This article was originally posted on LinkedIn.
As a freelancer and small business owner, I agree with Tim Ferriss, author of “The 4-Hour Workweek” and “Tools Of Titans.” New Year’s resolutions are a complete waste of time. As a freelancer and business owner, I’ve been doing an end of year review, for more than 25 years. But recently, I’ve altered my review process to accommodate all the freelance work I’ve been doing. I now complete an Annual Freelance Review.
To find out if you’re on the right track with career and monetary goals, it’s important to look back over the past year and analyze where you really made your money and spent your time, as a freelancer. Annual Freelance Reviews make goal setting a breeze and help you uncover the most profitable sources and types of business.
The Tip of the Freelancing Iceberg: Referral Sources and Business Category
I must admit, I’m one of those spreadsheet geeks, so I start an annual freelance review by opening up Excel. You can also use Google Sheets, if you prefer. I find this exercise takes between one and two hours, depending on how detailed you get with your information gathering and how many contracts you’ve worked on.
I start by reviewing each contract from the previous year. I record in my spreadsheet how much money I made from individual clients and the source of the lead or referral. It’s important to keep track of your referral sources. Record where every client came from, even if it’s “word of mouth.”
You can add another level of detail by recording what category of business each contract falls into. For me, I have pay-per-click contracts, SEO contracts, website projects, consulting gigs, speaking gigs, etc. If you only do one thing, you can skip this part.
Now add up the totals of your contracts by the referral source. This is going to tell you the most important referrer to your business in actual dollars and cents. Then add up the totals of your contracts by the category of business they fall into. This is going to tell you what type of work added the most money to your bottom line.
Don’t stop there or you might not uncover the true value of this exercise. The referral source that brought you the most business in the past twelve months, might not be where you want to focus the majority of your attention in the upcoming year. Stick with me.
Getting Down To The Nitty Gritty: How Many Proposals Do You Need to Send Out?
The next thing I do is review how many proposals I submitted to prospects by each referral source. If you’re working through online sites like Upwork, you can pull a report to see how many proposals you submitted in the past twelve months. The proposals I write outside of the online freelancing sites, I save to one folder on my computer, identified by the year. That makes it easy to go back and count how many proposals I sent to prospects. If you want to add another level of detail, include the referral source in the name of the file. That makes the year end review process a breeze.
Now add up the totals. Maybe you sent 300 proposals through Upwork, 400 proposals through Freelancer, and 75 proposals to prospects that were recommended by colleagues.
Here’s the lightbulb moment. Divide the number of clients you gained from each referral source by the number of proposals you sent and multiply the outcome by 100. This will give you a percentage known as your close rate or conversion rate.
Your close rate will uncover what referral sources are most valuable to your business. If you’re closing 10% of the proposals you submit to Upwork but only 2% of the proposals you submit to Freelancer, then you might want to spend more time in the Upwork system.
I found that proposals submitted to prospects that had been recommended by colleagues or I had met in person, had a close rate three times higher than Upwork and LinkedIn Pro. This was no great surprise. What did surprise me were the proposals I was submitting through Upwork converted 1.5 times more frequently than proposals I submitted through LinkedIn Pro.
If you would have asked me a month ago which one I thought would convert more business, I would have guessed LinkedIn Pro. I would have been wrong. Data doesn’t lie. It has no preconceived notions. It makes no emotional decisions. That’s why this exercise is so important.
Don’t Forget To Consider Your Cost of Doing Business
Nothing is better than having a prospect appear out of nowhere and come knocking on your door. For all the leads you get from the various online freelancing sites and business matching services, don’t forget that there is a cost associated to these leads and customers.
Upwork, Freelancer, Thumbtack, LinkedIn Pro, and Guru, among many others, all have fees and/or monthly charges. Which one is taking the biggest bite out of your take home pay? Include a column in your spreadsheet to show what each referral source cost you in fees last year.
Are Some Contracts Larger Than Others?
Take a hard look at your average contract size. I found that LinkedIn Pro contracts, for the types of online marketing work I do, were 2.5 times the size of the contracts that I was getting from Upwork. Even though my conversion rate was higher on Upwork, LinkedIn Pro only cost me $60 a month, where Upwork was taking 10-20% of every contract. All important considerations to help me decide where I want to spend my time, and my money, in the upcoming year.
Setting and Meeting Financial Goals As A Freelancer
Another way to use the information from an Annual Freelance Review is helping you figure out how to meet your financial goals. Regardless of whether you’re a part-time or full-time freelancer, you should have a goal that is established, is written down, and that you consciously work towards every day. No one wants to be hungry or live in their car. You also don’t want to discover 29 days too late that you aren’t going to be able to pay your rent or your mortgage. An annual financial goal and monthly goals will help to keep you on track.
A good place to start to help you figure out this number is to add up all your personal expenses. Then add up all your business expenses. Don’t forget costs of doing business, like internet connections, software tools, your mobile phone and your computer. What do you spend to produce your client’s work? Add up all those expenses too. This will give you a number to shoot towards.
Let’s say you want to gross $100,000 in the upcoming year. All you have to do is work backwards to develop a realistic plan for the next twelve months.
A Bit Of Math To Help You Keep On Track
Your Annual Freelance Review uncovered your conversion rate and your average contract size. From here, you can easily figure out how many proposals you need to send out each month to meet your financial goals. It’s a heck of a lot easier to meet your goals, when you know exactly what you’re striving to achieve. Here’s the formula:
Don’t let a daunting number of proposals discourage you. Break it down into bitesize chunks. If you need to send out 120 proposals in the upcoming year, that’s 10 a month or 2-3 a week. You can do 2 or 3 a week! Make it a priority! Block off time each day to look for potential jobs and get those proposals out.
I find that keeping a visual scoreboard in my office of the number of proposals I’ve sent out and the number of contracts I’ve won, helps to keep me on track and to meet the goals I’ve set. I have a whiteboard that hangs on the wall, that I can see all the time, plus I keep more detailed records in my spreadsheet.
If you need an extra push to keep your proposal writing momentum up, take your gross sales from last year divided by the number of proposals you sent, to establish a monetary value for each proposal sent. That can give you a little added encouragement when you’re just not in the mood to send out one more quote. When you realize that each proposal you’re sending equates to $100 or $200 or more, it can help keep your momentum going throughout the month.
What a 1% Boost Can Do!
Wouldn’t it be great to close more business without doing more work? That’s what can happen if you increase your conversion rate. Even a one or two percent increase can have a huge impact on how much business you bring in. Ask yourself these questions to help uncover ways to increase your conversion rate:
- Would adding an additional service for the same price help?
- Would providing a testimonial or two from a satisfied client give your prospect the confidence in you as a contractor?
- Would offering a money back guarantee help seal more contracts?
- Would offering to do a small “trial” contract or project help you to get the big one?
Don’t automatically slash your prices. Your work is valuable and you need to be paid a fair wage.
Do You Love What You Do?
Have you checked in with yourself lately to take a happiness inventory? Are you enjoying what you’re doing? This is an important part of freelancing and life in general, so if this hasn’t been something you’ve considered, make it part of your Annual Freelance Review. Ask yourself what type of work, contracts, and clients you enjoyed in the past year and which ones were a pain in your butt. We’ve all had those clients that make us want to quit what we’re doing and just weep in the corner, but is there a correlation between the business that you loathed and the business that you loved? Really put some thought into this one.
I’ve had areas of my business, that for whatever reason, brought out the worst clients. I hated doing these jobs and knew when I was waking up each morning with a sick feeling in my stomach, that I needed to delete this business category from my offering.
If you’re just starting out, you may have to take on contracts and clients that you’d really rather not, but in the long run, no one wants to be miserable in the work they’re doing. That’s one of the reasons that we’re all freelancing. Right? To do the work we love to do and to pick the clients that we want to work with.
Use this review process to make sure that you’re enjoying your work. If you’re not, consider getting rid of the business category that is causing you pain and unhappiness.
Was That Time Well Spent?
There is one last consideration in the Annual Freelance Review. What contracts and clients are sucking too much time and energy from your schedule? If you keep track of the time it takes you to produce and work on each contract that you have, you can add that hourly number into another column on your spreadsheet. Divide the number of hours by the amount of money you made to uncover what your true hourly rate is. Hopefully you’ll be delighted and not disappointed.
Look at your real hourly rate across different business categories and referral sources. You’ll discover your most profitable source of business and where it’s coming from. Plus, this will point you in the direction of where you really want to be spending your time in the upcoming year.
If you haven’t kept detailed time logs on each contract, that’s a great goal for the year going forward. It will really help you evaluate where you should be spending your time and what you should be charging.
A Sample Spreadsheet To Get You Started
As an added bonus, I’ve put together a sample spreadsheet in a Google Sheet that you can download and start using today for free. It has the formulas I’ve discussed in this article built in. Just add your numbers and information to start analyzing your progress.
Consider keeping track of your contract and proposal information throughout the entire year so you can have an accurate record of your progress. You may even want to start doing a mini monthly review, every thirty days, to see where you stand. If you’re meeting your goals, you might be able to ease off the number of proposals you’re sending out each month. If you’re falling behind your goals, you’ll know to ramp it up.
Now you’ve got a game plan for an annual review and a monthly review that will help you get your freelancing business on track for the new year. If you’ve got a process or procedure you use at year’s end to help meet your goals, share it below.