At the end of the month when all the work is done the only thing that counts is the money in your pocket. It may sound drastic, but it's the truth. You can be proud of your work, be passionate about your design and network with designers all over the work - but without the money you won't last long. The worst thing I've seen are designers with plenty of work but no money on their bank account. How can this happen? I will show you a few examples.
Where is the hole in your pocket?
If you have plenty of work, but you are always close to be broke, than there are a few possibilities why this happens. Let's name a few:
- Your clients don't pay you
- You are too cheap
- You are too slow
- Your fix costs are to high
- You spend your money already and now you have tax debts
They seem so simple, but yet we don't realize how in sum they really bust your budget. Having no project tracking is the main cause why we don't realize where the money goes. The other main cause is our own discipline. I want to focus on "you are too cheap" and "you are too slow", but let me just say a few words about the other points.
About 1) - If you clients don't pay and you issued a regular invoice you have some options. Actually there are many but one of the easiest is too just call them up - you are a serious business person, so they have to respect you. About 4) - Fix costs are normally for a graphic designer no big issue, but I've seen that especially "fresh" freelancers always have the newest laptop (obviously a Mac), the fanciest office and cell phone, a new car (you know you can detract the car from the taxes), etc. Come on, do you really need this whole stuff even before you make real money? Calm down, stay humble. About 5) - In one sentence: The money you earn is only half yours! Don't spend until you pay the taxes.
Easy calculation to fix your pocket
We presented last week a simple spreadsheet to track your jobs. Using this spreadsheet is only a basic step, but an important one. It helps you with two simple figures to tell you if you are too slow or too cheap, or both.
First you have to setup your income goal and the hours you expect to work every day. The spreadsheet will now automatically give you an approximation of how much you must charge per hour to reach your goal. In this approximation is included a 50% tax fee. Your actual taxes might not be so high and no fix costs are added, but it gives you a hint where you are going.
After you have concluded the setup you have to track your jobs. The most important part here is entering correctly the hours. Be honest to yourself and enter every half hour you spend on the project. Count the meetings as well and commuting - this is time you are spending on this project and you could otherwise work on other projects. You may wonder how much time you effectively spend.
After the first month you can analyze your collected data. In the image I added a column with the amount charged to the client. This way you can see immediately if a project wasn't covering your expenses. As long as you estimated cost is much below the amount you charged everything is going well - of course expecting, that you have enough turnaround to generate your prospected income. But what if your "costs" are higher than your invoices. The two scenarios here are:
You are too cheap
This seems so simple and sometimes is abused as an excuse to raise the fees in unexpected heights. You are only too cheap if your fees are much lower than the average market and you are below your estimated costs. In other words you are cutting your profits without need. If you are a average graphic designer you can charge average fees. If you are a good graphic designer than you can even charge more than average. Your price depends on the quality of your work. Don't be too humble, but don't get greedy.
You are too slow
If you charge the typical market fees for your service and you still see your cost balance not in your favor then it's time for you to hurry up. Spending too much time on a project doesn't improve it as much as you might think. Analyze close where you are losing the most time. Is it in meetings with your client, commuting to your client, doing research, the creative part, the correction cycle. Make a spreadsheet with all the phases of the project and write down the hours you spend. Fix the problem zones by cutting them out, training your skills or charging extra fees for extra work. You will see that it's not that you are really slow, it's just that there are unnecessary time consuming steps to avoid and unless you write them down they will blur in the daily routine and you will not see them. Don't forget, every hour you gain is free for another project or getting new customers.
Using some simple tracking tools you can easily identify important figures to your business. Expand your spreadsheet too your needs to get more accurate data and use it to improve your performance. And as a final tip: include your "internal" projects as well in the tracking - is good practice and you find out if you are working more for you or your clients.