In case you hadn’t noticed, the world of business is becoming more and more a “gig economy.” This simply means that the number of people with a long-term single-employer agreement is going down, and the number of short-term contractors and freelancers is going up. It’s good for professionals, who get more control, and good for companies, who need more flexible staffing.
In my view, the gig economy is a key driver to the current boom in entrepreneurship – every professional and consultant is actually a solo entrepreneur. The good news is that each of us now has more control over what we do, when we do it, and how we do it. The bad news is we have to think like a business, with all the implications of branding, finding customers, and competitors.
If you are thinking of joining the rush in this direction, I found some practical insights for success in a new book, “Thriving in the Gig Economy,” by Marion McGovern. She speaks from years of experience mentoring and facilitating independent contractors and helping large companies, since well before the term “gig economy” was even coined.
As a new business advisor and mentor myself, I enjoyed her recommendations on many of these issues. One question I often hear from solo entrepreneurs, and she addresses directly, is “How do I set the right price for my services?” The simple answer is to balance supply and demand, but here are some specific considerations that she and I both proclaim as key factors:
- Use project pricing rather than hourly rates. Charging by the hour only makes sense for commodity work. For more complex or creative projects, where required hours to complete the work are less predictable, your experience, work ethic, and productivity are competitive advantages. Use them to increase your return, and drive repeat business.
- Quantify value to the client as price boundaries. Keep in mind that it is the work, not your pedigree that ultimately determines the price. An old rule of thumb, called the one-percent rule, or one percent of your annual income, should be your target daily fee. Like product companies, your pitch should quantify value to clients, rather than your costs.
- Your intellectual capital has value – factor it. If a gig is going to build your intellectual capital by broadening your skill base, or connections to future business, you should be willing to do it for less than you might otherwise. Conversely, if a client needs your unique knowledge and contacts, you should charge a higher price. Know your competitive value.
- Assess your fixed and variable costs per gig. Many solo entrepreneurs I know, who now work primarily from home, under-estimate their true costs, since they never had to worry about them as employees. These include office space and supplies, travel, training, bookkeeping, advertising, and many others. Simple rates-per-hour are very misleading.
- Factor in project risk before setting a price. The riskier a project, whether due to scope, aggressive goals, or too many unknowns, the more it should pay. The number of competitors who are willing and able to tackle risky gigs is small. The message here is to evaluate and negotiate each gig independently, rather than advertise a fixed low price.
- Anchor clients always deserve special treatment. An anchor client is one that pays your rent, so to speak, by giving you recurring business, and providing a stable level of income. Some solo entrepreneurs don’t hesitate to increase fees each year to match new clients, but that can be a mistake. Having a predictable base income is a wonderful thing.
- Government contracting is not for the faint of heart. Federal, state, and municipal governments are among the largest consumers of entrepreneur and freelance services, but client acquisition costs may be very high. Many require special licensing, insurance coverage, or security clearances. For these you should consider partnering with someone who has already satisfied the requirements.
While gigs have long been a focus on the low end of the skill spectrum, I now find more and more best-in-class professionals choosing the solo entrepreneur independent path and thriving. New digital platforms, such as Guru and Toptal, can quickly give you credibility and get you in front of top opportunities, but it’s up to you to compete and win in this new world of work.