Getting started as a freelancer is easy. Offer a service, find a client, and you’re in business.
But scaling up can be much harder.
Making the transition from part-time side hustler to full-time freelancer not only requires you to find enough paying clients to earn a full-time income, but there are also a lot of other non-business issues that need to be considered.
A study conducted by The Freelancer’s Union found that 57 million Americans worked as freelancers in 2019. Of those 57 million people, 28% of them freelanced full-time. That number is up from 17% of freelancers who worked full-time in a similar study just five years earlier (source).
Those numbers show that, despite the challenges of going full-time freelance, millions of people are making it happen and that it is a realistic goal.
That should be encouraging, especially in a time with a lot of uncertainty surrounding the economy and job security. If you’ve felt the itch to move from part-time to full-time, maybe the current events are enough to give you that extra motivation to take action and make the transition on your own terms.
This article will cover the basics that you’ll need to consider if you’re planning to make the transition.
Planning and preparation for going from side hustler to freelancing
Aside from the business aspects of increasing your income to a full-time level, there are some major issues and concerns that shouldn’t be overlooked when it comes to being an independent contractor.
1. Build Up Your Savings
While there are plenty of perks to working full-time as a freelancer, you’ll need to be prepared to deal with the unpredictable nature of your income. The best way to prepare is to build up your savings ahead of time.
If you’re a part-time freelancer now and you still have a full-time job, you’re almost certain to take a short-term hit in your overall income when you leave the full-time job. In order to plan ahead, it’s a good idea to save as much as possible and build up a nest egg that can help to sustain you. If it takes longer than expected to get your income up to a level, these savings can help to sustain yourself and anyone who is dependent on you.
Most financial experts recommend that everyone should have an emergency fund with enough money to cover 3-6 months of living expenses. That’s the standard advice for everyone, not just freelancers. Those who have an unpredictable income, like freelancers, should probably have closer to 6 months of savings because there is a greater likelihood of needing that money.
Don’t walk away from a full-time job voluntarily until you have sufficient emergency savings.
2. Know How Much Money You Need for the Bare Essentials
How much money do you need in order to survive? Take some time to calculate the amount that you’ll need to pay all of your bills and essentials, with all of the extras cut out.
This number will show you how much you really need to be able to make in order to get by. Of course, you’ll want to make more than just the bare minimum, but in many cases, the bare minimum is less than you might expect. Knowing that you could get by on a smaller number if absolutely necessary could be encouraging because it may help to reduce some of the stress and pressure that you feel.
Before you leave a full-time job, you’ll want to be confident that you can earn at least the minimum from your freelance work. If you don’t think you’ll be able to earn that much, it’s too early for you to make the jump.
3. Have a Backup Plan
What will you do if the move to full-time freelance work doesn’t go as expected?
Before you make the jump to full-time freelance, you should give some thought to a backup plan. Your backup plan should be something that you could start doing relatively quickly if you need to make some money.
Thankfully, in today’s gig economy there are plenty of options. You could work as a delivery driver, walk dogs, shop for groceries, clean houses, mow lawns, or any number of other things. If we’ve learned anything from the 2020 COVID-19 quarantine, it’s that these jobs are becoming a larger part of our lives.
Hopefully, you won’t need your backup plan, but it’s a good idea to consider what options would be available should you need to make some money quickly.
4. Plan for Taxes
One of the biggest adjustments in the move from full-time employment to full-time freelance involves taxes. As a freelancer, you’ll have no taxes withheld from your paycheck, but of course, you’ll still be responsible for paying taxes on your income. This means that you’ll need to plan ahead and set money aside for taxes as it comes in.
Meeting with a CPA or tax professional is a good way to be sure that you’re handling everything appropriately. You’ll want to determine the tax bracket that you’re likely to be in, so you know how much you should be setting aside. You’ll also want to determine if you should be paying quarterly estimated taxes (the answer is most likely “yes”).
Tax rules can definitely cause confusion, so we’ve also put together this list of mistakes for freelancers to avoid when paying their taxes.
5. Consider Health Insurance Options
If you’re currently employed full-time, you probably have health insurance through your employer. Health insurance is another major issue for anyone who is self-employed. It can be a major expense, so it is something that needs to be considered before you leave your job.
As a freelancer, you’ll have a few basic options:
- Get coverage under the plan of a spouse or domestic partner
- Use HealthCare.gov to find coverage through the Affordable Care Act
- Join a group or association like the Freelancer’s Union that offers coverage
- Join a faith-based healthcare sharing ministry
- Consider a Health Share plan
Your own personal and family situation will determine which is the right approach, so be sure to research your options and know how much money you’ll need to budget for insurance and medical costs.
6. Create a Retirement Plan
Another significant difference from working as an employee to freelancing is related to retirement plans. You may have access to a 401(k) retirement savings plan through your employer. You’ll need to consider the options that will be available to you as a freelancer.
Your options include:
- Traditional IRA (contributions will reduce your taxable income)
- Roth IRA (contributions will not reduce your taxable income, but withdrawals in retirement will not be taxed)
- SEP IRA (contributions will reduce your taxable income, higher contribution limits)
If you currently have a 401(k), you can roll it over to a traditional IRA very easily.
Growing Your Personal Business
Now that we’ve looked at some of the important factors that are easy to overlook as you go from side hustler to solopreneur, let’s cover some of the steps you can take to increase your income to a full-time level.
1. Increase the Value of Your Services
There are two very basic ways that you can increase your income as a freelancer:
- You can increase the number of clients that you serve
- You can increase the amount that you make per client
In most cases, increasing the amount of money that you make from the average client is an easier option. If you’re able to increase the value of your services or offer additional services, you can experience significant growth in your business without landing more clients.
This could be accomplished by improving your skills and your quality of work to the point that clients would be willing to pay more for it.
Another option is to identify some add-on products or services that you can offer to your clients.
Take a look at the services you’re currently offering and think about related products or services that you could offer. Also, evaluate the quality of your work (as objectively as possible) and see where you could improve that would make your work more valuable.
2. Evaluate Your Rates
Are you charging enough? Many part-time freelancers are undercharging without even being aware of it. If you were to make the leap to full-time freelancing, would you be able to cover your living expenses at your current rates? If not, they need to be increased.
Remember that, as a freelancer, the rate you charge to your clients is not the equivalent to what you would be making as an employee. For example, if you make $25 per hour as an employee, you need to earn significantly more than that as a freelancer. You’ll have business expenses, insurance, taxes, and a lot of other things that need to be covered.
Take some time to evaluate your rates and determine if they need to be increased. This may involve some comparisons to other service providers, but more importantly, it should be determined by the quality of service that you’re providing and what your clients are willing to pay.
3. Focus on Repeat Business
Landing new clients can be challenging, so you’ll want to make the most of the existing clients that you have. This involves converting one-time clients into repeat clients or offering services on an on-going business.
Your approach here will partly depend on the specific services that you offer and who you are servicing. For example, if you provide services to businesses, finding ways to provide on-going services is an ideal approach. If you’re a web designer, instead of creating a website for a client and then being done with that client, you could offer on-going maintenance packages that provide the client with a set number of hours of work per month for a flat monthly fee.
Another option would be to offer complementary services that many of your clients would need. Again, using the example of a web designer, you could offer a social media package for a monthly fee. The package could involve design work for a set number of graphics that the client can use on their social media profiles each month. You could also offer to manage the social profiles for your clients.
If your services are aimed at consumers rather than businesses, the options for on-going services will be more limited, however, you could still work to convert one-time clients into repeat clients.
For example, if you’re a photographer, you can reach out to past clients at specific times of the year to solicit business. In the summer, you could contact clients about back-to-school photo sessions for their kids. In the fall, you could contact families about taking photos for Christmas cards. Reach out to clients a year after any family sessions or child portrait sessions, as many of them will be interested in new photos each year.
When you reach out to past clients, you could offer a discount for returning clients, or offer them something else, like a free 8×10 print.
With a bit of effort and some creativity, you can come up with ways to extend the relationship with your clients, which reduces the number of new clients that you need to find.
4. Establish a Referral Program
One of the best ways to land new clients is through word-of-mouth. Some word-of-mouth advertising is likely to happen naturally, but you can also encourage it by creating a referral program.
With a referral program, you would offer your clients some sort of bonus if they refer you to someone else who becomes a paying client. The bonus could be cash, a gift card, or some sort of free or discounted service.
One of the nice things about a referral program is that it can be very simple. You don’t need to spend a lot of time on it, but it can be great for your business.
See this article for some guidance: How to Build a Winning Client Referral Program
5. Develop a Marketing Plan
How will you market your services? A lot of part-time freelancers don’t really have a plan. They just work with clients they happen to find in any number of different ways. That’s fine when your freelance work is a side gig, but if you want it to be a sustainable full-time business, you need to develop a marketing plan.
There are many different ways that you could market your business. You could use Facebook ads, focus on Instagram or another social platform, start and grow a blog that will provide on-going exposure, start a campaign to appear on podcasts in your niche, or any number of other things.
You can choose whatever marketing plan is the right fit for you. The important part is to actually have a plan and something that you can work on as you’re looking to scale up to full-time work.
6. Build Your Professional Network
Regardless of what types of services you offer, growing your network is a good move for your career. Your network can help you in many different ways, even if it’s not always easy to measure the impact.
You never know what opportunities will come as a result of networking and being well-connected. Although your primary goal as a freelancer is to provide a service to clients and earn an income, you should also be dedicating time to connect with others in the industry and establishing connections.
Making the transition from part-time to full-time freelance can be intimidating, but with the right approach, it’s very possible. And not only is it possible, but it’s also very rewarding. You’ll love the flexibility that you gain by being able to work as a full-time freelancer.