Freelance finance: how to make more money

A woman sitting with a laptop and calculator manages her freelance finance
(Image credit: Mapodile)

Being freelance has many advantages, but freelance finance can be stressful. It often means you need to be your own HR and accounting department, when you don't have a guaranteed fixed income each month, you need to be prepared for every eventuality.

Amid the current cost of living crisis and high inflation, freelance finance may seem even more daunting than before. But it can also have its advantages. After all, you control your prices and have some flexibility to react to changing costs.

You need to be highly organised, and it can help to find side projects to avoid relying on one client. You might also need to how to network. If you're looking to sell your work directly to customers, you might also want to see our piece on the best places to sell design.

Freelance finance tips 

We asked a range of creatives who've made the leap into freelance work for their ideas on how to make it work. Here's what they said.

01. Be prepared for freelance finance and set realistic expectations

When taking the leap into freelance work it's good to have at least a small cushion beneath you. Many recommend building up at least three (preferably six) months of living expenses prior to going freelance. Also, have a plan for what you'll do if things don't work out.

"You must think of your new business like a startup: savings are a 'runway' to transition you from the stability of a monthly salary," suggests lifestyle strategist and speaker Christopher Murphy.

"I told my wife we needed at least six months to discover whether my freelancing would work," recalls creative director, designer and developer Shane Mielke. "And if I wasn't successful, I'd immediately apply to whatever agency would have me, so we wouldn't cut deep into our savings."

While that might sound like a pessimistic foot to start on, Mielke thoroughly believes in the benefits freelancing brings. "I made a single tweet, received my first project, and haven't looked back since," he says. "Although people sometimes think freelancers sacrifice money for freedom, that's not necessarily the case – it can be very profitable and I've consistently made more money than when I worked as a salaried employee."

02. Try to get paid in stages

Mielke says that organisation is crucial, and many others who have dealt with freelance finance agree. Andy Budd, the founder of design consultancy Clearleft notes that a major challenge of freelancing is the uneven nature of income: "Even if you're lucky enough to immediately land a long-term contract, you'll probably work for a month before you can invoice. And many companies pay on 60- or 90-day cycles: miss a payment window and you'll have to wait until the next one." 

Even with smaller companies, you may find yourself chasing payments, hence why graphic and web designer Colm McCarthy recommends "mandating a 50-to-60 per cent deposit from new clients, with the remaining balance arriving in staged payments upon delivery of agreed work". Naturally, you'll want to get this written into a contract.

03. Manage your overheads

Income is at least broadly understood among most people considering freelancing. Outgoings… less so, and this is an increasingly challenging area when inflation is high. If you've previously worked in a salaried environment, it's easy not to worry about what things cost since you don't have to pay for your own tools and supplies. That's very different when you're working for yourself.

"You must track exactly what you need to be using in your business," recommends brand designer Rachel Shillcock. "I work with a lot of online tools and renewal bills quickly mount up. So I do an audit every quarter to ensure I cancel anything I'm not using."

Murphy notes that this should cover absolutely everything: "Software. Pens and paper. Sticky notes. It all needs accounting for. When you're salaried, someone else pays for these things. As a freelancer, you cover it yourself. So log receipts and at the year's end you'll know how much ancillaries are costing. This can then be factored into invoices."

04. Be ready for the tax man

Freelance finance: tax

Don't get caught out by unexpected tax demands (Image credit: Pexels/Acharaporn Kamornboonyarush)

Dealing with 'the man' may also be a shock to the system. "There's that fear of the unknown," says Mielke. "If you've never dealt with taxes, health insurance or forming an LLC, you can worry yourself to death and never make the move." He initially paid an accountant to navigate the process; on understanding about using a separate credit card to isolate expenses and setting aside money for tax and insurance, worries soon faded.

Health insurance in particular is a cost to be mindful of in the US. Mielke notes it initially "feels like a huge additional burden," until you realise it was previously "automatically deducted by your employer". Since it's part of running a business, you may be able to write it off. Also, be aware in regions with a national health service rather than mandated private insurance that you may still be liable for some costs (such as national insurance contributions in the UK). Again, consult an accountant if unsure.

One thing you can be sure about is tax. "It's almost always more than you'd expect, so don't get to the end of the year with a bill you can't pay," urges Budd. A smart idea, thinks Murphy, is to routinely set aside a percentage of income into a savings account. Budd advises this can also work in 'reverse': "Rather than seeing your income as a pool of money to dip into whenever you like, treat your bank account like a business and pay yourself a set monthly fee." This ensures you're covered for payments – and any troughs that come along.

05. Get the word out

The inconsistent nature of work can affect any business but will be especially stressful to a freelancer looking at gaps in a calendar. Ideally, you'll hit the ground running, winning jobs before leaving salaried employment. The trick, though, is to keep that ball rolling rather than forgetting about it when waist-deep in deadlines.

Too many people rely on recommendations and have no plan when the phone stops ringing

Paul Boag

Even having a shared office space can be helpful. "They're good value, sociable and a place to pick up work just by being there," says McCarthy. But direct action tends to be more fruitful. "You really need a proactive sales and marketing strategy," says digital strategy and user experience design expert Paul Boag. "Too many people rely on recommendations and have no plan when the phone stops ringing."

For Mielke, "fear is a great motivator" and this drives his marketing strategy of getting ahead and staying ahead. He does small things throughout the year to keep in clients' minds rather than waiting until things get slow. "I do this by continually striving to create high-level work that gets me noticed, submitting personal projects for awards, keeping my portfolio updated and maintaining real friendships with people I've worked with," he explains. 

"It's a constant hustle and the ebb and flow of projects is ultimately out of your control. But when you're an expert in your area and at the top of the list of people that do certain types of projects, you'll get first pick of what's available."

Shillcock admits this is something she's struggled with – not doing enough marketing during busy periods. "But you have to remind yourself during such times that you don't want to end up with a quiet season once it's all done," she says. Again, maintaining a financial reserve can help but she adds that it's often easier to retain clients than find new ones and so you should also consider introducing retainers. "This allows you to continue working on a long-term basis with clients once an initial project is finished," she says.

It's rare the work is done once the last of the code is compiled: there's a whole host of ongoing maintenance work that needs to be carried out that can add up to a very meaningful revenue stream. "You can sell maintenance packages to agency customers, thereby generating a recurring revenue stream," Fabio Torlini, SVP and MD EMEA of web hosting company WP Engine

"This will often include a hosting component but also assistance with plug-in updates, reports, responding to alerts and other tasks relating to operating a properly maintained website." This probably sounds like a lot of busywork. But although these things aren't wholly passive, they can be a win-win –high-margin for the freelancer and a weight off of a client's mind, knowing their site will be well looked after.

06. Take time off

Freelance finance: take time off

Even freelances need a holiday – but warn your clients (Image credit: Pexels/Pixabay)

No matter how carefully you plan your future workflow, you can't be active all the time and this means addressing time off – effectively a self-inflicted trough. We often hear of freelancers spending holidays bathed in the light of a screen. This isn't what you should aim for. 

"Taking time off isn't easy for freelancers but it is doable," says Boag. "Give clients as much notice as possible and remind them often. Also, realise you don't need to treat them all equally. When I go away, I disable email notifications and set an 'out of office' reply. But I tell my most important clients I've enabled notifications for their email addresses and will respond in a timely manner."

07. Diversify your freelance work

Another way to deal with troughs is to ensure you're not reliant on a single income stream. "Diversify your offering," says Boag. "I run a lot of training and offer consultancy alongside my UX design services. When one goes quiet, I push the others."

Effectively, focusing your energy in several different areas means it's easier to ensure you have some way of making hay while your other field lays fallow. "For years, I've told my students about the importance of developing a portfolio career," says Murphy. "I work half-time as a lecturer and half-time as a consultant. Those are two distinct income streams and they both help me to stay afloat."

Even taking work on piecemeal can help fill the gaps during quieter times. "Freelancing in-house for design studios has been a big win for me," says McCarthy. "I can help out when someone goes on leave and the pay is pretty good."

The key thing, says Mielke, is to challenge the notion that you should only be one thing. People within the industry have built up experience and skills in many areas and should use them. "Depending on the project, I work on UI design, front-end development, animation and even photography," he explains. "Sometimes I'm hired for one and other times for multiple skills and to handle an entire project. But my range of skills allows me to become involved in more projects, control my creative destiny, have more fun and ultimately make more money."

08. Develop sidelines

Freelance finance: develop your sidelines

Got some freelance wisdom to share? Why not write and self-publish a book (Image credit: Pexels/Pixabay)

And with time, many people find that this diversification can lead to very valuable additional revenue streams in their own right. For example, Mielke has written a book, the income from which is putting his daughters through college, and knows others in the industry who do very well selling things like illustrations, fonts, posters, stickers and all sorts of digital and physical products alongside client projects they're hired for (see our piece on how to make money as a creative for more).

This is an avenue Shillcock has found success in. One reason she went freelance was due to having a chronic illness that causes pain and fatigue. But she began overworking and running herself into the ground – to the point she burned out twice in two years and found herself hospitalised. She then began looking for alternative ways to make money online.

"Being freelance isn't always about trading time for money," she says. "Since those days of overwork, I've released online courses and self-published books and I'm currently creating digital products to make my branding methods more accessible to people that can't afford to work with me on a one-to-one basis." She has found this a rewarding and fun way of making money, which is why she urges talented designers to think more widely: "Write books! Create worksheets, online courses, apps and guides!"

Should you want a guide to doing so, Murphy recommends Rachel Andrew's 'Profitable Side Project Handbook', which is "filled with useful advice – and is itself a good example of a profitable side project".

However, while it's tempting to want to wear every hat you can get your hands on, it's worth remembering that launching a whole new side hustle can often take as much effort as launching your original career. "Everyone dreams of launching an app or selling a course but in truth it's a fantasy because you must still market the product and provide customer support, let alone develop it in the first place," offers Boag as a useful dose of reality. 

He reckons that unless you have the time to fully invest in such ventures, you're better off trying to push up the market and increasing rates as you go in order to ride out peaks and troughs. See our article on ways to make more money from design for even more ideas.

08. Get your freelance prices right

The bread and butter of freelance finance is getting your rates right. The general consensus is to price at what the market will absorb. If you find the local market has "low fee expectations", Budd recommends you look to build a more national and international audience.

When setting an initial baseline, Boag warns you should be mindful of various factors. "Too often people undercharge because they think they can charge out all of their time," he says. In truth, it's more like half when you consider weekends, public holidays and admin. And whatever rate you decide on should also be more guideline than fixed position. "If you're swamped, increase your rate," he says. "If you don't like the job, increase your price to a number that makes you willing to do it."

Experience should also be a factor, as should where you're expected to work. "I charge more for stressful projects that might need speciality work like immersive WebGL development or unique UI design than I do for basic front-end development or UX design," says Mielke. "If a project has an extreme deadline, needs me on-site or requires my exclusive attention, my prices increase."

09. Charge differently

But it's also worth considering moving away from traditional rates. "Charge by the hour and clients will try to beat you down, arguing different tasks will take less time," says Murphy. "To avoid a slippery slope of being paid less than I should be, I use a value-driven pricing model based on the client's budget and what they hope to achieve."

Shillcock has a more controversial take. "I believe in pricing on value, but know those I usually work with have very specific needs. So I've created packages to give them items I'm continually asked about." The notion of fixed pricing is anathema to some in the industry, but Shillcock says it's a good bet if you can make it work. "It made it so much easier for my ideal clients to get an idea of what I would charge, and increased my bookings."

Again, you'll want to retain some flexibility to be able to balance your freelance finances. Shillcock still offers custom pricing and retainers that don't fit into specific packages. But she doesn't regret 'packaging' work, nor think it devalues output. "If anything, it creates more value for people I want to work with and builds a huge amount of trust between myself and potential clients."

Whatever your approach, Torlini says the goal should always be to deliver value to customers. "Anchor pricing relative to the benefit you deliver and you can better position the value of your services, escape the trap of being treated like a commodity and earn the right to demand higher fees."

Offering value. Being creative. A decent income. That seems like the freelance dream right there. 

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Craig Grannell

Craig is an editor, writer and designer. He writes about design and tech, specialising in Mac, iPhone and iPad, and has written for Creative Bloq, Stuff, TechRadar, MacFormat, The Guardian, Retro Gamer and more. You can view more of his writing on his blog, Revert to Saved

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