Freelancing

What is freelancing and how does it work?

Freelancing is when a self-employed person offers paid services to their clients. Freelancers work for themselves and contract out their services to one or more clients.

There are now more than 57 million freelancers in the U.S. – that’s 35% of the U.S. workforce. And in 2019, freelancing income nearly totaled $1 trillion, which is almost 5% of the GDP.

Some of those 57 million freelancers freelance full time, similar to someone working a traditional 40-hour workweek. Others freelance as a side hustle in their spare time so they can bring in a little extra cash.

The ability to freelance as either a full-time job or side hustle is one of the reasons so many more people are freelancing– it’s inherently flexible and opens up a lot of opportunities.

You can make a full-time income as a freelancer or do it to relieve some financial stress, pay down debt, save for retirement, or just have a little extra spending money each month.

Some freelancers work independently, meaning there’s no middleman between the freelancer and the client. They communicate directly with their clients about the scope of their work, payments, and schedule. When the job is finished, the client pays the freelancer directly.

Other freelancers find work through third-party job sites or temp agencies like Upwork, Freelancer, Guru, or Fiverr. These third parties often take a cut of the pay because they help find work, communicate, and manage payments.

Freelancing is also known as

There are a lot of different terms to define freelance work. It can get a little confusing if you’re not familiar with the language.

• 1099 employee/job: This comes from the tax form, a 1099-MISC, that most freelancers have to fill out at tax time.
• Independent contractor: This is how the IRS classifies freelance work. It’s the most formal or official way to say freelancer.
• Contract work/job: You enter into a contract to provide work for your client for a certain period of time.
• Contract-to-hire: There’s a potential for the freelance job to become a full-time position at the end of the contract period.

You’re seeing a lot of “contract” or “contractor” in those terms, and that’s important to remember. Freelancers enter into a contractual agreement to fulfill a job, and the client is contractually obligated to pay for it.

What type of work do freelancers do?

A couple of decades ago, most of the freelance work available was for art and design jobs, like photography, writing, graphic design, illustration, and more. Now, skilled services in marketing, IT, and business consulting make up 45% of the freelance workforce.

Here’s a list of the most common freelance work:

• Web development and design
• Teaching and tutoring
• Freelance writing
• Digital marketing
• Graphic design
• Mobile app development
• Search engine optimization or SEO, SEM (search engine marketing)
• Branding and PR
• Administrative support/virtual assistance
• Bookkeeping and accounting
• 3D modeling and CAD
• Translation
• Medical transcription
• Web research
• Legal services – consultants, paralegals, legal transcription
• Photography
• Customer service
• Social media manager
• Project management
• Audio production/design
• Data entry
• Human resource management

The freelance jobs in these fields aren’t just entry-level – according to that same Upwork study, 64% of freelancers say that the top professionals in their field are now choosing to work independently as freelancers.

Pros of freelancing

One of the reasons that freelance work is growing so quickly is that big companies are outsourcing work to independent contractors instead of keeping that work in-house. At the same time, there are some major benefits to freelancing, which is why more and more people are choosing it as a long-term option.

The hours are flexible as heck.

Being able to set your own hours is major. You’re not tied to normal 9-5 hours, but you can work those 9-5 hours if you want.

This is one of the reasons I started freelancing. I was in college full time and raising three kids, so freelancing as a side hustle made much more sense than a traditional part-time job. I could work after my kids went to bed, on the weekends, or if I had a spare hour or two during the day.

Now that I’m a full-time freelancer, I hold normal business hours because it makes sense for me. Either way, the hours I work are my choice.

You work where you want.

This isn’t true for 100% of freelancers – some may have to go into a physical location to work. But for those freelancers who work remotely, you can do it pretty much anywhere there’s a decent internet connection.

It’s incredibly inexpensive to start freelancing.

If you have a marketable skill, then you can freelance. It can be something related to your educational background, previous work experience, or a skill you’ve learned online – not all freelance jobs require a college degree.

There’s an increased demand for freelance work.

More and more big companies have started scaling back their teams because it’s cheaper to hire freelancers. You can still make a good living and earn what you’re worth, but it’s less expensive because employers aren’t required to offer benefits that come with traditional full-time jobs. Yes, there’s a downside to this, which I’ll explain in a second.

Freelancing is a scalable business model.

As long as the work is available, you can scale up your income. This is a major benefit if your monthly budget is tight and you can fit in some extra hours. But you can also scale back if things come up.

You can set your own pay.

One of the hardest things that new freelancers face is how to charge for their services. But the reality is that if you are confident in your skills and provide quality work, you can be compensated for what you’re worth.

Cons of freelancing

What does freelance work mean in terms of the negatives? Well, it’s complicated because many of the positives I covered have a flipside. Let me explain…

The work isn’t always consistent.

If you’re lucky, you find yourself with a long-term freelance client who has steady work for you. However, most freelancers go through dry periods when there’s not much work coming in. Or, you go through really busy periods where it’s hard to find any downtime.

This is the balance all freelancers face: working enough to prepare themselves for the down periods.

One of the best ways to find consistent work is to build strong relationships with your clients. Always deliver quality work and be willing to learn new skills to stay fresh and up-to-date.

You may struggle to find a happy work/life balance.

With flexible hours and the ability to work wherever you want, it’s really easy to keep working when you really should shut down your computer and turn in for the night. And because you know work isn’t always steady, you’re busting your butt to work when you can so you have a solid savings fund.

You’re responsible for your taxes, insurance, retirement, etc.

Employer benefits and tax contributions are non-existent in the freelance world. You have to withhold employer and employee taxes, usually around 30% of your take-home pay. You also have to find health insurance and set up your own retirement savings.

Finding an accountant to help you navigate tax time is a huge help, and there are now retirement programs set up specifically for freelancers, like a Solo 401(k) or SEP IRA. But the point is the same: you’re on the hook for figuring this out.

You will have to learn how to run a business.

This means learning the ins and outs of building and maintaining a website, networking, managing billing and invoicing, setting your hours, marketing your services, etc. Those are all things that are part of running a business, and there’s a steep learning curve for some people.

Fortunately, there are lots of resources online that explain best practices and how to get started. I also recommend spending a couple of hours every week maintaining your business (or learning how to do it). It’s not time you can bill for, but it helps you run a more successful and profitable business in the long term.

Not all clients are made equal.

Occasionally you’ll have a client who’s unhappy with your work. There’s inevitably one that takes forever to pay. And some clients are just difficult to work with.

We’ve all been there, and you have to remember that there are more good clients in the world than bad ones.

It can take time to grow your freelance business.

Most businesses aren’t an overnight success, and that’s true even if you’re a one-woman (or man) show. Getting to the point where you can support yourself and your family takes time. You need to have a steady client list, be able to manage your workload, stay organized, and be capable of weathering the bad times.

I’ve been a full-time freelancer for two years now, and I’m finally feeling really confident in what I do. I’m getting paid what I’m worth, I have a small but valuable client list, and I’m better at balancing my time. There’s still a lot of room for self-improvement, but I’ve put in a lot of work to get where I am now.

How do I start freelancing?

You’ve asked what is freelancing, you know what the ups and downs are, and now you’re interested in starting your own freelance business– awesome!

Starting a freelance business isn’t as hard as you might think, and technology has made the entire process so much easier.

Here are the 7 steps to start freelancing:

1. Decide what service you’ll offer

Think about your existing skills and how you could offer them as services. This will be easier for some fields, like web development or graphic design where there are specific coding languages or software you’ll need to know.

For other freelance areas, like virtual assistance, you can think about how your existing skills will transfer to a new field. Virtual assistance is a really popular freelance field that utilizes project management, administrative support, bookkeeping, operations, office management, and more.

You can also look at what areas have a growing need for skilled workers– Facebook digital marketing is extremely popular, pays around $1000/month per client, and doesn’t require a college degree.

2. Determine your niche

Your niche is the industry you specialize in working with. Knowing your niche can help you pitch and land clients. You want to know what clients in that industry are looking for, the lingo, what service they need, how you can help, etc.

Take freelance writing. Writing for the personal finance industry is much different than writing about food. There are certain industry standards that you’ll have to understand if you want to be successful.

You don’t have to pinpoint this exactly in the beginning, but it’s worth thinking about. You can use your background or interests, or look at where the need is for the kind of freelance services you’ll offer.

3. Set your rates

There’s a lot to say about setting your rates, and it’s hard to determine what’s fair in the beginning. I recommend looking at online job boards to get an idea of what freelancers in your industry charge, but remember that newbies almost always start at the lower end of the pay spectrum. Still, if you have a lot of previous work experience in that field, you can command higher rates.

You’ll also want to think about whether or not you’ll bill at an hourly rate, per project, or on retainer.

4. Start building your online presence

I highly recommend starting a website that tells potential clients a little bit about who you are, what you do, and lists your services. It’s a good point of contact, and you can keep a portfolio of your work and who you’ve worked with.

Starting a WordPress site hosted on Bluehost is a really affordable option– as little as $2.95/month. You have the option to keep a blog too, and this is the route I took.

5. Market yourself

Networking in online spaces is a really good and inexpensive path, like joining Slack channels and groups on Facebook, LinkedIn, and Meet-Up. There are also freelancing platforms like Upwork and Fiverr.

Word-of-mouth is a powerful way to find clients, so reach out to people you know and ask them to share your new freelance business with people who might be interested.

There’s also pitching clients, which involves emailing people and giving them a quick explanation of who you are and how you can help their business.

6. Keep track of your payments and taxes

As you start taking on clients, keep track of how much they’re paying you and set money aside for taxes. Again, it’s recommended to set aside 30% of your income because you have to pay both employer and employee taxes.

Many freelancers will need to pay estimated quarterly taxes, so know the deadlines in your state and find an accountant if you need help.

7. Always deliver high-quality work

Freelancing means you’re out there on your own, and your business is only as successful as the work you deliver. This is how you land good clients who keep coming back for more – and it’s also how you climb up the pay scale.