Many creative professionals have little formal business training, and most of us would probably rather do anything else than calculate net income or look at profitability figures. Nevertheless, it makes a lot of sense to ask yourself some hard questions at the end of the year that will help develop your business further in the future. As a creative professional, you are essentially charging a set rate for your time, which reflects your expertise, skill and ideas. Although the demand for creative services is rapidly increasing, freelancers frequently underrate their own asking price, in effect granting voluntary discounts that no one asked for. Here are some thoughts for calculating the value of your professional time for the coming year.
How much do you REALLY make per hour? (And is it enough?)
There are many ways to keep track of income and expenses. While it takes some time to learn programs such as Quickbooks, they can provide valuable data on overall income, income by client, or earnings for specific types of work. If you find accounting software too daunting or complicated, your business earnings should at least be recorded in a spreadsheet to provide an overview. On the expense side, you need to add up regular costs such as phone bills, office expenses and software/platform charges as well as one-time expenditures such as a new scanner, courses you may have taken etc.Don’t forget to include taxes in the equation. Total up both sides and deduct the expenses from the earnings to see how much your business really made. Dividing that sum by the number of hours you worked generates a valuable measure: Is your current hourly rate realistic, and does it sustain your standard of living?
This calculation can be sobering. Much of the money you earn is going towards the necessary expenses of running your business, so what can you do to increase your hourly rate?
1. Review the past year’s work portfolio
Take a few moments to review the projects you did over the past year and the clients who ordered them. Find the projects that stand out, either because they were enjoyable and profitable or because they turned into a stressful and negative experience. Did you experiment with any new fields or techniques that seemed worth pursuing, and what was less enjoyable? All of this information is valuable for your marketing and for finding areas of specialization that you can develop further. Since vendors offering special expertise in a niche market typically command higher prices than generalists and can also advertise their services with greater distinction, you may want to consider setting the bar higher in a small number of specialized fields where you have experience.
2. Look at possible productivity increases
If you are worried that there isn’t a lot of margin for increasing your rates (because of competition or automation in your industry), it may be helpful to explore whether you are working with maximum efficiency so you can get more work done in less time. There may be digital shortcuts you can exploit or you may be able to improve your time management to cut out distractions. Discussion forums and networking groups can be a great place to find out more about potential computer solutions or learning how other people improve their productivity.
3. Announce price increases now
Haven’t increased your prices for a while? December is the perfect time tell your clients that your prices will increase as of January 1. (See theseexcellent tips by Lindsay van Thoen for more discussion on this issue). Whatever your philosophy on introducing the changes, there is no need to be apologetic or overly wordy in a politely phrased price adjustment notice (if in doubt, take a look at what your insurance company just sent).
4. Let go of clients
Your year-end review will also refresh memories of clients who were unreasonable, demanding or downright stingy. Now is a perfect time to send a courteous good-bye message to clients who are more focused on price than on the value of your work, who insist on pointless red tape, and who tend to come back with additional (unpaid) follow-up expectations. Letting them go will not only make your work experience less stressful, but will also open up capacities for developing new accounts that are more profitable and offer greater learning opportunities.
The work you did over the past year increased your experience and professional skill. Charging appropriately means it was also worth your time.
What are your best tips for increasing your freelance income?
I look forward to hear from you!
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