Freelancers are very popular with companies and agencies. But which concrete steps are necessary for your start into financial independence? In this article, I'll show you how to become a successful freelancer.
What is a freelancer?
Freelancers are self-employed service providers whose employment relationship is based on freelance work and flexible money-making. In contrast to employees, freelancers are not bound to a company by instructions. Freelancers work independently of location and on a freelance basis. The employment relationship either relates to a specific project or extends over an unforeseeable period of time.
If the cooperation takes place over a longer period of time, the freelancer's areas of responsibility are often laid down in a contract for work or services. In most cases, payment for the services rendered is made in the form of hourly or daily rates, the amount of which is defined by the freelancer. Depending on the industry, other remuneration options are also used. It is not uncommon for some clients to prefer to pay their freelancers a lump sum for a project.
Freelancer vs Self-employed
Although freelancers are self-employed, they are distinguished from self-employed people because of the professional field. Self-employed people carry out an activity on their own responsibility, without a permanent position and independently of an employer.
Freelancers are a subgroup of the self-employed, whose field of activity relates to the practice of liberal professions, also known as catalog professions. These include professional fields that require special skills, qualifications, and expertise. Typical catalog professions are artistic, scientific, writing, teaching, and educational activities.
Self-employed people who do not pursue a freelance activity are considered tradesmen according to the Trade Regulation Act, and are obliged to register with the Trade Licensing Office and pay trade tax.
Furthermore, there are self-employed activities that fall through the cracks of the general definition and cannot be clearly assigned to the commercial or freelance sector. In this case, calling the tax office provides clarity. Regardless of the type of business start-up, the tax office is an unavoidable point of contact before the activity is taken up.
Business registration yes or no?
It's best to get advice from a tax office in advance as to whether your activity should be classified as freelance or as a trade. In case of doubt, a wrong classification, or correction by the tax office, can cost you a lot of money, even afterwards.
Freelancers are also considered self-employed. The term and the field of activity of freelancers, however, is not clearly defined. The employment relationship refers to project-related services and is based on independent cooperation with companies and individual entrepreneurs. Freelancers are not subject to social security contributions and usually work with several clients at the same time.
Instructions on how to become a freelancer
In order to make a successful start as a freelancer, there are a few things and formalities that need to be taken into account. The following guide serves as a guideline to avoid possible stumbling blocks, from planning to the first order processing.
1. Define the field of profession
You should decide in which area you would like to work as a freelancer right from the start. It is advisable to work in a field that you are good at, that you enjoy, and for which you already have an extensive knowledge. Many clients require corresponding qualifications.
2. Market analysis
Once the desired occupation has been determined, you should check how high the current demand and turnover potential is in the respective market. The higher the demand, the better the earning and order opportunities in this area.
In the first step of the market analysis it is important to get to know the target group and its problems. Furthermore, a competitive analysis of the competition is necessary. Here, offers and pricing play an important role. In addition, the mistakes and weaknesses of competing freelancers can be determined and avoided on the basis of customer evaluations.
3. Financial planning and calculation
Before the first customer orders can be processed, registration with the tax office is necessary for tax purposes. Depending on whether the occupation is classified as freelance or commercial, different registration steps are necessary.
Tradespeople must also register with the trade licensing office and then receive their tax number. The last step for freelancers is to register with the chamber of industry and commerce or the chamber of trade. Once these formalities have been completed, the hourly rate is calculated. As a freelancer, it is important to assess your own skills and to market them in the form of a realistic price model.
Setting your hourly rate too low or too high is one of the most common mistakes made by beginners. The pricing of competing freelancers serves as a guide here. The next step is to prepare invoice templates and a work plan.
4. Entrepreneurial appearance
After the previous steps, the next step is to create a professional online presence to make the services offered accessible to the appropriate target group. An own website or company profiles in social networks are ideally suited for this.
Marketing for your website
You should ensure to create an offer that stands out from the mass of competitors and attracts the attention of potential customers through uniqueness.
5. Customer acquisition
Customer and order acquisition is the most important part of finding project partners and building lucrative customer relationships. See Raidboxes' ebook customer acquisition made easy. First and foremost, various freelancer platforms in the domestic and international sectors are an effective tool. They connect contractors and clients in different sectors.
Alternatively, networking platforms such as LinkedIn and Xing are suitable, too. Freelancer groups on social media, job boards or direct enquiries with companies are also suitable methods.
6. Expand income streams
To be successful as an entrepreneur in the long run, it is important to build up several income streams. Especially in the freelancing sector, many occupations are fixed for specific periods of time. The acquisition of new client relationships is therefore an integral part of freelancing. Those who base their business on several sources of income do not face a total financial loss, should one income stream get lost.
Finance 101 for freelancers
To ensure the long-term existence of your own business, you should deal with the various financial aspects of your occupation.
In order to be able to assess the profitability of the work in relation to the income generated, precise expenditure management is essential. A time-saving solution to keep track of all business and private expenses are special accounting tools and Exel sheets. Especially recurring expenses such as food, rental costs, internet and telephone fees as well as insurance premiums play an important role.
In most cases, the monthly income of freelancers is subject to considerable fluctuations. This makes budgeting more difficult in contrast to a paycheck in an employee relationship.
The first step in creating a clear financial structure is to separate private and business funds. An effective and frequently used budgeting method works according to the 50/30/20 rule.
50 percent is spent on basic expenses, 30 percent on personal needs and 20 percent on savings. Freelancers can apply for a business account in advance and structure different financial flows with sub-accounts.
Do not forget provisions
In any case, you should also seek advice on what additional funds to set aside and calculate, especially for retirement savings. Many freelancers neglect this at the beginning of their work, which is difficult to make up for later.
Build up reserves
To survive times of crisis, or to protect yourself against months of low income, it is essential to build up a financial cushion. Reserves secure your livelihood as a freelancer and are useful for unforeseen expenses, tax claims, or as additional retirement provision. For an efficient accumulation of reserves, a well thought-out savings plan with a concrete target amount and a defined period of time is necessary.
Tax deductions can increase the profit margin of freelancing without the need for additional work. The most common business expenses that freelancers can deduct from tax include advertising costs, office rent, accounting services, web hosting, and mobile and internet costs.
Depending on the industry and occupation, different regulations apply . In any case, I recommend that you seek advice from an expert tax firm. This can save a considerable amount of money per year. You may also be able to make use of the small business regulation and be exempt from VAT.
Freelancer and customer acquisition
Generating new clients is the foundation of your financial success. In the following, I present five effective methods that are suitable for freelancers.
Recommendations are the most efficient way for freelancers to acquire new clients. They underline your quality as a service provider and are based on high customer satisfaction. If you as a freelancer consistently do a good job and implement the customer's wishes exactly, you have a good chance of receiving a recommendation.
Implementing a rating function on your own website is also a helpful tool to get customer feedback. After a successful job, you can also ask your clients to leave a review.
LinkedIn is a social network that specializes in jobs and careers. On this platform, freelancers have the opportunity to create a profile and build a network of professionals and potential clients.
Customer acquisition is primarily done by generating added value in the form of LinkedIn posts. In this way, you position yourself as an expert authority and can market your service to new customers in a serious manner. See the article on LinkedIn marketing.
With a professionally created Facebook profile and joining relevant freelancer groups, you can quickly build new client relationships. Address the questions and problems of your target group, actively offer your help and create added value through specialist postings.
In principle, membership in general groups such as "Rising Tide Society" or "Project Freedom to Freelance" makes sense. This should always be done in combination with membership in industry-specific groups. The Facebook group "Freelancer Projects" is suitable for building long-term and profitable business relationships.
Platforms for remote jobs
Remote job platforms are an excellent way to get in touch with clients directly. In contrast to cold calling, there are already numerous new clients available who need a service. Freelancers can apply for advertised jobs and thus quickly conclude lucrative cooperations. Established remote job platforms are Indeed, remote-job.net and weworkremotely.com.
More resources for freelancers
The start of self-employment is associated with many challenges at the beginning. The internet has a number of useful resources for aspiring freelancers that make the work and the acquisition of orders easier.
Books and audio books
Successful freelancers are constantly educating themselves, and refreshing their knowledge with up-to-date know-how. Certain books are considered must-reads in self-employment and are perfect for aspiring freelancers. These include the book "The 4-Hour Week" by Timothy Ferriss.
If you don't have the time or the inclination to read a book, you can use audiobook apps and listen to a book on your smartphone or tablet wherever you are. See my article 10 audiobook apps in the test.
Conferences are a great opportunity for freelancers to network and connect with potential clients. By attending industry-specific conferences, freelancers can learn about the latest trends, technologies and challenges in their field.
This knowledge not only helps you keep up to date with the latest trends, but also positions you as an expert in your field. In addition, conferences allow you to meet potential clients face-to-face and build relationships that can lead to long-term partnerships. For these reasons, conferences are an important part of the marketing strategy.
Platforms for freelancers
Platforms specifically geared towards freelancers are a promising way to get jobs. For example, freelancer.com, Guru, PeoplePerHour and Outsourcely are established websites with good earning potential. The platforms are suitable for both beginners and experienced freelancers and connect clients and contractors on an international level.
For me personally, freelancing is a future-oriented work model that allows me to start my own business with little capital and low risk. Being a freelancer offers me numerous advantages and allows me to work independently of location and at my own pace.
Your questions about freelancing
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