In this guide, we’ll provide everything you need to know in order to succeed in your career as a freelancer. This guide is for skilled professionals thinking about making the jump into freelance work, and for current freelancers interested in uncovering best practices. You’ll find information on a wide range of topics relevant to all types of flexible work: registering as a business and managing personal finances; marketing your services and finding engagements; pricing your rate and collecting payments.
Throughout the guide, we’ll include tips and best practices sourced from experts in the Toptal talent network. These experts bring many years of experience freelancing across a variety of skill areas including software engineering, design, finance, and product management. You’ll be hearing from:
- Laurie Harvey
product manager based in Bradenton, Florida, USA
- David Nuff
designer based in Toronto, Canada
- Lucas van Dongen
developer based in Utrecht, The Netherlands
- Solon Molho
finance expert based in Athens, Greece
While this style of work isn’t for everyone, we hope these freelancing guidelines will demystify key logistical questions and help nudge a future freelance rockstar in the right direction!
1. Introduction: Freelancing in the Talent Economy
Highly-skilled professionals face an exciting choice in regards to the future of their careers: continue offer their labor as part of a firm, or take full ownership over their labor and become a freelancer in the Talent Economy (not to be confused with the "Gig Economy," as explained in the table below).
|Gig Economy||vs.||Talent Economy|
|The platform is differentiator, the talent is an enabler|
|The platform is an enabler, the talent is the differentiator|
|The work is commoditized|
|The work is differentiated|
|The talent is commoditized|
|Talent is the central value point|
|Downward wage pressures are high|
|Skill gaps are high|
|The platform controls the talent's experience|
|The talent controls their experience|
|Limited growth potential for the individual|
|High growth potential for the individual|
In this next section, we’ll outline some of the advantages and disadvantages to work and life outside of the cubicle.
2. Freelancing Pros
Increased Complexity and Variety in Professional Opportunities
The agile nature of freelance work offers contingent workers the opportunity to select projects based on their personal interests and preferences. Lucas van Dongen found that working freelance allowed him to access more challenging development jobs in the international market compared to the local opportunities he was finding when working out of Argentina. "Work in the U.S. is usually much more interesting with more advanced technologies," says Lucas. "There’s more money in startups and mobile projects in general, and as a result, the level of work is much higher."
David Nuff found a similar benefit when looking to grow in his career as a designer. "If you’re really specialized in FinTech, you can begin a transition into a space like VR by taking one or two smaller gigs," says David. "That flexibility and the ability to make your own path is, for me, the biggest advantage."
Greater Lifestyle Control and Flexibility
In addition to the headline benefits of the freelance lifestyle, especially remote freelancing (including the ability to structure your day in a way that’s optimally productive for you, and the opportunity to work from anywhere), Laurie Harvey found that flexible work allows for greater financial freedom. "You can control your revenues and, when you’re getting jobs, you can adjust your rate," says Laurie. "If you join an elite talent network like Toptal, jobs can start faster since the whole HR process that usually takes a while doesn’t really exist."
Preferable Compensation and Tax Advantages
If you’re a highly skilled professional, going out on your own means you capture the full value of your labor. Consider a situation where you’re performing the same work for the same client, but are paid as an independent consultant rather than as an employee of a consulting firm contracted by the client (with this firm taking the lion’s share of profits). For a discussion with freelancers who have earned mid-six-figures or more in their careers with Toptal, check out this article on the "new millionaires."
In addition to differences in compensation, freelance work offers tax advantages that quickly add up. You’ll benefit from tax deductions on expenses such as an office, internet, travel, and even meals.
3. Freelancing Cons
Unpredictability of Work
When you embark on a freelance career, you take on the risk of finding work yourself. Even as you progress in your career, this unpredictability may never totally go away. "You still have lean periods," says David. "People I look up to who have ‘made it’ still have stretches of that."
To prepare for a transition into a fully freelance career, finance expert Solon Molho recommends taking baby steps. "My primary suggestion would be to find one or two engagements quickly to take the pressure off," says Solon. When Solon began freelancing, he had an opportunity to expand his work as a CFA instructor more than tenfold, offering an added level of financial security as he began taking on clients as a freelancer.
Lack of Employer-Sponsored Benefits
"There are a lot of economies of scale that you miss out on as a freelancer," says David. "Not being part of a company can make some things like insurance difficult." Health insurance is a pain point cited by many freelancers and one we’ll cover later in this guide for U.S.-based freelancers. For other professional perks, David found that joining a professional association for designers helped fill the gap. "The association’s partly about community, partly about education. They’re good at putting events together and bringing in people who run large agencies to share knowledge, and can help secure better rates from insurers and service providers."
Challenges of Running a Business
For someone accustomed to executing on the job, beginning a freelance career comes with a host of new administrative and logistical challenges. "When you’re freelancing, you’re doing everything," says Laurie. "Looking for work all the time, pitching work, writing up proposals, negotiating pricing, going and chasing down money." Laurie found that joining a professional talent network such as Toptal solved many of these problems by streamlining the process, allowing her to focus on the work. "Toptal presents talent with jobs, you get to choose them or not, and if you get selected by the client, you do the work and get paid."
Freelancing offers incredible opportunities for professional growth and lifestyle flexibility with the caveat that you must have the stomach for unpredictable work and the ability to handle the administrative challenges that come with running your own business.
Continue reading our freelancing guide for a run-down on how to address these challenges and get your freelancing business off the ground!
4. Working as a Freelancer: Business Basics for the First-Time Freelancer
One of the major challenges of going out on your own as a freelancer is assuming full responsibility for your income. While this is leap is incredibly exciting, it can also be anxiety-inducing: How do you protect yourself from legal risk? How do you handle taxes as an independent freelancer? What about freelance health insurance? This section will seek to answer all of the above and more. While much of the information will be directed at freelancers based in the United States, most of it is applicable to freelancers worldwide.
Register Your Business
When beginning a freelance career, you’ll want to formally establish your freelancing practice as a business. In order to register in the U.S., you’ll need to obtain an Articles of Organization form and pay a small fee that varies by state. While in almost all cases in the U.S. your needs can be met by structuring your freelancing operation as a sole proprietorship (SP) or as a limited liability company (LLC), it may be helpful to consult an attorney or use a service such as LegalZoom to make sure you’re not missing anything. Note that different countries will have different rules around business registration, including varying degrees of coverage on a regional versus national level. For example, David found that some Canadian provinces set different rules for registering a business, requiring an update when he moved provinces.
Why incur the expense of registering as a business at all? Registering as a business shields you from personal liability in the case of an LLC–i.e. it’ll help make sure you don’t lose your house if something related to your freelancing business work goes awry–and will allow you to begin deducting business expenses from your taxes. As an added bonus, the cost of registering your business is tax deductible.
Acquire a Business License
In addition to registering your business as an SP or LLC, if you’re working out of the United States you may need to obtain a business license in order to work as a freelancer. Note that the requirements for obtaining a business license vary by state, so it’s best to look into local requirements. Some states such as Washington require all businesses to get a business license, while others require licenses from a narrow group of professions (e.g. lawyers, doctors, architects, etc.).
Find Health Insurance
One of the biggest concerns of freelancers relates to health insurance. If you’re based out of the United States, you have a variety of options to make sure you’re covered in sickness and in health:
- If you have a full-time employer but are freelancing on the side, you’re probably best off keeping coverage from your employer.
- If you’re married, join your spouse’s plan. Some plans may have you totally covered, others may require your spouse to purchase a new joint policy.
- If you’re under 26 years old, look into staying on your parents’ plan. Plans that offer dependent coverage must do so until the dependent turns 26 as part of the Affordable Care Act.
- If you don’t fit into any of the above, see if there’s a freelance union that you can join that offers plans. If this option isn’t available to you, shop for a plan in a federal or state online marketplace. Begin this search at HealthCare.gov, a site operated under the Affordable Care Act to serve the residents of U.S. states that have opted not to create their own state exchanges.
Taxes: Tips and Best Practices
In the United States, freelancers are responsible for paying any federal, state, and local taxes. Rather than devote a huge section to this topic, we suggest hiring an accountant when you first begin freelancing in order to make sure your newfound business is fully compliant. Alternatively, check out some of the great resources already online to begin your freelance tax education.
Save 20% of anything you earn as a benchmark to make sure you’ll be able to meet your tax obligations.
Keep any and all receipts connected to your freelancing operation in the case of an audit, and in case you need to get expenses reimbursed by a client.
Establish a Comfortable Home Office and Work Environment
Finally, if you’re working from home, take the time to set up a proper home office. Invest in an ergonomic chair and comfortable desk, as this is where you’ll be spending the vast majority of your time. Consider buying backup hardware in case you run into any technical difficulties while on the job. "If your place offers both cable and fiber optic internet, I’d take them both," says Lucas. "If one goes down, you can use the other. The same goes for a computer — buy a backup and make sure you can switch between one and the other fairly quickly."
In addition to your physical office, make sure you’re well-equipped to work collaboratively in a remote environment. Some of the tools favored by remote freelancers globally include Zoom for video chats, TopTracker for time tracking and invoicing, Google Docs for collaboration, and Trello for project management.
5. Projects for Freelancers: How to Leverage Networking, Branding, and Talent Networks
One of the greatest challenges you’ll face as a freelancer is finding your next engagement. See below for our guide on how to effectively manage your own brand, how to market yourself, and how to take advantage of talent networks to expose yourself to lucrative freelance opportunities.
Leverage Your Personal Network
Before you begin working as a freelancer, reach out to former colleagues and let them know that you’re offering your services as a freelancer. This could be as simple as publishing a thoughtful LinkedIn post to going through your list of contacts and emailing everyone with the exciting news. All of our freelancers interviewed have received a huge selection of jobs from their personal network. If you build a reputation as a reliable and efficient worker, this could be enough to support your business entirely. "I most definitely do not advertise," says Solon. "I just do the work to a top-notch standard, and that brings clients in."
Be Conscious of Your Online Presence
Make sure to clean up your public image–anything from your LinkedIn to Twitter to those old Facebook posts you may have forgotten about. While this is important for employment of any type, it’s particularly critical for freelancing where your name and reputation are responsible for bringing in business. Lucas recommends a simple trick to check on the health of your public presence: "Google yourself from time to time and see what people find about you."
Consider opening up a personal website in your name that you can direct clients to. While not absolutely necessary and more important for certain types of work over others (e.g. development and design), a personal website can be a great place to introduce yourself to clients and show off a portfolio of previous work. When publishing a portfolio online, make sure you have permission to speak about the work publicly.
Outside of more inbound methods, there are plenty of opportunities to get proactive. Author a guest post for an industry blog or publication; host a workshop or teaching event; attend industry conferences and events.
Use Talent Networks to Access Lucrative Engagements
Professional talent networks such as Toptal offer some key advantages that create an almost blended freelance-company environment to support you in your career as a freelancer and give you access to some of the highest-paying freelance jobs. These services handle a wide variety of the administrative and logistical challenges discussed above (including marketing, contract negotiation, and invoicing, among many others). The curation of job opportunities is a particularly salient feature of freelance marketplaces, especially when these opportunities would otherwise be hard to come by. "It’s a strange dynamic of the labor market for programmers," says Lucas. "I send my resume to places, and I don’t get a response; I talk to a recruiter or apply through Toptal, same resume, and they’re asking me when I can start."
6. Getting Paid: How to Handle Contracts, Pricing, and Payment
How much are your skills worth on the freelance market? This is a question that’s kept many freelancers up at night, and there’s no clear answer. In this section, we’ll discuss contracts, pricing strategies, and payments to help make sure you’re getting the proper reward for your work.
Negotiating Freelance Contracts
Regardless of what type of freelancing you do, you’ll want to have a ready-to-go contract available to send new clients (larger clients may have their own standard contracts for freelancers; if this is the case, make sure to read the fine print!). Contracts should include detail covering the scope of work, deliverables, deadlines, fees, information on work ownership, and the duration of the professional relationship.
Contracts are agreed to on a case-by-case basis. "You’ll negotiate how much up-front, how much based off of milestones," says Laurie. "Sometimes it’s 20% or 50% upfront, depending on the duration of the work, with progress payments along the way, or a retainer." If you’re not operating through a talent network that negotiates price and terms for you, this sales aspect of freelancing is something you must get comfortable with.
Pricing Your Freelancing Rate
Finding a fair pay rate isn’t just important to your wallet, but the key to your professional learning and work experience. "The best-paid jobs are usually the most motivating, most interesting," says Lucas. "Sometimes raising prices protects you from disappointment since people pay the value they think they’re getting out of you." Our experts found their price point through trial-and-error and looking at their peers in the market. Below, we provide some expert-sourced recommendations for finding your ideal rate.
Analyze the Market, Assess Your Ability
"I was terrible at this starting out," admits David. "Charging $20 or $30 an hour, not factoring things that took my time but weren’t clearly billable time." As David figured out how to properly track his time and continued adding new clients, he found his rate range through studying the market, assessing his skill level, and thinking carefully about each project. "I’ve learned from my own experience, from other people’s experience, and reading books. I’ve looked at survey numbers to figure out what the market is doing, then I’ve tried to place myself in that market, thinking about how competitive my skills are at this moment in time," says David. "I then try to factor in how much I want the job and how much work managing the client will be."
"The 80% Rule"
Rather than looking at the market in order to back into a price, Solon has a simple trick for making sure he’s capturing his value.
If you get more than 80% of the jobs you apply for, you’re priced too low. You need a bunch of clients to reject you. I closely monitor what percentage of jobs I get, and try to keep it to 80% or less.
Of course, to be comfortable rejecting jobs you need to financially position yourself in such a way that you don’t need to jump on every job offered, which Solon readily admits. "I’m negotiating from a position of luxury. If they want to walk away, they can walk away.
Every Client Will Be Different
You’ll quickly find that there’s no one-size-fits-all price that’s appropriate for every client for every engagement (or different engagements for the same client). "To me, it’s part of that sales job," says Laurie. "If the client wants a deliverable at a certain time, here’s my rate. Does that fit into your budget? Then you go from there, with a lot of back and forth."
Invoicing and Payment
As mentioned above, if you’re part of a talent network like Toptal, payment processing may be handled for you. If you’re not operating through a talent network or job board (or if you are, but they don’t handle payments), you’ll need to learn about invoicing. Create an invoice template to send to clients for work completed. If you and the client have agreed to an hourly pay structure, carefully track hours over the course of the engagement to make sure you’re getting fairly compensated for work completed. Ensure you’re set up to receive payments via ACH, bank wires, and PayPal, or use an online tool like TopTracker that offers free time tracking, invoicing, and the ability to receive no-fee payments.
7. Conclusion: Final Thoughts and Freelancing Best Practices
The ability to work as a freelancer creates enormous opportunity for highly-skilled and motivated individuals all over the world. This guide is intended to provide you with everything necessary to get your freelancing career started — now it’s up to you to begin applying for jobs and getting your first clients! Before we end, take a look at these final thoughts from our experts on how to sustain a long and successful freelance career.
Maintain Clear Communication with All Parties Involved
The person you negotiate your contract with may not be the person you’re reporting to. "It’s not unusual to be working for someone that wasn’t involved in the signing of the contract or defining the statement of work," says Laurie. "The expectations of the person you’re working with may be completely different than the description of the job agreed to in the negotiation." In cases like this, it pays to practice clear and regular communication with all parties involved to avoid complications down the line if the work changes. "If there’s a change to the work that was scoped and that you’ll be paid to do, you need to make sure the original person is aware of those changes."
Use Casual Calls to Stay in the Loop
While remote work enables you to design your best work day and focus to a degree an office worker can only dream of, you may find that you’re missing out on office chatter related to the project. "If you work remotely a lot, you don’t get to hear what’s happening around the office, which is a blessing but it can be a problem at the same time," says Lucas. "It’s hard to get all of the information that you need." To combat this, Lucas has found a solution in forming office relationships that are more casual in nature. "I try to grow relationships with people at the office and have one-on-one calls, like having a coffee," says Lucas. "At my current job, there are a few people I have casual calls with apart from my manager that help keep me in the loop."
If Something Goes Wrong, Figure out What That Was
If a client isn’t satisfied, take the time to figure out what went wrong. Not only will this help you to improve your work for future engagements, but it’s critical for maintaining healthy client relationships. "If you should be unfortunate enough to get a dissatisfied client, work your butt off with them to find out what went wrong," says Solon. "I’m willing to put in ten times the effort to find out from an unhappy client where I went wrong. In my ten years of freelancing, I’ve had only one momentarily dissatisfied client. Now, they’re one of my best friends."
Do Good Work, Treat People Well
Finally, a bit of sage advice from David that’s served him well in his freelancing career. "Do good work and treat people well," says David. "You can figure the rest out later."
Join the Talent Revolution
If you’re a highly-skilled professional looking to launch a freelancing career, or if you’re currently a top freelancer looking to access engaging, remote work opportunities with the world’s leading organizations, apply to join the Toptal talent network!
Toptal is an elite network of the world’s top talent, connecting our community of the best and brightest in business, design, and technology with top organizations around the globe. Through Toptal, you can become a part of the top 3% of talent from anywhere in the world, on your terms. All Toptal clients are thoroughly vetted — only those with the budget, skill, and intent to hire make the cut.