How cash flow influences your business choices

I have a friend who is a freelance writer. He jumped into freelancing with both feet by quitting his job before he had any real clients. And in starting his work as a freelancer he realized he had two distinct choices:

1. He could do web writing, which tended not to pay so well (for people who were as new as he was)
2. He could write for magazines, which tended to pay considerably better.

The choice seemed easy, right? But consider this: Writing for the web meant getting paid the same week via Paypal while writing for magazines meant waiting up to 6 months before a check was mailed (because magazines pay after publishing and usually take a couple of months to publish an article).

That changed his thinking: A small amount of cash today versus a large amount of cash in the future. Given his circumstances – jumping right in with no safety net of alternate income – he started with web writing to pay the bills. Slowly he incorporated more and more magazine writing into his work but in the early days, he told me, it was nearly 100% web writing.

Although things might be different for whatever you do, the reality of cash flow opportunities is probably similar. You may have to accept smaller projects on an ongoing basis in order to keep the cash flow coming in, even if it’s not the gigantic windfall that you could have in months or years to come.

I’m a big believer in cash flow. Cash flow is huge and often under-appreciated by small business owners. In my opinion, cash flow with a little bit of profit margin is far superior to larger, slower, and irregular payments that have larger profit margins.

In thinking about increasing your cash flow, think of it like a hose. Let’s say you want to water your garden but when you turn on the hose, only a trickle comes out. You want to not only increase the amount of water coming out of the hose but also the pressure with which it comes out.

With your cash flow, it’s the same thing: You want to increase the amount of cash coming into your business but also the amount of times it comes into your business (the “pressure”). You can do this by increasing the number of clients you have, increasing your prices, getting paid in installments, creating passive income opportunities like ebooks, creating membership sites that accept regular payments, keeping on top of your receivables, and accepting advanced payment for discounted service.

Your business will be healthier when you turn up the faucet and increase the amount of cash and pressure which with it shoots out of your sales pipeline and into your business.

(And as an added tip, do what my freelancing friend did: While you may have to accept those smaller, faster-paying jobs early on, slowly try to increase the number of higher-paying, slower projects so that you’ll eventually replace your cash flow entirely with those higher payments).

Jessica Routier, IAC-EZ

How to price your services: The story of a freelancer

Recently, I posted a story about Swatch in our ongoing look at pricing products and services. In this blog, I want to talk about pricing services and use the example of a freelancer I know who recently went through this exercise.

Pricing services can be hard. The pricing metric (Daily? Hourly? Project-based?) is influenced by factors like what is actually delivered and how long it takes and what is acceptable in the industry.

One freelancer was trying to figure out how much to charge and this is what he did: He determined how much he wanted to earn in a year and then worked backwards to figure out how many days each week he wanted to work and then that gave him how much he needed to earn each day. Then he divided it further to determine how much he wanted to earn each hour.

Thus, he had an hourly, daily, weekly, monthly, and annual income goal.

However, most of his clients paid by the project – an accepted standard in his industry. So before he did this exercise, his rate was based on the arbitrary number of how much he thought the project should cost. (Yeah, that’s wide open!). But today, he has a goal and knows when to turn projects down because they don’t pay enough and when to take on a project because it is within his target.

Just recently, he told me some additional revelations and ideas:

• This model helped him to see one client as perennially under-paying for the service they were receiving. He explored the idea of readjusting their rate but decided to end the ongoing agreement.
• This model also helped him to identify an opportunity to grow revenue: as he takes on new projects, he strives to drive his price upwards. That wasn’t something he could do before.

This pricing method is not rocket science and there are other factors, too. For example, many freelancers will need to think about how much time they want to set aside each week to market their services.

Well, we’ve just touched on 3 aspects of pricing in recent blogs. Next month we’ll look at some more pricing considerations.

Jessica Routier, IAC-EZ