How a Freelancer Can Strategically Grow to be a Small Business Owner
Freelancers have been in the marketplace for well over 20 years. However, freelancers have exploded in the global market in the last ten years. They became much more sought after, during Covid in 2020 and since. In this article, we will examine the state of freelancers and how they can grow from being freelancers into small business owners.
DEFINING A FREELANCER:
Let’s first define the term freelancer. What is a freelancer?
According to Cornell Law School, a freelancer is…
“not an employee for any organization and is essentially an independent contractor who
gets paid on a per-job basis. Unlike an employee, a freelancer has the freedom to
complete different jobs simultaneously given there is no exclusive contract between the freelancer and the client. A freelancer is still required to pay income taxes and the self-employment tax mandated by the Internal Revenue Service (IRS). A freelancer enjoys the benefits of working at home, having flexible hours, and choosing projects that interest them. However, freelancers do not enjoy the benefits of working for an employer which includes insurance and retirement plans”
[tax information is based on U.S. laws]
VIRTUAL SERVICES PROVIDED:
There are numerous virtual services freelancers provide to business owners. They help several industries today by providing virtual services such as:
● Consulting
● Content marketing
● Copywriting services
● Email marketing
● Graphic design
● Online business management
● Online event management
● Virtual assistant services
● Writing services
They provide multiple other virtual services as well to coaches, speakers, real estate, insurance agents, and other industries.
FINDING CLIENTS
Freelancers had been on their own in locating and landing clients in the past. However, platforms such as Upwork, Freelancer, and Fiver, are only a few of the platforms where they can now reach potential clients directly.
Some freelancers choose to attract clients by building a website, writing SEO-friendly blogs, and presenting themselves in social media posts. This type of marketing can take 15 months to 3 years to get the desired results in traffic from their audience to attract potential clients.
IS THE MARKET BIG ENOUGH
You may wonder if the market is big enough for all of the freelancers who have entered the global marketplace.
What is the global market size of freelancers?
“The global freelance market was valued at approximately $1 trillion in 2023, and it is projected to reach $1.5 trillion by 2026. This growth underscores the increasing economic impact of freelancing on the global economy.” -Rosanna Webb
HOW DID THE LATEST TREND BEGIN
As you can see, freelancing is here to stay, at least for the foreseeable future. In the mass job exodus* of 2020 (called The Great Resignation in the U.S.), because so many lost their jobs they decided to become online freelancers. Others, however, wanted to find the freedom of working from home and being their own boss.
*”In March and April 2020, a record 13.0 and 9.3 million workers (8.6% and 7.2%) were laid off, and the quit rate subsequently fell to a seven-year low of 1.6%.”-EPI
“There were some new data from the Labor Department last week: The number of people voluntarily quitting their jobs increased by 344,000 to 2.9 million in July.” -Marketplace.org
(All are based on the data from the United States)
Even after the slow return to work in 2021 & 2022, many decided to continue their adventure into freelance work.
LIMITATIONS ON GROWTH FOR A FREELANCER
As many freelancers became busier because of increased trust within the marketplace, however, they still struggled to find solutions to grow their business. They found they experienced numerous trials.
Trial Freelancers Face:
Although they were their own boss and enjoyed some flexibility and freedom they seemed to find themselves with trials all the same.
Some of the trials freelancers face:
● Feeling overwhelmed & overworked
● Frustrated
● Family complain they work too many hours
● Hitting a revenue wall
● Maxed out
● No time with family or friends
● Unable to accept new clients
● Unprepared for the backend work needed
● Need Help in their backend office
● Need Help with client work
As many never owned a business previously they are slowly coming around to the idea that they need help. Most of these concerns can be addressed by hiring or subcontracting others to help them.
WHY FREELANCERS HIT A REVENUE CEILING:
Many freelancers can find plenty of work but cannot get past a revenue ceiling.
Why Freelancers Hit a Revenue Ceiling:
1. Limited Billable Hours – You can only work so many billable hours in a day while providing quality services (often 30-35 billable hours per week).
2. Revenue Tied to Hours Worked – Income is restricted by their hourly rate multiplied by the maximum number of hours they can work each week (or the package price multiplied by the maximum number of clients one person can handle alone.
3. Hidden Business Expenses – There are many expenses that freelancers (as they transition into business owners) forget to take into account. Some of these expenses include marketing, administrative tasks they outsource, as well as client software that is needed to maintain superior client relationships and tasks.
Ultimately, freelancers cannot go beyond a certain number of billable hours or a maximum number of clients.
Real Example of Revenue Ceiling:
An example of a freelance virtual assistant who is maxed out working between
30 billable hours each week because the rest of their time is spent answering emails,
marketing their services, and other backend tasks in between client work.
If that assistant charges $35 per hour and works 30 billable hours, their revenue is
$1,050 for the week. This freelancer will have a revenue of $54,600 yearly.
The VA freelancer example shows that they cannot make more than this revenue
amount. If they cannot accept any new clients and they are already frustrated and
actually working 35 – 40 hours per week, they will not be satisfied. Not to mention that
their own income will be significantly less after taxes and expenses.
What can they do? There are only a few ways a freelancer like this can grow into that small business.
FREELANCER UNSUSTAINABLE GROWTH STRATEGIES
There are three unsustainable ways many freelancers try to grow their businesses.
These three unsustainable growth strategies are:
1. Increase pricing
2. Take on more clients (over their limit)
3. Work more than the 30-35 billable hours (which means they actually work approximately 40-60 hours each week).
The last two strategies are the worst. Increasing their pricing can work for a short period but it also involves the risk of losing clients and they cannot maintain their growth from freelancer into business owner.
If they became a freelancer due to a change in employment and are enjoying the many freedoms that come with it they will not want to go back to an employer working working more hours and probably making less money than as a freelancer.
What other alternative growth strategy can a freelancer try?
SUSTAINABLE STRATEGY FOR GROWTH FROM FREELANCER TO BUSINESS OWNER
The most effective way for you to grow strategically from freelancer to business owner is to bring on team members. These are freelancers who have the skills to work with their clients.
They are not employees, but rather subcontractors.
Adding subcontracted team members should multiply their revenue by the number of team members they add to their business less the amount you pay each team member, of course.
A Sustainable Example
(as long as they continue to attract clients successfully):
- Using the previous example of 30 hours and the same hourly rate of $35 per hour.
- If we add 3 team members (assuming they have plenty of clients waiting to
onboard) will help them generate $163,800 in revenue ($54,600 x 3).
[Keeping in mind that you will pay these freelance subcontractors* a percentage of the billed client hours.]
- If you add three team members the company revenue will triple. This is only the gross
revenue and does not take into account what they pay their team members or the other
expenses in the business.
- Your income will be less after expenses including paying the new team. I suggest paying a percentage rather than an hourly rate.
- Everyone works at a different speed and this ensures you and the team members
earn fairly. In general, the team member is paid 50% up to 75%.
- As much as they may want to be generous to the team they must remember that as the
boss now you must also leave enough to take out other expenses and pay yourself.
- Although the gross revenue will grow exponentially related to the number of
subcontractors, it only increases the new business owners’ income slightly. They must
continue to increase the team to raise the company’s revenue and the business owner’s
Income.
MY LESSON LEARNED
I made the mistake of paying too large of a percentage to my team when I owned a boutique digital marketing agency. I felt they did all the client work so paid they too high a percentage. I did not take into account all the work I was doing within the business including marketing, being the face of the business, monthly strategy calls with our clients, not to mention managing everyone.
By the time I took out expenses, every member of my subcontracted team made much more income than I did. I had many more responsibilities than my team and was barely earning enough to pay myself. I had to rethink my growth strategy.
Let’s not get ahead of ourselves, however, because adding too many team members at once can have the opposite effect you are striving for in building your business.
BIO & PHOTO OF AUTHOR:
Tammy S. Durden is a Thought Leader, Speaker, and Business Coach. Tammy owns Fearless Business Boss, a business coaching company where she helps women online service providers grow a business to fit their lifestyle not squeeze a life around their business. Tammy helps them earn more and work less.
Tammy has established herself as an Authority Figure in the online service industry, being called the “Godmother to Freelancers” (or virtual assistants). Her leadership is evident through her coaching, speaking, and teaching her audiences.
Tammy started her business over sixteen years ago because she could no longer work outside the home due to a disability (MS & Lupus) and she wanted to add to the family income while still homeschooling her three children. She created a VA Agency and went on to create a Boutique Digital Marketing Agency while coaching, mentoring, and teaching online.
- 📌Visit Tammy S. Durden 👉– LinkedIn Profile
- 🌐Visit Fearless Business Boss 👉– Company Website
