Freelancers, Let's Talk Revenue Diversification
The biggest risk to all freelancers is that revenue streams dry up overnight. Nick shares advice to help lesson the risk of waking up broke.
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Freelancing is Amazing… Until It’s Not
Freelancing can be an amazing experience for many. I’ve talked with Eli Schwartz, Ronell Smith, and Derek Jacobson (podcast) who each shared their six-figure plus victories transitioning to the freelancing life.
I also wrote about four heartbreaking reasons that freelancers fail. What I didn’t include was a fifth reason that can cause some of the most successful freelancers to fail, diversification in revenue.
Diversification of Revenue is Key
Many freelancers take their business on a month-to-month basis meaning they focus on the work in front of them and pay the bills with the revenue generated that month. This can sometimes mean they rely on limited revenue streams leaving themselves at significant (future) risk.
When you rely on one or even two sources of revenue you put yourself in a very risky financial situation. When I first started out I had one 10K SEO retainer that made up a large chunk of my monthly revenue. I knew in the back of my mind that if I were to lose this client that it would have a significant impact on my monthly earnings. I quickly pushed to diversify my revenue across a few different retainers which saved my ass when the 10K retainer did eventually come to an end.
Scale is (often) Not a Freelancer’s Friend
A lot of agencies have a goal of having no client make up more than 10% of their revenue stream. They are able to accomplish this as their team can scale across 10+ clients if not more. As a freelancer, your time can only be spread so far while maintaining high-quality work. This, however, doesn’t preclude you from making every effort to diversify your revenue sources. My recommendation is to avoid one client or revenue source making up more than 25% of your monthly revenue.
My Personal Diversification Strategy
As of 2022, I have figured out a diversification strategy that works well for me. This may not be a perfect solution for you but you’ll notice that I put myself in a situation where if one source of revenue disappears overnight it doesn’t completely screw up my finances. My current diversification strategy looks like this:
3-4 monthly retainers.
1-2 rotating projects (such as SEO audits or site migrations).
#SEOForLunch newsletter sponsorships.
Owned assets that generate revenue through sponsorship, ads, and affiliate partnerships.
You’ll see in the image below that retainers make up 64% of my revenue, one-time projects 15%, my advisor roles 12%, the #SEOForLunch newsletter advertising 5%, and then a few personal projects that generate revenue make up the final 4%.
This chart was built off of real revenue percentages from January to April of 2022. These retainers include 4 clients adding up to 100% of the 64% of the revenue I generate from SEO retainers:
Client Retainer 1 (35%)
Client Retainer 2 (33%)
Client Retainer 3 (29%)
Client Retainer 4* (3%)
*You are not reading the last bullet incorrectly. I have one retainer that is very minimal effort/pay as a favor to a personal friend. For the sake of transparency, I added it but let’s focus on the 3 clients.
Pricing Yourself Into Diversity
I have very intentionally turned down work that could make up two or even all three of the retainers listed above. Why? Because I can handle losing one retainer at any given time when it only accounts for ~30% of my retainer revenue. Is it possible that I lose 2 of the 3 retainers, sure! However, the odds of losing all 3 retainers overnight are unlikely. I feel confident I (and all of you) can replace one or two retainers in time.
I know freelance SEO consultants that take on 5-10+ clients. Sometimes it’s because each is on a smaller retainer and necessary to hit revenue goals but in other instances, these consultants are simply making bank.
Personally, I like to further broaden my revenue through multiple sources. I also believe I provide my clients with even more value when I limit myself to just 3-4 retainers vs stretching myself thin.
Keep an eye out on your portfolio of clients’ performance as you continue to scale. You may be someone who can easily handle 5-10 clients or you may quickly find that you are like me and a smaller portfolio is ideal.
Let’s Discuss Owned Assets
From the graph above you’ll see that ~10% of my revenue is tied to what I refer to as “owned assets”. By now you likely know about my weekly #SEOForLunch newsletter which I monetize through sponsorships. I also own a small hobby site that generates a modest ~$500 per month fairly passively.
More recently, I partnered with Peter Askew and I am now co-owner of SEOjobs.com (you can read my announcement here). The goal here is to not only fill a gap in the SEO industry (filtering jobs on LinkedIn/Indeed is a pain in the butt) but also to double down in my efforts to further diversify my revenue.
What’s The Ideal Diversification Number?
This is a number you have to be comfortable with on your own. Many freelancers can thrive off a single revenue stream (consulting) and focus on diversifying through the number of clients/projects they have. Others, such as myself want to further diversify by adding multiple revenue streams and continue to diversify each of those as well.
There is no perfect strategy for diversifying your revenue. What I can tell you is that going all-in on just a few revenue drivers can be a recipe for disaster. I’m by nature a disaster planner and one of my biggest fears is being forced to work for someone full-time again. With that said, my perfect diversification strategy looks something like this:
50% owned assets across 4-5 projects.
50% SEO services across 4-5 clients.
You’ll notice that I have a fair amount of work to get to where I would like to be but that’s the fun of owning your own business - it’s a journey.
Enjoy This Post? Get The Next One Emailed To You
The next issue of The SEO Freelancer will cover the diversification of your freelance income. You won’t want to miss this one!
P.S. A lot of people ask me why I am so transparent in my business. It’s by no means an effort to “humblebrag” as I am fully aware there are others in our industry who 10X+ what I’m doing. However, when I started out I frequently found resources that told me what to do but they rarely included actual numbers and personal anecdotes on how they accomplished their recommendations. Hopefully, this approach is appreciated. LMK by responding to this email (or posting in the comments) your thoughts!