Ask a.k.a: you hold your financial reins

What is the one thing you know now that you wish you knew when you started your freelance copywriting business? – Kim S.

My answer to this question is something I did already know, but it can’t be emphasized enough. You should diversify your income as much as you can. I use a 30% guideline to help me do this. Here are two tales as to why:

  1. I worked for a small company “XAY” (not its real name) for a few years and shortly before I left, one client was providing about 75% of the company’s revenue. When that client moved its business to another firm, XAY scrambled to keep the lights on, but they couldn’t get new clients fast enough. Within a few months, XAY closed for good.
  2. This past fall, I allotted about 115% of my time to one client, thinking that it was okay because it was their new brand launch and it was a finite time. Plus, at the time, it seemed like the only way to keep my sanity. Unfortunately, they didn’t pay me on time. Although it had never happened before, they paid several very large invoices 60 days late, which meant I was broke and stressed out at the holidays. It was my mistake—and one I don’t intend to make again.

I’m not saying that you can’t have regular clients or a retainer with one client. It’s dangerous when you let your business—and your financial health—be tied to one source of income. In fact, I still work with the client who paid me late, though we now have agreements that projects stop when invoices aren’t paid on time. 

Several of the larger companies I’ve worked with have supplier contracts stating that the company can’t account for more than 30% of the contractor’s sales. Some may even reserve the right to ask for sales reports as proof (I haven’t signed off on such a request, but I’ve seen it in contract templates). These big companies are protecting themselves, but freelancers can use this as a valuable planning tool.

I use this 30% guideline as much as possible. While one project may need more of my time, I try to make sure I also have several smaller deliverables for other clients. I also always ask for deposits from new clients and, occasionally, I’ll negotiate a deposit with a current client if the project is especially big. I’m still learning balance. One month this spring, I booked almost double the hours I should have because I was trying to keep one client from dominating my time. In retrospect, I should have tried to space out the project timelines better.

Okay, that’s my soapbox. Readers, what about you? What do you know now that you wish you’d known when you started freelancing? What tips for diversifying income and managing clients have you earned through tough lessons? Please share in the comments. (To post a comment, you’ll have to click on the title of the post and then you’ll get a screen with just that post and a comment box.)

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One thought on “Ask a.k.a: you hold your financial reins

  1. I completely agree with you. I have three additions.

    1. Make sure you see the contract before you agree to do the work. I agreed to a work for hire arrangement with a national luxury brand, and negotiated price based on volume. But, after submitting a large chunk of work plus my invoice and tax documents, they changed the rules. I found in order to get paid, I had to register with a temp agency and submit to drug testing. I found this insulting. Despite record open rates and returns for my call to action, benefits driven writing, I couldn’t even enter the work for awards as a direct effect of the way I was paid.
    2. If you’re a conservative pricer, add 20-30% margins to what you already charge. Most freelancers undercharge, and feel guilty about asking for more. The truth is clients perceive the ability to charge more means you are better at what you do than the next guy. By the time you figure in 40% in taxes, and 35% in overhead, that leaves you about 25% to live. There’s a difference between $35 an hour and $65 or $100 an hour which determines not only if you can afford to eat, but how well.
    3. Be willing to repackage what you do in order to diversify income sources. I noticed when working with new clients I was spending an inordinate amount of time teaching them what they needed to know in order to make decisions about what they wanted me to do. I changed my business model, narrowed my niche, did a lot of research, and branded a new aspect to my business, adding specialized business coaching to the mix. Now, I get to charge money for all that work I was giving away for free. My clients are prequalified, I get paid at least 50% in advance, and they’re a good fit for the work I offer.
    Still loving what you do. Thanks for letting me weigh in, J.

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