover should be the price of your services respect to other competitors? Lower, but not too lower. Why?
First is a question of credibility. In some situations a price too low is perceived as lack of quality of a product or service. Second, if you set a price too low, the only way to reach your monthly target revenue is to work on a too large number of projects. The problem is if you are able to work simultaneously on a lot of projects! The risk is not be able to respect milestones and contribute consequently to create a bad reputation of yourself. Neither you can think to work seven days a week for twenty-four hours a day!

In the second scenario (low quantity - high price), you decide to fix a high price ($ 500) for your services and consequently you can work on not many projects during a month (2) to reach the expected value in terms of revenues ($ 1000).
The problem is that a "high price" could mean a higher price respect your competitors. In this case, you have to be able to offer to your customers a sensible value added in your services respect to market standard. But have you the necessary credibility and reputation to do it during the start-up phase? Probably you have not!

All things considered, a good balance between all these aspects is necessary for a realistic estimate of your potential revenues. I suggest you to use this very simple approach: define the average number of projects on which you can work on during a month, for example two projects/month; then define the average price for each website, for example $ 900US/website. Each month you average revenue will be 2 x $ 900 = $ 1,800. Your average annual revenue will be $ 1,800 x 12 = $ 21,600.

What could be the problem whit this estimate at first sight? Probably this linear and constant trend will be difficult to reproduce in the real life and find two new projects every month (twenty-four projects/year) could be a hard challenge, if not almost impossible. But not let discourage you and try to adjust your first estimate.

Time management during the start-up phase
Another important aspect to consider, if you decide to star a freelance career, is you can't think to dedicate 100% of your working time only implementing code. Especially in the first months, during the start up of your activity, you have to dedicate a large part of your time searching new customers and managing relationships whit them. This time-consuming activity is very important for two aspects: first, no clients, no job; second, maintain good relationships with your clients is a crucial point to establish long-term relationships and take further opportunities whit them.

If you are freelance looking for take a look at these useful online resources where you can find interesting job proposals:

- oDesk
- GetAFreelancer
- Guru
- Elance

Good luck!