When you’re a traditional employee, you have a steady paycheck that is issued on a set date for a consistent amount of money. So there may be little need to diversify your income. Freelancers often have some fluctuation in their income. They may make a lot of money one month and then a lot less the following month.
If you’re a freelancer, this can be stressful and put a burden on both your business and personal life — which is why successful freelancers find ways to avoid this situation. They create multiple revenue streams and diversify their income opportunities so that even in a slow month, they can have a reliable flow of income coming in.
Find out how you can create the same sort of stability and consistency in your freelance business.
Why you need to diversify your income
First, let’s talk about the importance of having multiple income streams, and why this must be a priority in your freelance business.
As mentioned earlier, having multiple sources of income helps stabilize your business and your life. It allows you to avoid income droughts and stops you from going into each month wondering if you’ll make enough to support yourself.
But it does more than help you manage your bank account and cover yourself during slow periods. When you diversify your income stream it also:
Prepares you for disruption
Markets change fast. Business models that worked a few years ago are obsolete now (just think about Blockbuster). So you don’t want to rely on one market to fully support yourself. You never know when a new technology or approach to a problem can disrupt your business. When you diversify your income streams, it gives you something to fall back on if your industry becomes disrupted or obsolete.
Exposes you to new opportunities
When you explore other options for making money, you might be surprised with what you find. You can make introductions with new prospects and clients. You can expand your knowledge and learn something new to support your freelance business. Or, you might even find that your side revenue streams are more lucrative and successful than your primary source of income, which could lead you to change your business model or future plans.
Build your authority
When you choose to build multiple revenue streams in the same niche, it helps you get more exposure and grow your influence in that industry. If you are a person with multiple products or offerings in your field, you look more authoritative than someone who is only providing limited options.
Earning money in a variety of ways helps you avoid financial pitfalls and leads you toward financial freedom.
And research says this is how you can become both successful and wealthy. Tom Corley, the author of Change Your Habits, Change Your Life, says that most wealthy people live by the rule of having multiple revenue streams. His research found that 65 percent of self-made millionaires had three streams of income.
It will not only help you have a more successful business, it might even lead you down the path to becoming a millionaire. So how do you do it?
Diversify your pricing models
To keep money flowing into your freelance business, you need to set up payment systems that bring in regular revenue. As a freelancer, you have a few options for your pricing models.
- Hourly: you get a variable payment depending on the hours you work.
- Projects: you get a variable paying depending on the projects you do.
- Retainers: you get a set payment for work you do over an agreed upon period of time.
An ideal payment situation is having each of your clients signed up as a retainer client. In that scenario, you know exactly how much money you’ll bring in over a given period of time. By getting clients to sign a contract and agree to a set amount of payment on a recurring date, you have a reliable (yet not guaranteed) income stream.
It’s not always possible for freelancers to get their clients to agree to this ongoing relationship. They may do a lot of projects or have clients that don’t necessarily need consistent work. But you should always try to diversify your pricing models and get a least a few of your clients on a retainer.
By balancing out project and hourly work with retainers, you can add consistency to your schedule and diversify your income streams. So, seek out at least two or three of these types of clients.
And if you do a lot of project work, schedule out work as far ahead as possible. By lining up client work into the future, you can create a more secure stream of work (and revenue).
Diversify your clients
While it’s great to have a small number of clients that provide a steady stream of income you can rely on, it can also be problematic to rely too heavily on the revenue coming from one or two clients.
Even with client contracts in place, clients can cancel, run out of money, stop paying, close up shop or even become too unbearable to work with. You need to be prepared for this to happen. Because when a client walks away, so does the steady stream of incoming they were providing to your freelance business.
Diversify your client portfolio, always try to keep a few potential clients on your radar and always be on the lookout for new clients.
Diversify your income streams related to your freelance business
You also don’t want to rely too heavily on one or two services or products that bring in all of your revenue. While you of course want to focus on the offerings that bring the most money to your business, you should also think about other ways to generate income in your business.
To come up with other ideas to diversify your income, consider what you already do or have, and look for another way to package it. A few lucrative options you could add to your business include:
- Offering memberships or ongoing support services.
- Providing consulting services.
- Sellings courses based on your expert knowledge.
- Leading in-person or online workshops.
- Writing and selling eBooks.
- Receiving sponsorships or paid partnerships.
- Setting up referrals programs with other businesses.
Diversify your income streams unrelated to your freelance business
Once you diversify your income within your freelance business, take it one step further. Start looking for ways to bring in revenue outside of your business.
Having additional revenue streams that don’t rely on your business gives you even more financial security as you have a fall-back income source if something happens to your business.
Consider making money through:
- Online stores.
- Affiliate marketing.
- Passive income streams.
- Providing services through crowdsourced platforms (like Uber, Wag, TaskRabbit, etc.)
Diversify your income with long-term investments
Don’t stop there. Create even more opportunities to generate revenue by thinking about earning as a long-term goal. Consider setting up income streams that might not immediately produce money, but will help you reach your future financial goals.
- Open a retirement account such as an IRA or mutual fund.
- Purchase a rental property.
- Create and sell intellectual property.
- Invest in other businesses.
- Consider selling your freelance business.
Make more with multiple revenue streams
There is a reason that 65 percent of self-made millionaires have three streams of income. Making money through multiple avenues supports your freelance business, offers financial security, and also helps you build assets and income that give you both freedom and peace of mind.
For more tips on managing money as a freelancer, check out “8 freelance financial mistakes that many new solopreneurs make”.