Switching to Freelance with Pete Keen

One question that I get a lot is how I made the switch to freelancing. More often than not I just shrug and say it just happened to work out this way. I’m not trying to be a vague jerk, I just honestly don’t remember all the details and emotions of the switch.

This is why I recently had a call with Pete Keen, author of Mastering Modern Payments, who just made the switch from full time work to freelancing work in the past couple of months.

Sidenote: I’ve helped a ton of clients build their SaaS apps. The successful ones were the ones that thought about payments from the beginning. If you’ve never built billing code into your app you should definitely check out Mastering Modern Payments. It relaunches October 15th.

Here’s what you’ll learn in this podcast:

  • Using teaching and a writing to position yourself for freelancing (4:23)
  • Planning for the uncertainty and emotions of switching to freelance (7:27)
  • Getting the first check in the mail as your first big win as an aspiring freelancer (12:19)
  • Actually executing a plan to switch from full time work to freelancing (14:00)
  • Using information to avoid the black hole of worry (17:24)
  • Taking time to decompress (18:25)
  • Setting your first rate (21:42)
  • Sending out pre qualifier questions to filter out bad leads (25:26)
  • The relaunch of Mastering Modern Payments (29:18)

If You Want to Listen to It

Transcript: Making the Switch

[Ryan notes: The transcript below has my commentary inserted like this.]

Ryan Castillo: Hello everyone, this is Ryan here. I wanted to follow up with some of you.

I usually get questioned a lot regarding switching from a full-time job to a freelancing or contracting, and I decided to do an interview with someone who has recently made the switch. He’s a good friend of mine.

His name is Pete Keen, and he wrote a book on “Mastering Modern Payments.” Here’s Pete.

Pete Keen: Hi, I wrote a book about a year ago. It’s all about integrating Stripe with a Rails application.

The Stripe docs are really good, but they don’t really walk you through the whole process. The book is about going from a blank, brand new Rails app to having a functional Stripe integration in a story format.

It goes all the way through individual payments and subscriptions and marketplaces and everything. It’s sold really well.

Ryan: Cool. Pete, to clarify, when you were writing this book, you were still working full-time, right?

Pete: Yeah, I had a full time job while I was writing the book. I had a bunch of personal life issues. I got married, I had two relatives die. I moved across the country and I had a full time job, so there was a lot going on in addition to just writing the book. It was almost a distraction from everything else that was going on.

Ryan: Oh, like a productive, healthy distraction.

Pete: Right. But yeah, it was all happening during that. I started in April, 2013 and launched pre-orders July of last year in 2013 and then launched the actual book on August 15th.

Ryan: During that process, was there any time where you thought to yourself, “Hey, this book is going to really take off. Maybe it’s time for me to switch from full time work to working purely on the book”?

Pete: No, not a single moment. It was always like, my expectations were extremely low. My expectation was, if I can make $1,000, I’ll be satisfied, and if I can make enough money to pay for COBRA payments — for those of you not in the US, that’s health insurance payments — for a whole year, I would be ecstatic. I have far surpassed both of those goals. But it took more than a year.

Ryan: OK, cool. Then, what made you switch? I mean, what made you decide, “Hey, I want to stop full time work and go into like a kind of lifestyle where I’m my own boss and work”?

Pete: Sure. I switched jobs in July of 2012 and I worked a Rail shop for two years. Right when I started, it was kind of, I kind of felt like, this is a great environment and all the people are really nice, but it’s not really the job for me. Pretty quickly I was looking for other jobs and then I got sick. I actually got diagnosed with cancer in November of 2012 and that put life on hold. I couldn’t switch jobs because I couldn’t have a gap of insurance. I didn’t want to switch insurance at the time, so I just stuck with that job. Then, I got better and I went into remission in April of 2013.

Ryan: Glad to hear it. Yeah.

Pete: Thanks. Then, I was like well I still don’t want to be here, but the possibilities of changing jobs. It’s a big leap to even change jobs, so I stuck with it and worked on this book. Then, all that other stuff happened. Then, I launched the book and it did really well. Then around the same time, I was reading stuff by Brennan Dunn and reading stuff by Amy Hoy, all about consulting and doing products and I figured well I could do that.

That doesn’t seem that hard and it became real, a real possibility starting earlier this year.

Ryan: OK. For those of you that don’t know, Brennan and Amy have this path to products where you might start off with full time work and then you transfer to another job that’s higher paying then you do some side freelancing and then you make some transition into more consulting based roles. Then, privatized consulting and then maybe actually product stuff. [Ryan notes: Amy  actually had an excellent article that describes how to invest in the future with products. It actually gives steps to improve your situation if you're working full time, freelancing, or consulting.]

It’s the whole product spectrum that I can’t remember who had talked about it, but someone had written a blog post about that recently. [Ryan notes: the product spectrum article was written by Sacha Grief. It talks about the steps and skills necessary for making the jumps from full time work to running a product business and how some jumps are harder than others.]

Pete: Yeah. I don’t remember who wrote that. We could probably look it up and put it in the show notes.

Teaching and Writing to Position Yourself as an Authority

Ryan: OK. Yeah. It seems like you had flipped that on its head. In stead of going straight into freelancing and consulting as a part time profession, you went into the product stuff and you were somewhat successful with that. Do you feel like that’s given you some sort of an advantage with starting out freelancing or consulting?

Pete: Yeah. Before I wrote this book, I had read “Lean Startups” and then “Start Small, Stay Small” which I believe is by Rob Walling. Is that correct? [Ryan notes: It was by Rob. You can find it here.]

Ryan: I’m not sure.

Pete: I think that’s by Rob Walling. Anyway, I read those books and then I read a book by Nathan Barry called “Authority.” Authority goes through, it’s almost a meta book in the same way that my book is meta. Authority goes through the process of launching a book or really a product of any type, but he focuses on eBooks. I bought it as an eBook and it was inspirational.

Like, Nathan could do this whole thing. He could write a book and launch it successfully and this is the process he used and I followed his process and it worked really well. I’m not the most successful of the people that he’s profiled or readers he’s profiled that have gone through the whole thing. It works really well.

The main thing, to go back to the question, the main thing that has been useful for is I was able to go from full time job, nobody knows who I am to well I wrote a book about this topic.

I am the only one so far that I know that has written a book on this topic. If someone needs help with Stripe and Rails, then, they can approach me and I can say, “Well, I wrote this book. What can I do for you?” By writing a book, you could have gain instant authority in a particular topic. I definitely think it was an advantage and continues to be an advantage.

Ryan: OK, let’s talk more of that a little bit then. Did you realize its advantage right away?

Pete: No, it was sort of in the back of my mind that it could be good. As I was writing and as when I went through the whole launch process. Then, I started getting consulting leads. I didn’t have any time because I was still working full time.

I have to reject or pass them on to other people. I think now, it’s been super helpful because I get call contacts at least once a week about people who wanted to do Stripes stuff.

Ryan: That’s really cool. Instead of you, actually having to build a lead pool, your book has actually provided that for you.

Pete: Yes, I’ve actually had not to contact anyone. I haven’t had to, like try to get a lead yet. I’ve been doing consulting part time since May.

Planning for the Uncertainty

Ryan: OK, let me see if I can try to paint a little picture and you can tell me if this is true or not. You came out with a book, your book did better than you expected. You are still working full time.

Then, the lead started coming in, but like you said you were busy. You built some confidence and potentially going into consulting.

Then, one day you said to yourself, “Hey, this is something that I can really do and I feel really feel confident about. I can make this switch.” Do you think would you call that a true statement? Or would you call that a false statement?

Pete: Partially true. It mainly centered around my confidence. I wasn’t and still not entirely 100 percent confident if this whole thing’s going to work out.

The nice thing is that, I’ve built layers of back up plans that first level back up plan is to just wait. Then, when the money runs out, then I get a full time job.

I’ve been a professional software developer for seven years. Based on how the market is now getting another job would be a couple of phone calls. So I’m mostly confident that this is going to work out. It’s nice to have backup plans.

Ryan: I think that speaks to me and a lot of our listeners who are considering the switch is, that even though, even if you have a book, the jump from full time work to consulting or freelancing is still scary, right?

Pete: Oh, yes.

Ryan: One of the big things, or one of the nice drawbacks in all these is the worse that could happen out of all these is, “Hey, we ran out of money and I can no longer continue freelancing. I’ll just make a phone call and get a full time job.”

Our industry allows itself towards that right now.

Pete: Right now, and that’s not guaranteed in the future. Six months from now, it could be a completely different story. Right now, I count that as a viable plan.

Ryan: Yes, and you have the spouse too, right?

Pete: Yes.

Ryan: What did it take to convince her? Like, you could do this or that you could make the switch.

Pete: It’s funny. She never doubted my ability to do it. She was always nervous about it. It took a lot of, going over the numbers and showing her plans, there’s so many spreadsheets.

I think I have a spreadsheet that’s got eight tabs with different scenarios and different breakdowns and things. That helped her out. Then, we sat down one day and I asked her, “What is the big thing that you’re most concerned about?”

She said, “Health insurance.” She didn’t even hesitate. I was like, “OK, that’s easy. That’s money.” That’s all it is. I sat down and I looked up. I went down through the marketplace which is huge by the way.

The whole Obama Care ACA thing is a huge boon to people trying to do this because prior to the start of those programs, if you wanted to do this, you either had to get insurance to your spouse.

Or you had to get insurance on the private market which was never comparable to what you could get to an employer. Either because, it was cheaper but didn’t cover as much and also they could drop you.

Or if you have a preexisting condition like, “I’m a cancer survivor. There is zero possibility that I could get an insurance prior to the ACA.”

Ryan: Yes, and that also speaks to your wife’s biggest concern. It’s like, “Hey, we have to go through this. I just want to be sure that we’re well taken care of.”

Pete: Yes, exactly. I spent probably two solid days going through all the options for us for health insurance trying to find comparable plans to what we got through my employer. Then, I finally found a couple and made up another spreadsheet that goes through all those options.

It turns out basically if you have a condition that requires medical care, you’re going to pay the same amount every year depending on, like you’re going to pay a higher premium and a lower deductible or you’re going to pay a big deductible on a lower premium.

It all evens out. It’s just like picking the one in the best network and then go for it. That’s what we did. We have a small gap about two weeks. That’s over and we’re totally insured and everything’s great.

Ryan: Awesome, congratulations. Now, do you have to…so, insurance was the big concern.

Pete: Yes.

Ryan: Did you do something from where you were working full time and then you went freelance part time? And showed her that you could earn that money to pay for the insurance?

Pete: Sort of, I’ve been doing consulting on the side since about May. I could point to that and say “I can bring money in. There’s no question that I can bring some of them out of money in.”

It was always enough to cover the health insurance. Then, it was like, what would I have to do to make it cover our whole budget for the month. Now, that’s what I’m working for, it’s getting enough client work to cover the budget.

October is my first full month and I think we’re going to make it. November, based on the clients that I’ve been talking to, we should be able to surpass that.

Ryan: Nice. Starting in May part time.

Pete: Yes, small. Just a couple of hours a week.

Your First Big Win as a Freelancer

Ryan: OK, more than anything I’m sure. If I remember correctly, when I first started out, the biggest thing that I wanted to prove to myself was like, “Hey, can I actually get someone to send a check to me in the mail?”

If I can make that one small thing happen, the rest of the stuff will start to take care of itself. Is that the kind of process that you had with freelancing part time?

Pete: Yes, it was a process that went from, ‘is someone going to send me a check?’, and it turned out yes, someone will send me a check for work that I do for them after I send them an invoice. Like that, right there is a big step.

Then, the next step is, “Well, this invoice is really big. Are they really going to pay it? It’s ludicrous.” It turns out that yes. They will just send you a check.

Ryan: Yes, is that whole impostor syndrome thing again?

[crosstalk]

Pete: Yes, exactly.

Ryan: It’s not just like limited to technology. It’s also, “Hey, man. I’m billing for this insane amount. There is no way I can convince this person to pay me. They’re just going to laugh when I send them this invoice.”

Pete: Right, or be disgusted or just throw it away, or whatever and never talk to you again, right?

Ryan: Yes.

Pete: Then, that’s not what happens. They pay it and then they talk to you. Then, they give you more work.

Ryan: Yes, at least for me, there has never been any scoffing as far as like, “man, I can’t believe you charge this much.”

Just as long as you do the work that you say that you’re going to do and you deliver it. When you say you can deliver it, people would gladly pay you.

Pete: Yes.

Switching to Freelance

Ryan: Cool. Then you have three or four months where you earn income. You checked all the checkboxes with your wife and gained your family’s approval. What made you say finally like, “Hey, everything’s lined up. It’s time to make the jump.”

Pete: We have agreed upon cut off where we said that we would talk by the end of August. Like, revisit the whole thing at the end of August. Because I was champing to go. She said, “Well, just wait.”

We talked at the end of August and agreed that our emergency fund was in such a place that we could go for a couple of months, almost three months at the time. Then, she said, “OK.”

I started figuring out an end-date to coordinate insurance overlap. It didn’t quite work out how I wanted to. We had a gap of two weeks. Nothing bad happened.

Really, the worst thing that happens is if something happened during that gap, we would have elected COBRA which would have cost us an additional 1,200 bucks through the end of the year.

[crosstalk]

Ryan: Yes, it’s an extra premium you have to pay. I think we did the same thing when my wife was switching jobs. Our insurance went to an unknown zone a little bit. How often do you look at that number, that war chest?

I think I remember having the same experience. I had a war chest and say, “Hey, this will last our family like several months. If we get to this amount, it’s time for me to start making calls for a job.” Are you looking that often right now?

Pete: Kind of really often. I go through and every weekday morning, I have this routine where I go through. I hand enter all of my financial transactions. I go through it in all the things that happen the last day and check off things that cleared.

Then, I have a couple reports. I’ve got a dashboard report that shows like everything’s in flight and balances and everything. Then, I have a runway slash burn down report that shows really detail like this is how things in the budget hit during the month.

This is how our cash flow looks. It has a graph and it has a date. Like, this is the date when the war chest runs out. This is the date when we totally run out of cash.

Ryan: That’s cool. That’s much more automated than I had. I had to look at the bank account and just do the calculations and the fly [laughs]. Very scientific.

[crosstalk]

Pete: Yes, I’ve been living in this personal finance system for seven years. Since in 2007, I was a brand new professional software developer being paid relatively well.

I bounced a rent check and I said that was really stupid and started tracking everything to the penny. Then, I transferred that system over to my new business. I basically copied the whole application and made a new one for the business.

Avoiding the Black Hole of Worry

Ryan: That’s good though, right? Because when you make the switch, there are a lot of things you can’t control. A lot of those things quite frankly could prove to a lot of stress. You can’t control when your clients going to pay you whether they pay you on time.

You can’t control leads initially, like how many leads are going to come in a given week. There are a lot of things out of your control.

If you have a system like you’re speaking to with your personal finance system, I wouldn’t say it gives you false confidence but it gives you some kind of confidence as far as like, “Hey, things are OK and things are going to work out.”

Pete: It gives you information. If you don’t have it, it’s just a black hole that you can throw worry into.

If you have information that you can look at, then you can, not necessarily stop worrying have a focus and have actual concrete things you can take action on. That’s what I’ve done.

If any listeners out there are going to, are considering doing this, I think one of the big things is to get personal finances in order.

Either build yourself a system or find a system like you need a budget or Mint or something.

Then, for business finances, it’s even more complicated so, get an accountant. I don’t have an accountant yet. I’m getting to the point where I think I should have one.

Ryan: Yes, I haven’t really made a lot of hires in the past several years, that the big ones for me was finding an accountant. Eventually, finding like some kind of assistant to delegate some of the work to do.

Time to Decompress

Ryan: This was pretty cool that you have told me about before was when you quit your job, it’s not like you went into a straight panic mode and start working right away. You actually took a couple of week break.

Pete: Yes, I had to force myself. Like, I hadn’t take an actual vacation from work since before I get sick. Since 2012, I hadn’t taken any sort of vacation other than three days for honeymoon.

Ryan: I think I remember you telling this about that was like, “Man, I got sick. I had to save my time for my honeymoon. I hadn’t really the time to relax.”

I remember when you kept on considering about doing this switch to consultants like, “I just had the freedom to do that.”

Pete: Yes, that was. The big impetus for this whole thing was freedom to not be butt in seat for a number of hours on a certain schedule that I don’t control. I know there’s full time jobs out there that allow you to do that.

There aren’t full time jobs out there that allow you to do that and work out on your own projects during what would ostensibly be work time.

Ryan: What did you do for those two weeks?

Pete: For the first week, I limited computer use to probably 45 minutes a day, just doing my daily finance routine and then, checking email and stuff.

Then, I read books. I played a little bit of video games. I think one day, I watched “Clone Wars” all day.

Ryan: That’s cool.

Pete: Yes. It was great. It was magical. Then, the second week, I worked on my book pretty exclusively. I think I did a couple little client projects during that. They couldn’t really wait. I mostly worked on my book. That was also great.

I got progress in areas where I hadn’t been able to get progress because trying to focus on that kind of thing for just like an hour a day is really hard. Like, loading all the state into your brain that you need to manage.

What am I going to write about? But, also writing the software that I’m going to write about at the same time that takes a lot of concentration. It really helps that I had full, whole days to work on it.

Ryan: So, it’s the whole context which problem right?

Pete: Yes.

Ryan: For me, that’s a reason why I tend not to take on more than two clients at a time. It’s just because my brain can’t deliver the same kind of value, if I was constantly switching between clients.

Now, do you think this is something you’re going to build in into your, I guess consulting schedule? Or you take a couple of weeks breaks here and there throughout the year to work on your book or other project is?

Pete: Yes, definitely. Part of how I’ve structured my rate, it came to the rate that I came to is predicated on having a certain number of weeks every year where I don’t get paid.

I assume that I have at least depending on which call I’ve looked at this treated it’s like it’s 10 to 15 weeks of unpaid time during the year. That maybe optimistic, I don’t really know yet.

I have my rate set such that I can take that at least that amount of time off and not be hurting.

Setting Your Rate

Ryan: Let’s talk about your rate a little bit. How did you come up with it? Did you come up with a number, or it sounds like you reverse and engineered the amount of money that you would need for the insurance, for your family’s income? Then, came with a baseline number?

Pete: Yes, basically. I took the monthly budget or household budget and divide it into weeks. I guess before that I decided, “So, this is how much I need to make.”

Then, effectively multiplied it by two assuming that my overhead in Brennan’s book, Double Your Freelance Rate, he has a whole couple pages dedicated to those. Like, how do you decide to rate. [Ryan notes: Here's the link to Brennan's book. And while you're at it I'd recommend subscribing to his newsletter. He's one of the five newsletters that I actually subscribe to and read.]

One of the things he’s got in there is you can reverse engineer. One way to do it is to take your monthly burn rate and then, multiply it by some multiplier. He’s got a really optimistic one in there of 1.5, which I found not to be quite that true, because of the health insurance thing.

That multiplier needs to cover taxes, expenses, putting money away in the business such that you don’t have to worry necessarily about well this check is coming in and I need to pay this bill.

The ideas that your monthly revenue is somewhat divorced from your monthly expenses. At least week to week timing. Building up a buffer is included in the multiplier. He said 1.5 and I tried that but, it didn’t seem it was really enough.

I ended up writing this really crazy complicated spreadsheet that spat out like 2.5 and 2.25. Between 2.25 and 2.5 depending on if we could deduct the health insurance from the taxes or not.

Ryan: That goes back to the whole like having information, right?

Pete: Yes, exactly.

Ryan: One thing that I want to speak to is, it’s misleading to just call this your rate. Because what actually is, is it’s the minimum.

It’s the minimum that you need to make, whereas for clients, you can actually charge much more than that depending what they actually need you to deliver.

Pete: Right, let’s say my minimum rate is a hundred bucks. Then, for example, then what you can charge clients is what you want to be charging is at least some like 20 percent higher, 20 to 30 or 40 percent higher than that.

To build a bigger buffer or to cover other bases that you need to cover or unexpected expenses and things like that. That’s what I’ve done. I unfortunately I have a range of rates right now.

I don’t really like it. I’m trying to say to have new clients start at my top rate right now. I don’t really know how it’s going to work.

Ryan: I think, that way even though you might not like it and feel uncomfortable having a range of rates right now. You’re not putting yourself in a box. Like say, “This is my rate. This is everyone’s get charged.”

There’s a lot of experimentation in all these. I think my first year one of the things that I did was, every time I got a new lead, I would push up my rate like 20 bucks. I know it until people’s going to start saying, “We couldn’t afford that.”

Or just giving me a little bit of feedback. Eventually, you start to rely on other kinds of data to try come up with your rate. One thing that I recommend is knowing actually what the client’s budget and what they’re trying to achieve.

Using these two information to come up with a rate based on helping them achieve their goal and still being able to make money. That’s really cool.

Sending Leads Pre Qualifier Questions

Pete: One of the things that I started doing really early on is sending out a set of, if someone is sends me a cold lead, like if someone calls in and, “Do you want to do some work for us?”

I send them a set of pre qualifier questions, which I customized a little bit depending what they say. Most of the time it’s like, “Tell me more about what you want. Tell me what your proximate budget is or the question is, do you have a budget?

Is it at least a certain number of thousands of dollars?” That weeds out a lot of people that are just like, “Well, I just want an hour of your time.”

Ryan: Yes, because you got a lot of those.

Pete: Right, yes. Exactly. Then, “When do you want to start and who am I going to be talking to. Is it you or is it developers on your team or what?” That’s been super helpful because it helps clients actually think about what they want and concrete terms.

If you just say, if someone sends you an email and then, you just respond, “OK, let’s have a phone call.” That phone call could last an hour and a half. You couldn’t actually get a good idea of what the project is.

In this way, at least an outline of the project is there in written form that I can then think about before we have a phone call. Then, it’s a framework to talk about when you’re forming the idea of what the project’s going to be.

Ryan: Yes, I think more than anything what you’re talking about is like having a process. It’s just having a process that reveals important information. It’s just not like, “Hey, we’ll just take this conversation in the fly.

I just learn anything I have to learn about you. I’ll somehow absorb all that. We’ll just work in our engagement and everything’s going to be perfect.”

There’s certain kinds of information that is pretty important to actually building a successful endeavor like, what’s the delivery date for this? How else are we going to make money? Like, what kind of budget are you working with?

And all those kinds of things. Having a process like that I think also helps filter out specific clients exactly what your pre qualifying emailed us. That’s cool. I think that covers a lot of what we want to talk about.

I think to me, some of the, I guess the key points in all this was one, you can build leads through education. Your book is something that educated people on stripe and because you position yourself as an authority and something that generate leads.

Another thing is the process of switching from full time work to freelancing is scary for everyone. No matter how prepared you are. Preparation does bring a little bit of confidence and gives you more information that whether or not moving into a positive direction or not.

I guess, by having that information, you can make those calls based on information rather than emotional fear of our false confidence. It knows another thing.

I can’t think of anything else right now. I think those really are the key things that struck me through this conversation.

Pete: If at all possible, take a break in between.

Ryan: Yes, taking a break is key. Even now, I’ve been doing this for several years. There are times where I just have to tell the client. “Look, I need a couple of days or a couple of weeks just to decompress.” Just because we have all this freedom.

We should actually take advantage of it and build in vacations to recharge. One thing just to close things, I know that you’re prelaunching your book.

You mentioned earlier that you’re going to be working on that again or you are working on that again. Do you want to give the listeners a little bit information regarding your second book launch?

Mastering Modern Payments

Pete: Sure, the book is “Mastering Modern Payments Using Stripe with Rails”. The relaunch involves several edit passes. Then a completely rewritten chapter on subscriptions. That was the big feedback from the first edition.

It’s been, this didn’t help as much as people wanted to is subscriptions. I completely took all the feedback and I distilled it into a brand new chapter about how to do subscriptions.

Then, updating everything to lead these versions. Then, also a brand new web based reading experience. If you’ve seen Discover Meteor, it’s heavily inspired by that. That comes out on October 15th.

Ryan: All right. I look forward to checking that new copy. We’ll be in touch. Good luck on the next year. I would wish you luck.

It seems like you’ve got everything lined up to be very successful on this freelancing/consulting world.

Pete: I hope so. I take all your wishes if you want to give them. I think it’s a lot of preparation in making your own luck.

Ryan: Alright, cool. Thanks.

Stop leaving money on the table with your freelance rate

When I took on my first client, I had no idea how to set my freelance rate. Asking for too much would make me seem greedy. Asking for too little and I would fall into the trap of being overworked and underpaid. It has taken a couple years, but I’ve finally come up with a system to set a rate that is best for me and my client. First I had to unlearn the hard way.

MOST FREELANCERS SET THEIR RATES BADLY

Most freelance web developers base their rate off their current (or last) salary. Our salaries represent our market value so it makes sense to use it as a basis for our rates. Well, as it turns out, thinking this way is wrong.

MOST FREELANCERS FAIL TO SEE THE BIG PICTURE

To figure out what you should charge, you need to understand how your work fits into a client’s budget. You may know your client’s budget but how did they even come up with this budget? What is the relationship between the budget and what you are working on? A quick story will help illustrate my point.

AN EXAMPLE: THE ACME CORPORATION HAS A PROBLEM

Sally, the CTO of the Acme Corporation, just got off the phone with Wile, their biggest customer. He wanted some quick drying cement delivered today, but yesterday’s website outage prevented his purchase. Wile is threatening to take his business elsewhere, costing the company thousands of dollars in revenue.

What Wile doesn’t understand, is that the outage was out of the Acme Corporation’s control. Their sales site is hosted on Jeroku and when Jeroku started doing maintenance, it took the sales site down. Sally decides to make a tough decision: it’s time for them to move off of Jeroku.

Sally had seen the warning signs for months: their Jeroku bill is well over $10k/month and outages seem to be happening more and more. She’s wanted to move them off, but delayed the decision because they didn’t have a dedicated web developer on staff. Sally wants this done right away. So they bring in Bill, the freelancer, and ask for a quote. Being new to freelancing, Bill thinks he has to come up with a hourly rate.

SETTING A FREELANCE RATE THE WRONG WAY

At his last job, Bill was compensated as follows:

  • a $70k salary
  • Health insurance
  • 3 weeks paid vacation plus holidays

To come up with his freelance rate, Bill reverse engineers what he was last compensated:

($70k salary + $20k in health insurance)
/
(49 working weeks * 40 hours)
= ~ $46/hr

Now Bill has an hourly freelance rate.

Based on his experience, Bill estimates it will take two weeks for the migration off of Jeroku. He quotes the Acme Corporation at $3.7k (40 hours * $46/hr * 2 weeks). Sally quickly accepts. Bill doesn’t realize it, but he’s just missed out on a ton of money because he’s missing a key insight in his calculation:

COMPANIES PAY FOR SOLUTIONS, NOT HOURS

Sally knew it was costing $10k/month to stick with Jeroku. If the Acme Corporation could migrate off of Jeroku by the end of the month they would save $10k next month and every subsequent month afterwards. With this in mind she set an initial budget for the project to $10k. This is why going for Bill’s $3.7k quote was a no brainer.

Sally was considering the amount of money it was saving her company. Bill on the other hand, only considered the money he thought he should be making. Simply put, Sally was focused on a solution while Bill was focused on hours.

GATHERING DATA FOR YOUR FREELANCE RATE

Let’s revisit the Acme Corporation but now Sally is contacting you for a quote. Your first task is to talk to Sally and identify two things:

  1. Their problem. The more specific details you find, the better. You get bonus points if you can identify how much money the problem is costing them and therefore, how much money a fix will save/make the company. In our example, the Acme Corporation loose $120k/yr staying with Jeroku and significantly more whenever their site goes down.
  2. The budget to solve the problem. To find the budget out, simply ask: “What is your budget?” If they don’t have an answer for this, it’s a red flag. This client has not put enough thought into their cashflow, what makes you think they’ll be reliable in paying you? You don’t need to know the exact budget number, just a ballpark. Jason Fried of 37Signals has an excellent tip on this:

When they tell you they don’t have a number say, “Oh, ok. So a $100,000 solution would work for you?” They’ll quickly come back… “Oh no, probably something more around $30K.” BINGO: That’s the budget.

SETTING YOUR RATE THE RIGHT WAY

You have already migrated 8 or so Rails apps off of Jeroku so the switch for the Acme Corporation shouldn’t be a problem. You offer to get the work done for $8k, knowing their budget is $10k. Plus, you guarantee the work will be done in time thereby assuring their savings of $10k next month.

Compare this to Bill’s quote of $3.7k, and you’ve doubled what he would have made for the same amount of effort. All because you thought about the problem from the client’s perspective.

CLIENTS ONLY CARE ABOUT SOLUTIONS

I was Bill for a long time, each client engagement was just someone paying me for the hours I worked. Then I realized clients only care about solutions.

You should keep this in mind whenever working with clients. Understanding your client’s thought process will add clarity to the value you are providing and how you bill. Most importantly it will help build lasting engagements. Give it a shot.

Procrastination and the Internet

Procrastination. It happens to all of us. Work starts to get overwhelming and the shiny Interwebs are there to take us away.

When I start to feel overwhelmed with all the things I have to take care of, I’ll open up Netflix or Hulu and catch up on shows I’ve missed. Or, I’ll look at random news on Reddit and Hacker News. I can easily escape and avoid all my burdens. A couple hours of
this is okay, but sometimes it can turn into days; and then reality starts to sink in: none of this is pushing my business forward!
Knowing my own weaknesses, I’ve developed a several techniques over the years to keep me productive and away from the Internet.

Block Sites at the Computer Level

For this I like to use Concentrate. You can specify domains you visit often and it’ll block them for you.

Blocking Hacker News

Blocking Hacker News

Unfortunately its abandonware but you can still download the 60 hour trial. I’ve also heard good things about Freedom. If you want to go completely old school you can also manually edit your /etc/hosts file.

Block Sites at the Router Level

I use OpenDNS as a DNS service. Just sign up, log into your router, pop two IPs to use as your DNS servers and you’re golden. It allows you to specify filters and individual domains on the web interface.

Setting Filters

Setting Filters

Block Sites/Apps at the Phone Level

I do this more so for social and family reasons. There was a time when I noticed we were all having dinner and everyone was just looking at their phones. Now, by default, I do the following things:

Disable Emails

Disable Emails

Turn off Emails

Restrict Safari

Disable Safari

Disable Safari

Restrict Apps

Restricting to 9 and under blocks most of my time sucking apps (Netflix, Instagram, etc)

Restricting to 9 and under blocks most of my time sucking apps (Netflix, Instagram, etc)

Block Things at the Partner Level

This is when you know you have a real problem. I used this technique when I was playing a lot of World of Warcraft and StarCraft II several years back. The solution? Create a random password for the account, give it to your partner and have them hide it or throw it away.

What about you? What kind of tricks do you use to stay away from the internet?

Why You Should Consider Working for a Consultancy

Tell me if you’ve heard this one before: “I’m a successful software consultant and I’ve quadrupled what I used to make at a cube farm. This is my success story. Blah. Blah. Blah. You can do it too!”

While inspirational, these type of posts tend to forget all the anxieties associated with making the switch to freelancing:

  • How will I get paid?
  • What if a client doesn’t pay me?
  • Do I need an accountant?
  • Do I need a lawyer?

And most important of all is: how do I land my very first client?

Sure, being your own boss and having the freedom and flexibility associated with consulting sounds awesome. The reality is though, if you don’t have a client, there’s no money, and with no money, you’ll quickly be heading back to the farm.

if you don’t have a client, there’s no money, and with no money, you’ll quickly be heading back to the farm.

Go Work for a Consultancy

My recommendation? Skip the “being your own boss” part for a little bit and go work for a consultancy. Instead of having to worry about things like accounting, lawyers, getting paid, and lead generation you will get to focus on the most important thing about freelancing: building relationships with clients by delivering them value.

The good news is that most consultancies are always in a state of hiring. They have two ways to increase their revenue: hiking up their rates or hiring talent to take on more work.

You do have to be careful about the kind of work the consultancy is taking on though. You don’t want to be at a place that is hiring developers to just fill seats. You want to be with a firm that empowers its developers to work intimately with clients.

a firm that empowers its developers to work intimately with clients

Some good questions to ask when interviewing are:

  • How often will I be in contact with a client? You want be the primary point of contact. If you have to work through some kind of project manager you won’t develop the skills necessary to communicate with clients if you were ever to go independent.
  • Who writes the proposals? The majority of consulting is understanding your client’s world view and effectively communicating it through project tasks and proposal writing. You want to be able to understand your client’s vision and coming up with a plan to get them there.
  • Who manages project scope? You’ve got to practice when to say no and when to ship. It’s true that the client is always right, but sometimes their vision can be blurred by shiny new features. You’ve got to be their advocate in ensuring that the money they are paying the consultancy will translate to either making them more money or solving some kind of pain in their business.

Want to make the leap?

My good friends at Test Double are hiring.

The Impact of Kindness

Last week I was saddened to hear the news of Jim Weirich’s passing. I had only met Jim once, but his impact on me was profound. I remember downloading PragProg’s Source Control Made Easy and having my mind blown as a cheerful gentlemen explained the intricacies of Git. When I started getting into Ruby and TDD, the very first thing I played with was his Ruby Koans. Fast forward a couple years, and I got to have lunch with him at my very first Ruby conference!

At the time I had no idea who he was or what his contributions were. I can still remember him enthusiastically addressing each of my newbie questions regarding Rake and contributing to open source. The entire conversation felt like I was talking shop with an old friend. That was one of the special things about Jim: his unmatched empathy allowed him to bridge that experience gap. Simply put, he just made everyone feel special.

he just made everyone feel special

Just take a look at some of things that other developers had to say about him:

The above tweets made me reflect on how we treat one another. More specifically, they emphasize how simple acts of kindness can impact people; and even more specifically than that, how they can alter a person’s day. Just one thing can inspire someone to pay it forward and contribute to their community. Individually they can seem small but all together they can cause a giant ripple effect and compel thousands of people to rally together to say goodbye to a complete stranger.

With Jim, you could find his marks of kindness everywhere: they were as big as sharing his work with the entire programming community to as little to sitting down and chatting with a brand new Ruby developer.

Thank you Jim. You will be missed.

Why Your Spouse Should be Your First Client

One of the biggest worries for new freelancers is how to get from a lead to closing the deal. How do you create a credible proposal to convince the client you are the right fit? Before even getting to the proposal you’ve got to practice your Listening and Compromising.

And who else better to practice with than your spouse.

Why Your Spouse?

Your spouse is the first person you’re going to tell about your plans to start freelancing.1 To do this, you don’t just tell them “I’m going to start freelancing tomorrow” and expect everyone to be happy. Just like closing a deal with a client, you’ve got to follow a process to get everyone on the same page.

Step 1: Listening

When you bring up the idea of wanting to freelance, your spouse will have concerns. How does this affect our income? If you’re doing this part time, when will you have time for family? What about chores and errands?

As a developer, I understand the urge to shout out answers and solutions. Fight it! Paying attention to what your spouse is saying. Check out the following video if you need an extreme/hilarious example.

In the video all the partner is looking for is sympathy. Your potential client is no different, they want to feel you understand the problem at hand. The most direct way to do this is to identify their fears and values through listening.

Step 2: Compromising

You told your spouse you wanted to freelance, causing an eruption of emotions and concerns. You listened and discovered that your spouse’s vision of  freelancing is much different than your own. When you encounter this scenario in every kind of relationship the best step forward is compromise.

By definition compromise is

an agreement or a settlement of a dispute that is reached by each side making concessions.

How can you compromise to ensure everyone is happy with you freelancing? Maybe you should limit the number of hours a week you do freelancing. Maybe even the days. The goal here is to compromise to get your spouse 100% on board with you freelancing.

This Isn’t Marriage Counseling

So far we’ve talked about working on listening and compromising. These skills transfer directly into closing that first deal with a client. From the first time you meet, you’ve got to fish out what they find valuable. As we found in step 1 a great way to do this is by listening.

Setup an initial client interview. At the interview learn about what they need help with, while also trying to probe what they find valuable. Ask them about their family, their hobbies, and conversely things that may be stressing them out. Maybe they’re feeling a ton of pressure from a deadline and they need an extra dev to speed things up.2

Once you’ve got notes from the first meeting, try to make a list of everything they find valuable. Then compare their list of values to your own list (i.e. your rate, your availability, etc). How can you maximize your value to them? Will you have to compromise your own values to move forward? Will it be worth it?

Finally, use this information to come up with a proposal. Congrats you’ve sent over your first proposal!

Footnotes

  1. You don’t really need to use your spouse. You just need to pick a person who will be affected by your decision.
  2. Yes, I read the Mythical Man-Month. I used this example because listening isn’t about providing answers up front. Gotcha!

How Savings Impact Freelancing

Last time I asked you to consider how much savings would you need in order to take a STRESS FREE three month sabbatical. The goal of this exercise seems pretty straightforward right? We’re just trying to determine how much you need to save to start freelancing full time. But there’s actually a secondary realization here.

Why save to start freelancing?

  • It’s good to have backup when starting a new endeavor.
  • You may be completely miserable at your job but it’s better than going broke.
  • You’ve made a compromise with yourself and decided, “I’m going to temporarily stick to this crappy gig but I’m also going to save so I can start freelancing. With the money I save I’ll have a backup when the income slows down.

If this is what you’ve considered, I’d say congratulations you’re almost there.

Head fake! You’re managing fear, not risks

The real reason you’re saving money isn’t to mitigate the risk of your income slowing down, it’s to mitigate YOUR FEAR. What will happen if I start freelancing and lose clients? What if I go broke and fail? These feelings are completely natural but it’s essential to notice the how much of an impact money can have on your emotions. This money/emotion relationship is the very reason we have financial advisors, people whose job is to help you make objective decisions with your money.

News flash! Money has an impact on our behavior.

What does this have to do with freelancing and your savings? Everything! If you’re short on cash, your going to be afraid of going out of business. If you’re afraid of going out of business, you’re going to take the next freelancing contract you come across. You won’t care if the terms are terrible, all you’ll care about is relieving the emotional pressure you’re feeling from the FEAR of failing.

all you’ll care about is relieving the emotional pressure you’re feeling from the FEAR of failing.

Now lets take that scenario and flip it on its head. You’ve got a pile of money you can use to live comfortably for three months. A new gig comes around, it sounds like an awesome collaboration but they’re asking you for a discount on your rate. Suddenly with savings you’re no longer desperate and you can think things through more objectively. Maybe the rate hit will result in more leads. Maybe you should sit on the deal for a week. Maybe you should renegotiate and see if there was something else you could compromise on.

Will having savings prevent you from stumbling in your first couple of months of freelancing? Nope! But it will help you think about things more objectively, less emotionally.

So how do we save?

So how do we save? There are a ton of schools of thought on this. You could put away 5% each month. If you’ve got a significant other that works you could try and live on one of your incomes while the other’s goes straight to savings. My beef with all of these approaches though is that they’re likely to impact your lifestyle.

The best approach in my opinion is to just start freelancing part time. You want to do it full time eventually, why not ease your way into it? Just make sure all that money goes into a separate savings account!

Warding Off the Financial Fear Spiral

You know what sucks about being a grown up? The loss of financial freedom. One day you’re care free, spending your weekly allowance at the arcade and then BAM all of a sudden you’re shopping for health insurance.

Sure your parents preached to you about saving your money but you didn’t really get it. So you’ve started to set aside some money in case something catastrophic happens. Better yet, you’re setting aside money so you can leave your 9 to 5 and get into the consulting game as an Independent Developer. But how much money is enough to get into the game?

The general rule of thumb has always been to have enough savings to cover your expenses for three months (including that of your family). The truth is the amount is less objective than that and more emotional. The amount you have to save is any amount that you can look at and not go into the Financial Fear Spiral.

What is the Financial Fear Spiral you ask? Its that experience you have when your savings have been suddenly wiped out or your income has ceased. “Oh man, how am I going to make next months rent? What am I going to do if I get kicked out of my apartment? Am I going to be homeless? I’m going to die alone.”

Dying alone is pretty frightful so another rule is to have two buckets, one that covers the entire family’s expenses and a second to cover your salary for three months.

For your homework you’re going to figure out how much you need to keep the Financial Fear Spiral at bay.

  1. What’s your average monthly expenses for the last six months?
  2. Also how many months worth of savings would you need if you wanted to take a stress free three month sabbatical?
  3. Multiply 1 and 2.
  4. Start saving for 3.

In the next post we’re going to talk about strategies on how to build up your savings and why its so important to take emotion out of your business decisions. Afraid you might miss it? Join my newsletter.

Building our Local Developer Community

Its been roughly a year since I started to help co-organize the Norfolk Ruby Users Group. When I started Ken, the sole organizer at the time, was getting a little burnt out. And to no fault of Ken (he’s a pretty busy dude) it was becoming apparent in our meeting attendance (from May to August of last year we were averaging 5 RSVPs per meeting). Our main goal was to grow our community.

Starting out I wanted to accomplish two things: adding structure and being more consistent.

Structure

Originally our meetings had no structure at all. Someone would volunteer to speak and if no one did it would default to Ken. Some meetings would last 30 minutes while others would go on for a couple of hours. This created an unpredictable experience for attendees and it possibly alienated those who had to be at home by a certain time. In order to alleviate this we simply added a time cap to our talks (45 minutes including time for questions).

The positive side effect of this was that it consistently gave us time to go to a restaurant afterwards for dinner and drinks. This unintended side effect is what strengthened our community more. People started to form relationships and our meet ups started to not only become time to learn something new but also a monthly time to catch up with friends.

Consistency

Since our goal was to grow the community I wanted to keep things simple: have eight RSVPs per month for six consecutive months. The challenge for us as organizers was that we had to ensure we were consistently providing value to our potential attendees. Translation: informative topics and engaging speakers.

I didn’t want one person to take the burden of having to speak every month so I decided to never let the same person speak more than a couple times a year. To do this I did everything I could to encourage and empower our attendees to become speakers. No matter where they were in their journey as a developer I wanted them to feel like they had something to share.

The other thing we did, was bring in as many out of town speakers as possible. If I got any wind of interest in speaking from someone I followed on twitter I reached out to them to see if they would like to come visit and speak. For a lot of our out of town speakers we were able to find times when they were remotely close to the area and if so scheduled our meetings around them so they could come and present. Our thought process here was we didn’t have a lot to offer them with swag or reimbursements so we would go above and beyond to make things work with them. This included driving an hour here and there to pick them up.

Education

For my own interests in teaching I also hosted a Coderetreat and a RailsBridge. After each of these we saw a slight bump in attendance. But the more powerful effect was that it created an infectious attitude about teaching. As a group we decided to add 15 minute lightning talks to our meeting agendas where the topics were geared to beginners. We always tried to record these talks and put them online to maximize our outreach.

I’m happy to report that a year later our average RSVPs for the past 12 months has been roughly around 13 with one month peaking at 20. We’ve revamped our website and our doing a fundraiser (only 8 hours left !) to help cover our costs as well as those of out of town speakers.

The Future

My most immediate goal is to continue to welcome new members. I’d like to get that average up a couple more and it is clear the only way to do that is to continue educating. We’re going to start having weekly hack nights for people to learn more from one another.

Long term wise I envision us becoming more of a polygot group. Even though we’re in a smaller area there have been a ton of other user groups that have come and gone. I want those people to feel like they could come join us regardless of the languages or frameworks they work with because we could learn a ton from them. Hopefully with enough growth I’ll eventually be able to train my replacement. :)