
The Freelancer's Guide to Recurring Revenue - sherm8n
https://planscope.io/blog/the-freelancers-guide-to-recurring-revenue/
======
apendleton
I'm surprised retainer arrangements didn't get more discussion here, since
that was pretty important to my cashflow when I freelanced. For larger
clients, that was a standard part of the deal: most months, even without an
active project, they'd need a few hours of my time to tweak something, do some
maintenance, add a feature, etc. The retainer arrangement allows developers to
guarantee availability of a certain number of hours per month to the client,
and in return, establishes some baseline reliable revenue.

~~~
bdunn
Retainer agreements are, by far, the easiest and most straightforward way for
the average freelancer to create recurring revenue. Check out my other comment
on this thread with the list of bullets for a blueprint.

------
philbarr
This is all good stuff, but it kind of misses out on one of the things I'm
most interested in and which I feel is holding me back the most: I'm terrified
of marketing and trying to attract customers.

There I said it.

I've got a hundred ideas of things I could do, and I know how to create every
one of them - but no idea how to validate the market or go about finding
custom.

~~~
dools
Here's a way to start: pick the simplest one that you can do the quickest,
then find a group of people near you and go and present it to them for free.
It's a great way to give yourself a deadline, crystallise some concepts, and
find out that everyone does villify you as much as you thought they would :)

It's also a good way to guage interest and road test the content.

~~~
philbarr
> find a group of people near you

How do I do that? Sorry if I sound pretty simple but having never done it
before there's a barrier to break. I didn't use the word "terrified" lightly.
Where are these groups of people that aren't just friends and family, that I
can present products to?

~~~
michaelochurch
I know of a couple socially awkward men who did the following:

    
    
        1. Cut a hole in a box.
    

Actually, no. Wrong concept. That's not it. Let's try again.

    
    
        1. Go to Central Park on a summer afternoon. 
        2. Ask 100 random strangers out on a date. No fancy approaches or bullshit 
           pick-up lines. Just start a conversation, and ask before a minute's 
           up. Oh, don't ask for a phone number (you might get a fake, or 
           non-returned calls, and that's worse than a flat-out rejection). 
           Ask for an actual date. 
        3. Your median outcome will be zero; some people get lucky 
           and get 1 or 2, but don't count on it ... 
        4. ... but you've now been rejected 98-100 times and you're still alive. 
    

Learning to sell ideas is a similar process. You're going to fail a lot,
especially if your ideas are any good (because they threaten established
power-holders). Just keep going. You'll fear rejection less as time goes on.

~~~
cperciva
I don't like this, since it imposes externalities -- in the form of wasted
time and an uncomfortable end to the conversation -- on the hundred random
strangers you pick.

~~~
SatvikBeri
You're _typically_ introducing a positive, not a negative. Most people enjoy a
quick chat and find being asked out flattering even if they're not interested.

~~~
cperciva
_find being asked out flattering even if they're not interested_

Maybe if it's a rare occurrence, but I think it would get irritating before
long if a lot of people took the advice of asking out random strangers.

It also imposes an externality on any other potential ask-outers, in that it
makes them less likely to be taken seriously.

~~~
vinceguidry
> Maybe if it's a rare occurrence, but I think it would get irritating before
> long if a lot of people took the advice of asking out random strangers.

When you pick an obscure tactic, the whole point is to trade on the fact that
others aren't doing so. If by chance that particular tactic does get popular,
you simply pivot and pick another obscure tactic, or move to a field where
there are fewer players.

------
bdunn
Happy to answer any questions. I've gone from freelancing -> running a
consultancy -> 100% living off products, this last jump having been made a
little over a year ago.

Interesting sidenote: I don't think I would have thought to write this had it
not been for an amazing chat over lunch with patio11 and a few others at
MicroConf last week. So, thanks guys!

~~~
boothead
Hey Brennan,

I've bought your last couple of book and got a lot of value out of them. One
question:

Why the focus on selling to individuals (with the books etc). How to you feel
about B2B and building products targetted at a small business niche - worth
persuing? pros, cons etc?

For backgroung: I currently work in finance in London as a programmer, I'm
competent in back to front webdev and I'm earning more than enough on my day
rate to pay a good offshore developer. What would you do in my situation to
begin to build a recurring income?

~~~
bdunn
I don't sell to individuals (consumers) :-)

While a freelancer/consultant is theoretically one person, they're wearing
their business owner hat when buying my products. This is why they'll pay a
fair amount of money to get more clients, raise their rates, etc., but will
later scoff at paying $0.99 for a game on the App Store.

I would ONLY ever sell to businesses. And I think targeting bigger businesses
(> 1 person consulting shops) is a great move to make. They'll churn less (if
you charge a subscription), and they'll potentially throw down thousands of
dollars a month if it helps them eliminate a position or nudge up their
profitability by a point or two.

Regarding your particular solution... You could start with what I'm advocating
in my article: Why do people hire you _today_? I imagine it has something to
do with programming + finance. What's the smallest, sellable product you could
produce and sell at scale to the sort of people who are cutting your paycheck?
Or to others who want to work as a developer in finance?

------
programminggeek
You know, this is about escaping the freelancing world, but a lot of the same
ideas really apply to escaping the salary job world too. Build a product
w/recurring revenue, build up a customer base, eventually quit your day job.

~~~
jiggy2011
The one thing that always worries me about this model, and indeed doing
consultancy in outside hours is how you can balance the two.

Your employer (reasonably) has an expectation that you will give them 100%
during at least 9-5 hours and also be available for overtime periods on
occasion.

If you are building a product or doing consulting on the side for something
with real customers (especially if they are businesses) they also probably
have a reasonable expectation of being able to reach you within business hours
to resolve any serious problems.

You may be able to find customers who are happy with limited evenings and
weekends only support, but these are probably only going to have a small
intersection with "serious" customers who are happy to drop enough cash on
your product/service to make it a viable full time thing one day.

What is the best way to balance this?

~~~
patio11
This was highly non-obvious to me a few years ago, so I'll mention it now:
Customer expectations for most B2B applications frequently do not include
being able to pick up a phone and talk to someone during business hours. It
surprised me, too. I offer "24 hour response times, best effort, via email
only" as the standard plan for Appointment Reminder and get very, very little
pushback. When it does happen, I quote a $5,000 a month SLA for call-me-any-
hour-day-or-night phone support. I don't sell any of those, so it's been a
wild success. (If I ever sell one I'll dry my tears on the money then
quintuple the price for the second customer.)

~~~
wikwocket
Actually, if you sell one of the SLA's, I imagine you would hire a VA or other
service to answer the phone, forwarding the clal to you only in a true
emergency.

------
fvox13
If you're a web developer, one of the single biggest sources of recurring
revenue can be web hosting. I charge $100/year to most clients for hosting...
you get 30 small sites on a $10/month VPS and that's a lot of profit for not
much effort.

~~~
bdunn
Add to that:

* I'll be available to apply any security patches as they become available without the need to draft a Statement of Work.

* I'll make sure backups are happening as they should.

* [If your project is public facing] I'll run your split tests and continuously optimize based on the data we collect over time. I'll send you a PDF report at the end of each month that details where you were the month before, what's changed, and what the impact (uniques, engagement, financial, etc.) was to your business.

* ...

Now you're looking at a product that your non-active clients can subscribe to
that delivers insurance (hosting, backup monitoring, smart-guy-with-root-
access) and continuous refinement.

Throw a $XXX/$X,XXX price tag on it, set up automatic invoicing, and you now
have recurring revenue.

~~~
patio11
Gah, where was your #3 when I was doing A/B testing engagements twice a
quarter... Seriously guys, star that advice, it is fantastic.

------
csomar
If you want a recurring revenue, why not just get a job?

A product has its own quirks, or so was my experience. You'll need to supports
users, update the software/product, fix bugs, keep up with analytics, do
marketing and SEO stuff, answer pre-sale questions...

I'm talking here about a product that makes around $2,500/month in sales. It's
not enough to hire people and delegate stuff, so you'll have to handle it
yourself.

A nice spot is when you can hire a software developer, an assistant (for
answering emails), and a marketing package (from a SEO company or similar).

Costs:

\- Running the business: $500/month (for the server, legal and other costs)

\- Software developer: $5,000/month (outsourced, not the brightest but does
the job)

\- Assistant: $2,000/month (also outsourced)

\- Marketing package: $1,000/month (I'd say it covers many things)

Total: $8,500/month -> $102,000/year

If you are aiming at making $100,000/year from this product (nice lifestyle),
and considering an average of 20% in taxes, you'll need to make $240,000/year
in sales.

If chargebacks represents 5% of total sales, then it's around $240,000/year
before chargebacks.

It means on average, you make $650/day from sales. Now, this is possible, but
probably something that will take many years of hard work to achieve.

~~~
smartician
I think "recurring revenue" is a bit misleading in the title, the author seems
to be talking about _passive income_. Income that keeps rolling in even when
you cut back the hours you put into it. Once you've written a book or a piece
of software and put it for sale, you can start working on your next product
which hopefully opens up another stream of income. You don't need to sell
$650/day of _one_ product. You can also sell $65/day of 10 products each.

------
lifeisstillgood
bdunn runs a mailing list that is far and away the best self-help group for
entreprenuers and freelancers-looking-to-move-up I have come across.

This is HN after all, so I feel I should be more circumspect, but that group
is one of the major reasons I am still pushing forward, and I get to be the
old curmudgeon every so often so its even more fun.

~~~
grinnick
How can I join this list?

~~~
bdunn
Actually, Paul (lifeisstillgood) is talking about the Consultancy Masterclass
community group, a private, ~80 person group. (More info for the curious:
<http://doubleyourfreelancingrate.com/build-a-consultancy>)

------
jpgjb
Thanks for the guide Brennan! Good practical advice.

------
michaelochurch
I've actually come up with the solution:
[http://michaelochurch.wordpress.com/2013/05/07/fixing-
employ...](http://michaelochurch.wordpress.com/2013/05/07/fixing-employment-
with-consulting-call-options/)

Talented people sell call options on their time, on a freelance basis. The
strike is the minimum value they'd accept to take a job over the next N years,
and the option price (set by market, but with seller's right to set a floor)
is the value of that call.

There has got to be some risk-neutral/wealthy person out there who'd buy the
right to deploy a great programmer's time (possibly worth $500+/hour) for $150
per hour, any time in the next 5 years, up to K hours (the lot size).

This is, for a number of moral, emotional, and financial reasons, a lot better
than the "N% of future income" gimmick that some people do to raise money for
college. It could actually scale, which income-sharing won't (for a variety of
reasons, related mostly to fungibility).

It also gives consultants a way to raise money (for living expenses)
immediately while the allocation of their talent is outsourced to third-
parties who buy these options and then deploy their time.

~~~
oinksoft
Five years in advance? That's nuts. My time in five years will likely be twice
as valuable as it is now. I also find "set by the market, with the seller's
right to set a floor" dubious .. what market dictates this? Prices vary wildly
from location to location, even for the same individual should they decide to
move in the interval between the original order and its eventual fulfillment.

Further, how responsive does the freelancer have to be to their client? Do
they have to drop everything at a moment's notice or risk liability for the
investment?

You have a novel idea, but it is checkered with question marks.

~~~
michaelochurch
_Five years in advance? That's nuts. My time in five years will likely be
twice as valuable as it is now._

Right. So if your time is worth $75/hour now (you douched it up a couple days
ago with that "narcissistic shit" comment, so I'm pricing you conservatively)
then your 5-year $75-struck option is worth at least $75 (higher, actually,
due to volatility) and you'd get to collect that now.

You take the option premium, invest it in yourself now, and if you're called
in, you get additional pay (the strike price of the option) for the work.

 _I also find "set by the market, with the seller's right to set a floor"
extremely dubious. What market dictates this?_

Well, that's the hard part. The reason we find "X-percent-of-future-income"
deals to be tasteless and gimmicky is that there's still a stigma against
publicly looking for work. It either means, to a lot of people, that you're
either desperate, or sociopathic and looking for the highest bidder. That's
why work and consulting especially often comes down to these medieval-era
reputation economies.

Building the market would be a non-trivial undertaking, but it would improve
the freelancer's life (income stability) substantially.

 _Further, how responsive does the freelancer have to be to their client? Do
they have to drop everything at a moment's notice or risk liability for the
investment?_

I would say that the contract should specify a minimum and maximum hours per
week, and that the initial price is repaid if the person can't meet that
commitment.

This means that 5-year-window options might not be practical, because you're
right that there's the priority problem. What if someone sells 2500 hours of
time with a 5-year window and it's all called in in the last 4 months? I won't
claim that these things are easy to structure, because they're not, but it can
be done.

~~~
oinksoft

      (you douched it up a couple days ago with that "narcissistic 
       shit" comment so I'm pricing you conservatively)
    

You're way off-base, and you're crazy if you expect I read a single word after
that. Any comment I made was in direct reply to something you wrote, and
addressing it here is entirely off-topic.

