As a freelancer, these are the costs your business will eventually have to cover in order to become sustainable:
- Taxes (state and federal)
- Office Space (somewhere to work that isn't your home)
- Commissions (paying agents a fee to help you find high-quality projects)
- Hiring Contractors (to help take on extra work when you can't handle it all)
- Travel & Transportation (transporting work to conventions, showcases, galleries)
- Hardware & Software (computer, tools of the trade, web services)
- Trade Assets (fonts, icons, stock photos/videos)
- Professional Development (online courses, conferences, meetups)
You may be wondering why things like professional development, hiring contractors, and office space are included. Are these really necessary to running a business?
While some of these aren't strictly necessary, they are all hallmarks of a healthy, adaptable, and growing business. If some of these items aren't among your current expenses, it's probably because you have yet to grow into them.
Here's a rough breakdown of how much revenue a freelance business might spend in each category (on average):
- 15% for state and federal taxes
- 10% for a coworking space and commissions fees
- 10% for hiring contractors and travel expenses
- 5% for hardware and software purchases
- 5% for trade assets and professional development
So, before you take a salary (that you can use to pay for the essentials like rent, utilities, and food), somewhere around 45% of your revenue will probably be going towards payment for these expenses.
If this percentage seems high—don't worry. You don't need to start out the gate with these expenses. You won't need many of them if you're only taking on a few projects a month. Your expenses will grow along with your business as you take on more clients.
Also, this example is just an illustration of the types of expense you may encounter and your specific case will most likely be different. However, the point is that you need to be aware that earning profit from being a freelancer means preparing for all costs associated with being a freelancer.
Don't Forget Your Time is Money
Expenses aren't the only costs of running a business. As a freelancer with a sustainable business, you'll be spending significant time on key business activities:
- Outreach (advertising, sales, marketing, and market research)
- Web Presence (updating your website and keeping up with social media)
- Dry spells (time spent looking for new projects)
You don't get paid for doing these things (unfortunately), but each of them helps you build relationships with your clients and start making a name for yourself in your industry. If you want to attract the best type of work and work on interesting projects, all of these activities are necessary.
In the midst of working on projects for clients, you'll also be investing about 40% of your time trying to find the next project to work on and building your brand. Here's a rough breakdown of how much time a freelancer like you might spend on these activities:
- 20% reaching out to new clients
- 10% creating and updating your website and social media profiles
- 10% actively looking for, and sometimes not finding, new projects
All of the time you spend doing this kind of research, business development, and outreach is well spent, even if it only helps you get one or two good clients. Consider the potential of one good project. The relationship you cultivate with a single client can lead to dozens of referrals. Soon hundreds of people might be talking about you and your work. That time you invested into finding one great client can lead to hundreds of projects.
There are so many instances in which a chunk of time spent upfront can save you lots of time and effort down the road. For example, let's say you invest a couple days into creating a page on your website that explains your passion for illustrating children's books. All of a sudden, you look twice as appealing to children's books authors than you did before and you're much more likely to get that type of work.
Cultivating client relationships and building your brand are essential to any freelancer, but it is critical to factor this time into the cost of running your business.