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The Freelancer's Guide to Recurring Revenue (planscope.io)
242 points by sherm8n on May 8, 2013 | hide | past | web | favorite | 65 comments



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.


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.


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.


1) Use Google AdWords keyword tool to gauge the size of the market. Find something with >10k searches (Local, Exact match type)

https://adwords.google.com/o/KeywordTool‎

2) Build the product. Make a sales page. Offer a 30 day trial on all accounts.

3) If someone signs up, you have 30 days to figure out billing.

Couple of points:

- No, this is not a great method. Getting out of your house and talking to real people is always better.

- Any effort is better than nothing. And unless you have a product in the wild which someone could sign up for, you are doing nothing.

- If you have time to comment on HN, you have time to build an MVP

Also checkout Gumroad.com. Its about the easiest way possible to bill people. Once you've sold a few units, then you can worry about finding a better deal.

Do it!


There are two things you could mean here.

One is that you are, like a lot of people, modestly averse to doing something novel that seems hard. (E.g., "I could never run a 5k." Actually you could; you just don't know how to get there from where you are.) That's a solvable problem. The main trick is to get started; oonlynce you are doing research on customers, the hacker part of your brain will have data and something to start optimizing, so you'll be fine.

If that's you, try something like Lean Startup Machine. I volunteer as a mentor for it, and the team context and short timelines force you to get out there and start bothering random strangers. Who it turns out are not bothered at all, and are happy to talk. Once you get good at it, it's even fun. From there, read a few of the Lean Startup books; they're full of techniques.

The other thing you could mean is that you are literally terrified of dealing with potential customers. That is also not unusual. Programmers skew shy. The main reason I spent most of my teenage years learning to code was that I was awkward and people were scary.

If that bothers you, go see somebody about it. Call up a few therapists and have a meeting with the ones you like. If you find somebody solid, dig into the social anxiety. I know it goes against the hacker ethos to spend 20 hours dealing with a professional when you could spend 200 or 2000 hours trying to solve the problem yourself. But in this case, I think it's worth trying to get quickly to the think you really want to do, which is make and sell some things that people are excited to buy.


I used to have that problem too. I forced myself to go on the street to start talking to potential customers. Many days I just wandered from gas station to gas station talking to people while they pumped their gas. It's just a mental hurdle. You can totally do it!

Here's my experience: http://blog.leanstartupcircle.com/want-to-do-customer-discov...


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.


> 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?


You need to do this http://leanstartupmachine.com/

I did one in London and they made me get out on the street, stop people and talk to them.

Uncomfortable? yes. Eye opening? yes.

In 3 days we made an mvp, got out and sold product. Literally the MVP was some html page on some vps. Sales were meeting people in person for cash!


Throw a niche/type of product at us, and someone will have some good ideas. It's hard to say without knowing what sort of thing you'd be building though because a tool for helping recruiters won't go down well at the local Linux User Group for example ;-)


Well, picking one of my ideas at random:

I've always been amazed at how poor companies are at simple timesheet tracking. For example, the company I'm at now is a s/w dev company and we are still expected to fill in bloody Excel forms for managing time spent on specific projects/customers. We also have to fill in holiday forms in Excel, with the result that people (including my manager) never know when I'm on holiday until they are surprised by the Out of Office email reply.

So - a simple time tracking system, then. I would probably make a SaaS version online, and one which you could purchase and install locally yourself (or pay me to come and set up for you). And we can assume that it's going to be the awesome of awesomeness.

I'd probably write enough of it to make a minimally viable product that looks juicy and could take to customers. How would I go about finding these potential customers? Do I have to go door to door in my local area? Google Ad-words?


See, the reason it's interesting to learn that is most of the things I do are aimed at developers, so finding developer groups is really easy. I'm not experienced in the general business networking world but there are certainly things like local chambers of commerce, freelancing groups, and general networking groups to attend.

patio11 has more insight and practical advice on this sort of stuff than I can offer. A recent comment of his, for example: https://news.ycombinator.com/item?id=5657402 .. although I imagine jumping in head first to creating a local event is probably not what you want to do (yet).


Time tracking is a fairly competitive market. There are hundreds, probably of thousands of solutions that you will be directly or indirectly competing with.

On the other hand, the market is very large and there's lots of room for different companies.

I haven't seen a variation so far that doesn't annoy me.


meetup.com is a good place to start.

Set some basic goals for yourself like meet a new person each week. Get some cards.

If you're really starting from zero in terms of networking, go to a meetup and start talking to people, then aim to spend a year practising networking. You'll find out what constitutes quality in terms of networking soon enough.

Also check out Ruben Gamez's course on mixergy.com/premium called "networking for introverts", and his interview is good too.

In fact, just go watch mixergy :)

If you'd like to have a longer discussion about networking feel free to email me iain@workingsoftware.com.au

I used to think networking was for losers, but done right it's surprisingly non-spammy, fulfilling and lucrative!


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.


Here's an idea: Read this free ebook: The Flinch The idea is simple: your flinch mechanism can save your life. It shortcircuits the conscious mind and allows you to pull back and avoid danger faster than you can even imagine it’s there. But what if danger is exactly what you need? What if facing the flinch is the one best way to get what you want? What are you afraid of? Here's how to find out.

http://www.amazon.com/The-Flinch-ebook/dp/B0062Q7S3S


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.


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.


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.


> 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.


Our brain is good at making excuses for things that make us uncomfortable. Instead of 100, go ask at least 5 and see how it feels.


I don't think my girlfriend would be very happy if I started asking random strangers out on dates. ;-)


Maybe you could go with a single friend and try to find a date for him/her?


I hear ya Phil, it's tough. In addition to what dools said (great advice), pick the idea you care most about. Typically people who don't move on an idea actually don't care about it enough to get their hands dirty and get in front of customers. Also, I've had a few friends use Kickstarter as a tool to validate their ideas.


I'm terrified of marketing and trying to attract customers.

Every time your boss annoys you with a "How's it going?" status ping you are forced to sell yourself. Granted, there isn't immediate income on the line, but the status fluctuations have ultimate income-altering effects, sometimes with severe nonlinearity (i.e. your slight annoyance at a not-enough-to-do boss's fourth-in-a-day status ping ends up rippling into you getting fired).

That's not to say that consulting isn't harder, because it is. There's an established (if hilariously corrupt and inefficient) market for full-time employment. The consulting market is a broken word-of-mouth mess. And you constantly have to fend off the parasitic type of client that wants more leverage over you than he should, by rights, have. (That is, he wants to pay you on an as-needed basis, but have the reputation-impaling power of a boss.) That sucks, for sure, and it's one of the reason why medieval-style reputation economies deserve to die.

The fact is, though, that you're already constantly selling yourself as a corporate employee. If you have 27 good months and fall down in the 28th, you'll probably be fired, or at least harassed in some permanent way ("performance improvement plan") that makes it useless for you to keep coming into work; your career there is over. In that context, you're already a freelancer, even if an employee.

Sure, freelancing is terrifying but I've seen enough to look past the selling points of employment and realize that it's a form of freelancing that is (a) less selective and therefore easier to get, but (b) designed to pay you just enough to survive, so you can't save for lean times, in the way that a genuine freelancer does (and must).


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!


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?


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?


Microconf was indeed a tour de force. If you're serious about making the transition to products for your primary income, go.


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.


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?


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.)


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.


Yah, I guess you cannot provide 24/7 support anyway especially if you have customers in different timezones as you're going to have to sleep at some point.

I was thinking more in terms of "My server died and my business is burning because of something I could fix in 10 minutes with SSH" or "my main client had their server hacked by a 0 day RoR vulnerability" and I'm stuck here filling in TPS reports until 5.

I suppose some level of monitoring and a deposit + SLA left with someone you trust to resolve first line issues could go a long way.


The decisive condition here is often "can a problem with the software create a halting error in someone's daily workflow."


Notice I'm not recommending building a SaaS or any sort of hosted software product that requires 24/7 support.

A lot of consultants could go beyond just selling their time and consider selling training workshops, short ebooks or video series, retainer packages (one of my student's offers a CEO-ready monthly report to his clients, which shows the effect of his monthly tweaks on their bottom line), and so on.

Not all of these scale — you can't have 1,000 retainer packages or 1,000 students in your live workshop. But doing these things (think: pricing, not billing) helps condition you to be better at sales & marketing and coming up with a value proposition... experience that will really pay off once you decide to build that SaaS :-)


> 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're consulting you can set expectations on how much time you give to clients daily.

If I give clients a focused (no HN, twitter, coffee breaks etc, pure heads-down work) five hours of effort then they will likely be happy with the results. This gives me time to work on product, do chores, play with the baby and do whatever else is important to me.

This is obviously not feasible if you're a full time employee, where the usual expectation is that you're there in person whether you're productive or not.


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.


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.


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


Be careful about this - make sure you have an exit plan if you decide you want to stop freelancing. It can be a real pain if you don't have each client on a separate box.


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.


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.


I think the type of product he was talking about is an info product - book, series of videos etc. So I think your numbers are a bit off for this particular type of product...


Wouldn't relying on single product and hiring people make you more a startup than freelancer? The article was about something different, I think.


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.


How can I join this list?


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)


Here's Brennan's e-mail newsletter signup page: http://freelancersweekly.com/


Spent some time looking around and I think it's http://freelancersweekly.com/


Thanks for the guide Brennan! Good practical advice.


I've actually come up with the solution: http://michaelochurch.wordpress.com/2013/05/07/fixing-employ...

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.


I'm having a bit of an issue with the buy and sell provision of the option. So, I provide these, and the people who buy these options are people who are doing unethical (in my eyes or others) things. Let's say hiring a gay person to do a webpage for Stormfront, or a feminist's time being sold to a pornography site.

I care deeply who I work for, at least at the edges. My two worst experiences that nearly broke me were for business which I felt I was making a negative impact on society. That's not saying I won't work for a Fortune 500 -- I've done my fair share -- but I can't imagine giving up that kind of control.


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.


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.


  (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.


There's a lot of risks here for the buyer. Mostly risks that the seller fails to meet his side of the terms for any number of reasons. As the term becomes shorter, these risks are reduced, but then this contract kind of reduces to a retainer as mentioned below. The retainer is much simpler and probably better for both sides.


Alas, it is not legal in most countries to sell yourself into indentured servitude, no matter how reasonable your aims in doing so...


This wouldn't be that, because:

1. There would still have to be some right to back out (with payment of the original option premium, for sure, and penalties for people who do that often, like being blocked from the market, and being sued for breach if they did it in bad faith.)

2. People would be expected to disclose what kind of work they would and would not do. Obviously, nothing illegal can go down; but normal tech work (building websites) is, I think, fine for most people.

3. Indentured servitude is different because a servant's obligations are 24/7. This is a contract over a certain, limited amount of time. The only difference between it and a regular consulting contract is the transferability among buyers (or future buyers who'd exercise the option).

Regarding the moral hazard / ethics problem, I believe that if the market were well-structured, people would comply (i.e. work at the strike price, even if their market rates improved far beyond it) just to have continuing access to the market, and also for social networking purposes. You may have underpriced yourself 5 years ago at $100/hour when you're now worth $300, but you only obligated yourself for 200 hours and it might just be worth it to work at that rate. for a short amount of time and, possibly, get a client you can charge a higher rate in the future.


There would still have to be some right to back out

Ok, that changes things. I'm not quite sure why anyone would pay for the opportunity to offer someone a job, though.

I believe that if the market were well-structured, people would comply (i.e. work at the strike price, even if their market rates improved far beyond it) just to have continuing access to the market, and also for social networking purposes.

You're clearly far more optimistic than I am. :-)


There'd be a serious back-out penalty. You'd either have to buy the options back at a fair price, and you'd lose access to the site if you were acting in bad faith.

Yes, people would have the right to refuse work, but if they abused it, they'd lose access to that market. As with any other contract, people who backed out would face penalties as agreed-upon (at the very minimum, repayment of what they earned in the original sale).


This already exists in most consultancies - its called "maintenance".

Pay me 500 bucks a month and I will keep one day aside just for you / scramble to find a day on the month you do actually call in the marker.

michaelochurch's approach is interesting - and reminiscent of a TED talk about auctioning piecemeal factory worker time which I cannot find right now, but both of these suffer one big, possibly insurmountable drawback - they are chicken and egg - when 30% of the workforce finds work this way, hooray! Everyone will trust it. Till then ... no-one


In terms of scaling, how do you deal with prioritizing two different buyers claiming the same time period of a single seller?


That's not easy. I'll be honest about that. It's hard. I think that the solution is transparency. The option isn't like a regular stock option. There are a lot of things that must be included:

    1. Minimum and maximum hours per week that can be called-in. A person who intends on working full-time might set 0-12. (People can work over the maximum; there just isn't an expectation of top priority.) A person who intends on being a full-time consultant might set 20-50. 
    2. Industries for which a person refuses to work. 
    3. Willingness and ability to travel.
    4. How many of these contracts are outstanding. If someone wrote 5000 hours of options over the next year, that's patently ridiculous. There's no good definition of "too much", but buyers have the right to know. 
    5. Whether the person is working full time, and intends to continue doing so. 
    6. Priority resolution, as you mentioned.


[dead]


In the words of Peter Griffin, "Go on." I'm interested in a larger view point, please.




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