6 ms·

The Freelancer's Guide to Recurring Revenue

242 points by sherm8n 13y ago

bdunn 13y ago
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 13y ago
  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 13y ago
    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?
- alinajaf 13y ago
  Microconf was indeed a tour de force. If you're serious about making the transition to products for your primary income, go.
marinaklima 13y ago
freelancing is good
- virmundi 13y ago
  In the words of Peter Griffin, "Go on." I'm interested in a larger view point, please.
programminggeek 13y ago
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 13y ago
  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?
  - bdunn 13y ago
    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 :-)
  - alinajaf 13y ago
    > 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.
lifeisstillgood 13y ago
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 13y ago
  How can I join this list?
  - iends 13y ago
    Spent some time looking around and I think it's http://freelancersweekly.com/ http://freelancersweekly.com/
  - mfenniak 13y ago
    Here's Brennan's e-mail newsletter signup page: http://freelancersweekly.com/ http://freelancersweekly.com/
  - bdunn 13y ago
    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 http://doubleyourfreelancingrate.com/build-a-consultancy)
philbarr 13y ago
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 13y ago
  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 13y ago
    > 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?
    - petercooper 13y ago
      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 ;-)
      - philbarr 13y ago
        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?
jpgjb 13y ago
Thanks for the guide Brennan! Good practical advice.
deleted 13y ago
[deleted]
michaelochurch 13y ago
I've actually come up with the solution: http://michaelochurch.wordpress.com/2013/05/07/fixing-employment-with-consulting-call-options/ 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.
- blueprint 13y ago
  In terms of scaling, how do you deal with prioritizing two different buyers claiming the same time period of a single seller?
  - michaelochurch 13y ago
    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.
fvox13 13y ago
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 13y ago
  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 13y ago
    Gah, where was your #3 when I was doing A/B testing engagements twice a quarter... Seriously guys, star that advice, it is fantastic.
- damoncali 13y ago
  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.
apendleton 13y ago
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 13y ago
  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.
csomar 13y ago
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.
- nekopa 13y ago
  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...
- smartician 13y ago
  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.
- klibertp 13y ago
  Wouldn't relying on single product and hiring people make you more a startup than freelancer? The article was about something different, I think.

242 points by sherm8n 13y ago

bdunn 13y ago

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 13y ago
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 13y ago
  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?
alinajaf 13y ago
Microconf was indeed a tour de force. If you're serious about making the transition to products for your primary income, go.

marinaklima 13y ago

freelancing is good

virmundi 13y ago
In the words of Peter Griffin, "Go on." I'm interested in a larger view point, please.

programminggeek 13y ago

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 13y ago
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?
- bdunn 13y ago
  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 :-)
- alinajaf 13y ago
  > 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.

lifeisstillgood 13y ago

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 13y ago
How can I join this list?
- iends 13y ago
  Spent some time looking around and I think it's http://freelancersweekly.com/ http://freelancersweekly.com/
- mfenniak 13y ago
  Here's Brennan's e-mail newsletter signup page: http://freelancersweekly.com/ http://freelancersweekly.com/
- bdunn 13y ago
  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 http://doubleyourfreelancingrate.com/build-a-consultancy)

philbarr 13y ago

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 13y ago
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 13y ago
  > 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?
  - petercooper 13y ago
    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 ;-)
    - philbarr 13y ago
      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?

jpgjb 13y ago

Thanks for the guide Brennan! Good practical advice.

deleted 13y ago

[deleted]

michaelochurch 13y ago

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

blueprint 13y ago
In terms of scaling, how do you deal with prioritizing two different buyers claiming the same time period of a single seller?
- michaelochurch 13y ago
  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.

fvox13 13y ago

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 13y ago
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 13y ago
  Gah, where was your #3 when I was doing A/B testing engagements twice a quarter... Seriously guys, star that advice, it is fantastic.
damoncali 13y ago
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.

apendleton 13y ago

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 13y ago
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.

csomar 13y ago

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.

nekopa 13y ago
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...
smartician 13y ago
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.
klibertp 13y ago
Wouldn't relying on single product and hiring people make you more a startup than freelancer? The article was about something different, I think.