The Only 3 Numbers That Matter to a Freelancer’s Bottom Line
And 5 Tips to Improve Each One
The end of the year will be here soon. It’s a time to reflect on how the past year went, and plan for the next year. Three numbers determine your bottom line. By understanding these numbers, you will know what metrics you need to move to get the business results you want. By doubling just one of three numbers, you’ll double your revenue, without increasing your workload. So instead of saying, “I want to make more money next year”, by the end of this email I want you to say how you plan to make more money next year.
Metric #1: Number of Leads
You should measure this as a number of leads per month or per quarter. A lead is any person who has expressed interest and capability in purchasing your services. If you respond to a listing on a job board, that is not a lead. However, if the person you contacted responds to you and wants to continue the conversation, that is a lead. If you are consistently turning some of the leads into customers, then more leads will always equal more customers, which equals more revenue.
Metric #2: Conversion Rate
Your conversion rate is the percentage of leads that you convert into customers. Don’t get discouraged if this number is low. I consider 10% to be a good conversion rate and anything above that to be excellent. By increasing your conversion rate, you can increase the number of customers that you bring in, without increasing the amount of time you spend on sales. If you need three customers a month to make enough money, and your conversion rate is 5%, then you need to start conversations with 60 potential leads a month. If your conversion rate is 10%, then you only need 30.
(If you don’t use a CRM to track your leads and conversion, I would highly recommend getting one. There are hundreds to choose from, but I like PipeDrive)
Metric #3: Customer Lifetime Value
Customer lifetime value (often shortened to ‘LTV’) is the average amount that a customer pays you as long as you two do business together. If you don’t know what this number is, you can calculate it by adding up the total amount each client has paid you for all invoices, and then find the average. For example, let’s say you bill weekly at $2,000 per week. Your last quarter looks like this:
- Client A: 3 weeks of work: $6,000
- Client B: 5 weeks of work: $10,000
- Client C: 2 week of work: $4,000
- Your customer LTV: $6,667
The more you make per customer, then the fewer customers you need to make revenue.Once you know these numbers, you can project your income for 2015. The formula looks like this:
So, let’s say you made around $50,000. Your year might look like this:
8 leads per month * 10% conversion rate * $5000 LTV * 12 = $48,000
So, what if next year you want to make closer to $100,000? Instead of setting an arbitrary goal, now you can focus on moving the needle on a particular metric. If you wanted to double you revenue, you either need to figure out how to get more leads, increase your conversion rate, or increase the average amount a customer pays you.
Tips for Increasing Leads
- Adding an email capture to your website, start building a newsletter, and bring in clients that way.
- Send more emails out on job boards that you frequent.
- Give a seminar or a talk to prospective customers.
- Double down on whatever is currently working for you. If you meet people in person, go to even more events.
- Get more referrals, by asking for them. Reach out to past clients and current colleagues.
Tips for Increasing Your Conversion Rate
- Add packaging to your proposals, in order to give clients more ways to say yes.
- What have clients said before about why they decided to hire you? Work that into your emails and conversations.
- Do clients trust you? Add some convincing work to your portfolio, or get testimonials from past clients.
- Add calls to action to all of your client emails. Always make it clear how a client should proceed to move towards working with you.
- Get comfortable saying this sentence to prospects: “So, what is going to take to get you to become a client of mine?”
Tips for Increasing Customer Lifetime Value
- Raising your rate. Easy-peasy.
- Find ways to provide more value for your clients. For example, if you are a developer, providing documentation for other developers or an ”instruction manual’ to your client can be a value add that you should price for accordingly.- Offer auxilery services. If you design sites, you could also learn to handle some of the copy writing or data entry for the client.
- Sell retainers. Find a way you can provide value to your clients on a monthly basis, and sell clients on those services.
- Up-sell. The best time to add someone to the beginning of your sales pipeline is right after a completed project. If you can think of another project that would be beneficial to the client, or a retainer mentioned above, that would be the perfect time to sell them on it.
What are your goals for 2015? And what could I do to help you achieve them?