This is the third of a four part series where we explain the science of determining your freelance rates. Today’s post will cover ways of measuring your progress so you are reaching your income goals.
By knowing your desired yearly income, hourly rate and billable hours you plan on working in a year, you still are not guaranteed of knowing if you are on track unless you start crunching numbers and evaluate what you are doing. This way you can make adjustments if you are not meeting your income goals (likely) or you know you’re right on track if you are meeting them (not quite as likely).
Tracking time and income
All of the previous steps are useless if you do not take the time to track your time and income. In order to know if you are meeting your income goals, accurate records must be kept. For time tracking you need to keep track of all time spent working which can be broken down as follows:
1. Admin Tasks: Non-blillable tasks related to your business such as emailing, invoicing and customer support.
2. Promotion: Non-billable time you spend promoting your freelance business.
3. Client Searching: Hitting the job boards and sending out estimates that is preferably done on non-billable time you allocate yourself. You generally have to dip into the billable hours here.
4. Your Work: The billable time that generates your income. The time you spend on each project should also be tracked to see if you are on track with your project estimates.
A good web-based software that I highly recommend and use is Paymo Timetracker which is free of charge.
You must also keep track of all the income you receive and every last cent you spend, whether personal or business, so you know if you are in par with your budgeted expenses and your yearly income goal. Although it is recommended you utilize an accountant, this can add additional expense, though it does tend to pay itself back relieving you of this time spent on crunching numbers (and headaches).
If you do decide to go the do-it-yourself route, I recommend Quickbooks which has a free edition available. It does require some learning and getting use to, but it accurately (and least painfully) accomplishes your accounting chores.
Evaluating your results
After a few projects under your belt, a little income in the bank account and your freelance business rolling, an evaluation should be done to determine if you are on track with your income goals. We’ll need to have handy the following:
1. Your hourly rate, calculated from the last post
2. Your calculated billable hours for the year divided by 12 to get billable hours for the month
3. Your income for the current month (do not deduct expenses)
Each month, take the income total and divide it by your monthly billable hours to get your average rate for the month. Compare this result to your hourly rate.
Is the average rate for the month about the same or higher than your hourly rate? If so, congratulations, you are right on par with your business. Keep doing what you are doing.
Is the average rate for the month significantly lower than your hourly rate? Then there is no need to panic. It is common for new freelancers to spend more time searching for clients and bidding on projects. Even for freelance veterans, there will always be some months where this is the case, too. It is important, however, that you make sure you are taking steps to increase your billable hours spent on projects so this doesn’t carry on month to month.
Eventually, with enough projects done, you will notice that repeat work will increase which will enable you to spend much less billable time on searching for new work. This comes with experience.
How about a little feedback?
I know these series of posts has covered quite a lot of info and there may be some questions still lingering, so I encourage you to post your questions or comments below. I’ll answer them and will likely have a new post for you for issues I didn’t cover here.