📝 Ultimate Freelance Guide: Risk Mitigation

While countless factors make freelancing an attractive career option, it certainly isn’t for the faint of heart. Not only can income be unpredictable, but so can clients.

Here are some ways to reduce the common pitfalls that most freelancers encounter.

Choose the right pricing model

Getting this wrong is a surefire way to shoot yourself in the foot before you even start. Different projects require different pricing strategies. Freelancers worth their salt will have several methodologies in their toolkit.

Risky Business: If a project is highly ambiguous or you’ve never worked with the client before, it might not be wise to choose project-based pricing for a large chunk of work. You don’t know what’s under the hood and might put yourself at risk of underestimating the workload, issuing the wrong set of outputs, or understanding if roadblocks exist that make it impossible to deliver.

Mitigation Station: Start small and ease your way into a relationship with a client rather than going all in on a massive commitment. This will ensure you know what you’re signing up for, more accurately quote a project, and help to build a relationship with the client to command a higher rate.

Pro Tip: Kick off with quoting for flat rate audit work or sell in a bucket of time-based advisory hours to get a better lay of the land.

Agree on payment terms

There’s more to payments than setting a price. The difference is how and when that money exchanges hands.

Risky Business: Most companies are on monthly payout cycles but some enterprise companies can take 3-9 months to pay invoices. Can you afford to wait that long to get cash in hand?

Mitigation Station: Set and agree upon payment terms upfront. If you have a net 10 payment schedule, it’ll be much easier to tell if someone will stiff you on your invoices and cut your losses than if you’re on a net 90 term.

Pro Tip: Check out this amazing glossary of payment terms and considerations from QuickBooks. Use these in your contracts.

Use contracts

This might seem obvious but it’s not for the reasons you think. Realistically, contracts in the modern day of global remote working are not as enforceable as one may hope. It’s challenging to go after a client or freelancer in another country for breach of contract. What contracts ARE great for, is being a communication tool to set expectations with one another.

Risky Business: Kicking off work on a verbal agreement can be a recipe for disaster. People are inherently forgetful and may confound the expectations outlined in early calls - especially if there was back and forth on scope or multiple quotes. Misaligned expectations and outcomes are the biggest cause of disputes.

Mitigation Station: Whip up a contract that covers the main points of the agreement between you. Be sure that both parties sign and date. This leaves less room for misinterpretation and defines your relationship.

Your contract should include:

• Scope of work including any specific deliverables

• Client responsibilities including feedback and approval windows

• Timeline to start, check-in, and complete the project

• Working hours and availability

• Pricing and cost

• Payment terms (schedule, methods, etc.)

• Confidentiality

• Intellectual property rights

• Dispute resolution

• Termination and kill fees and timelines

Pro Tip: You don’t need expensive software for this. PandaDoc has a free version that allows up to 5 signatures a month.

Require deposits

You’ve signed the contract and know how you’ll get paid, so do you start? Maybe. There still might be a power imbalance. Deposits ensure that both parties have skin in the game.

Risky Business: Let’s say you kick off work and have agreed to invoice monthly with a net 10 payment term. You make good progress and submit deliverables to the client within that month, send your invoice, and keep working. You are potentially out up to 6 weeks of work (one month plus two weeks payment term) without indication that you might get paid.

Mitigation Station: Ask for a deposit. The industry standard is 30-50% of a project fee. This not only allows you to test and get used to their invoicing and payment systems but is a tangible display of good intentions from both parties. Even a nominal deposit of a few hundred dollars is often enough to create a psychological impact on a business relationship.

Pro Tip: Asking for money can be uncomfy. Here are some tips and templates from Freelancermap.

Turn down work

I get it, you’re trying to spin every opportunity into gold and want to say “yes” to everyone you can close. But, if your spidey sense is tingling, run away.

Risky Business: I’ve helped thousands of freelancers connect with clients on projects. There are some telltale signs when a client is going to be challenging.

• If they can’t clearly define success

• They aren’t responsive within a reasonable amount of time

• They’ve cycled through a number of other freelancers doing the same job

• They have unreasonable expectations of deliveries or an unfounded sense of urgency

• They negotiate your rates down an insulting amount or are extremely price-sensitive

• They are generally rude, disrespectful, or unprofessional - interviews are when everybody is supposed to be on their best behavior so take this seriously

Mitigation Station: Can anyone in your network vouch for this customer? Can you talk to other freelancers they’ve worked with? If you can’t get external confirmation then trust your gut.

Pro Tip: Don’t ignore red flags. 🚩 This advice is for talent platforms that are screening clients as well.

Maintain control

Don’t give up power over your work. Maintaining ownership until project and relationship completion is an important lever in protecting yourself.

Risky Business: A designer makes great designs and sends them to the client, a developer ships code. If clients have been transferred final working files, you have no leverage if they decide to dine and dash on you.

Mitigation Station: Send watermarked or read-only versions of items for approvals and hold final deliverables until you’re paid. If necessary, you need the ability to lock people out of systems if they’re not holding up their end of the bargain.

Pro Tip: Don’t be hasty. Send the invoice, send reminders, pick up the phone, and then pull out the final stops.

Diversify income streams

The reason great cities like New York thrive and cities like Detroit die are because they are multimodal. They don’t rely on any one industry, like automotive manufacturing, for economic growth. Don’t put all your eggs in one basket. When surveyed, 61% of knowledge workers said the recent rounds of layoffs made them feel less secure committing to one employer - so don’t.

Risky Business: If all of you income is dependent upon one major customer and something happens to end your contract or relationship - are you left with nothing?

Mitigation Station: Diversify your portfolio and income streams. You can

• Try to keep your pipeline full with irons in the fire - don’t ever turn lead gen off entirely

• Keep a mix of multiple clients and project types at any given time

• Offer additional products and services like ebooks, courses, or microservices

• Explore affiliate marketing or other passive income opportunities that complement your business

• develop recurring revenue streams like subscriptions, retainers, or licensing your intellectual property

Pro Tip: Keep your pipeline going with multiple lead sources. Join a talent platform or marketplace or partner up with other freelancers with complimentary services.

Get insurance

You never know what will happen in life. Make sure you’re protected.

Risky Business: If you suddenly can’t work, fall ill, or get injured, will you stop earning money? How will you pay your bills? What if a project goes haywire - and you’re liable for damages?

Mitigation Station: Get insurance. All practitioners should have indemnification insurance - especially sole proprietors/ self-employed status as they carry more direct risk than when incorporated. There are several accident, injury, and income protection options available to freelancers now. Don’t carry the emotional and economic stress and worry.

Pro Tip: Check out all the offerings that freelance groups are offering. Ex. Freelancers Union offers a ton of discounted insurance options.