The most common problem freelancers and consultants have is getting paid: sometimes you get paid too little, sometimes too late, and sometimes you never get paid at all.
Here are top 4 strategies consultants and freelancers use to earn more money, avoid flaky clients, and save themselves from countless hours of unproductive work and needless stress:
- Avoid getting ripped off by requiring upfront payment
- Charge a rush fee for “I need this yesterday” requests
- Upsell services by giving spectrum quotes
- Filter our pathological clients by increasing your hourly rates
Are you having trouble determining your rates? We suggest you try out our Hourly Rate Calculator that can give you a basic idea where to start from. Also, learn how consultants can benefit from time tracking.
#1 Avoid getting ripped off by requiring upfront payment
How to make sure the client doesn’t rip you off and disappear after you’ve provided your services? You can withhold work, sue them, threaten to deface their website, or use some other poison pill tactic. But the trouble is, no matter what you do, you’ve already lost: best case scenario, you’ll sink more time and maybe get the payment, and worst case scenario, you’ll get sued because you damaged their business.
The best thing you can do is identify whether a client is a flake before you start working. You can’t just get your head down and focus on delivering the work. You have to develop a sense of who will rip you off and insist on either upfront or daily payment.
In freelancing, it’s a common practice to require 50% deposit upfront and the other 50% after project completion. This arrangement is common when ordering work with quick turnover, where a client hires you to do one thing and pays you per unit of output (eg. designed 1 logo, wrote 3 articles).
But requiring the deposit isn’t always possible. When you’re working as a contractor on a continuous project that doesn’t have a clear timeline or discrete results, you can’t ask for a deposit because you don’t know how much you’re going to charge in the end. The best you can do is give an estimate and quote your hourly rate, and then charge based on how it goes.
In cases where you can’t ask for a 50% deposit upfront, you can still ask for an advance. You simply estimate the number of hours you think you’re going to need and offer clients a 10% discount for paying upfront each month. If you end up working more, you can apply the 10% discount when invoicing the extra hours.
The discount is a great way to 1) incentivize clients to pay in advance, and 2) assess their level of commitment. If they choose not to take advantage of the discount, you’ll get your first warning sign that something isn’t right.
Another advantage of the discount is the no-notice period: if a client is fed up with your work, they can just stop paying and you’ll stop working.
Upfront payments also let you see if the potential client is ready to start the project and if they have the funds allocated. If they don’t have the funds, it usually means they’re not sure what they need and that the project will need a lot of time to get off the ground.
The amount of stress the discount will save you from will totally be worth the 10% of your fee.
In addition to upfront payment, you should also charge a late fee.
Normally, when you send an invoice, the invoice has a due date (most often Net 30, meaning the invoice should be fully paid 30 days after receipt). But if a client pays the invoice after the due date, you should charge them for being late.
A standard late fee is 1.5% per month. But, a fee this low can cause the opposite effect and further delay payment. This is because a client will think it’s ok to be late as long as they pay the fee. To make the fee really effective, you need to charge much more. How much? Enough to decentivize that kind of behavior.
The point of the late fee isn’t to make more money but to identify flaky clients as soon as possible, as well as to decentivize clients from being late.
When it comes to the payment schedule, the sooner you get paid, the better. You can insist on daily/weekly/monthly payment or after you hit a predetermined milestone.
#2 Charge a rush fee for “I need this yesterday” requests
Sometimes, a client will contact you in the middle of the night or during holidays, and say they need something right away.
You can politely explain that it’s your time off and remind them of your working hours. But by doing this, you risk damaging the relationship. Even more importantly, some tasks really are urgent and can’t wait (eg. the system is down and you need to bring it back up, or a client loses money on poorly optimized ad campaign).
Your best option is to charge a rush fee. If something has to be done outside of your normal scheduling, you should charge 50% more (or whatever else that will make it worth your while).
For example, if you have to stay up all night and finish a project much sooner than the agreed-upon deadline, you should charge 50% more. If you have to move around existing projects or cancel pre-scheduled work, you should charge 100% more.
Another benefit of rush rates is that you can work a few hours in the evening and take the next day off. But the point of rush rates is not to make more money than you would usually. Instead, it’s to decentivize clients from demanding work on short notice.
You’ll be surprised how much stuff isn’t really needed by Monday once you attach a price to it.
#3 Upsell services by giving spectrum quotes
When you pick up a new client, you don’t really know what they need or how much they’re willing to pay. They may hire you for one thing but don’t know you can do other things too.
The solution is to offer spectrum quotes: different tiers of service with varying prices and delivery times (eg. Quick & Cheap, Standard, and Premium tier).
How do spectrum quotes work? When a client asks you for a quote, you add an extra option to what they’ve asked. For example, if a client wants a website, in addition to coding, you can also offer SEO optimization. This way, they have a choice between two really nice alternatives.
Even if the client doesn’t go for the extras, they’ll usually give you some kind of feedback, which you can later use to better tailor your services. They’ll give you some bullet points for what they want and, based on them, you can offer several options:
- The base price you quoted originally that covers only the essentials (the good enough option)
- Slightly better but pricier option that adds another really nice-to-have feature
- The best price point that covers everything they need
Spectrum quotes allow you to better understand clients’ needs and figure out what is truly important to them. The feedback you receive will be very useful because, once you know their needs, you can upsell them more options and services while working on the project. It’s a win-win situation.
Another benefit of spectrum quotes is that, if you find that a client keeps choosing the cheapest option again and again, you’ll know they won’t be as profitable as others. This will help you prioritize clients so you know where to focus your time and the energy.
#4 Filter our pathological clients by increasing your hourly rates
The best way to avoid bad clients in the first place is to move upmarket and charge higher hourly rates. Higher rates will weed out pathological clients who are just looking for the cheapest deal, as well as attract more professional clients.
Higher rates are like kryptonite to flakes. Finding something for cheap isn’t bad in itself, but the problem is that bargain hunters don’t really appreciate what they get, are never satisfied, and expect premium service for nothing. When you give them extra service for free, they will demand more, and if you refuse, they will complain and disappear without paying because, in their mind, you’ve failed to honor them.
Low prices attract tire kickers, pathological customers, and folks who only want a good deal and don’t truly see the value of your service. Instead of seeing your service as a way to increase profit, they see it as an expense.
Clients who are seeking a bargain deal have irrational expectations for what $500 buys them. You’ll have more headaches charging $500 than $5k because clients are more evil about $500 invoices. People who get into $500 consulting relationships have a much higher tendency to flake and nickel and dime. On the flipside, the people who buy $5k services have a reasonable expectation of what $5k buys them, are used to paying for consulting, treat it as a business expense, and see the real value.
You also have to understand the context under which pathological clients operate. When a client has a $500 budget, those $500 are coming out of their personal pocket, so they’re much more attached to it. Also, they treat the expense as a risk (and not a calculated value that can bring them big benefits). On the other hand, people who pay $5k for consulting are paying it out of business funds designed specifically for consulting.
Another great side effect of raising your prices, besides filtering out pathological clients, is that you can start applying value-based pricing, which yields much higher earnings and attracts clients that are more enjoyable to work with. Be sure to listen to Ramit Sethi and Patrick McKenzie talk on why your customers would be happier if you charged more.
Clockify pro tip
If you want to be more productive and learn how better to manage time as a freelancer, you can:
- → use a time management app
- → tidy up your workplace
- → avoid home distractions
- → create a routine
- → manage your workload
- → better communicate with clients
For more details check out our post on time management tips for freelancers.