I have a lot of hobbies and interests, some of them nerdier than others. One of my favorite areas of interest is personal finance, particularly as it relates to building wealth towards the goal of financial independence.
One of my favorite forums on this subject is Bogleheads, which is a very high signal-to-noise ratio and is packed with savvy, high-income investors.
A lot of the posters are in the medical field, and I recently stumbled across this thread by a young doctor looking for advice on buying into a specialty practice partnership versus taking a job with a hospital.
One of the comments (by user staythecourse) in particular jumped out at me (emphasis mine below):
In response to: “It depends on your specialty. If you generate large downstream revenue for others, then employment with hospital or multi specialty group can make you valuable and well compensated.”
Not so. As you can imagine a group or hospital could make EVEN more if you do the same work with less pay. The delta is extra revenue for the group/ hospital. In these two employments you do NOT own the patients. Like any employer they will offer you X salary for a Y service. If you think you deserve more they will let you walk.
- They assume you are successful because of them and thus any doctor in same field will reproduce the same results (but with lower pay).
- If you walk who cares as you don’t get to take the patients with you which is why you have no leverage in negotiations.
The last is what happens ALL the time when independent docs sell their practices to hospitals. They work for them a couple of years and when they start getting screwed on salary and/ or time they have no recourse as they have no patients to take to go on their own.
The BIGGEST strength a physician has is their patient load. That is what hospitals are buying NOT your expertise. As they know once they have that you become expendable if need be.
The core message here is that, as a doctor, you should own your patients.
The same is true of freelancers. To reach your potential as a freelancer, you must own your clients.To reach your potential as a freelancer, you must own your #clients.Click To Tweet
Here’s what I mean: if you are doing work for a client via a middle-man or other intermediary, then you don’t really own the client. And you really should own your clients for at least the majority of your projects.
Here’s what happens if you don’t:
1. You’ll make less money
In the eyes of your intermediary, you are probably viewed as an expendable commodity, and thus a potential way to increase profits, by negotiating your price down or replacing you. This is bad for your long-term profits.
2. You won’t have unfettered access to the client
You’ll have trouble pitching the right things and being responsive to feedback if your communications have to be vetted or relayed through an inflexible platform or multiple people.
3. You won’t be able to align your offering to the needs of the client
As a result of the above, you won’t be able to tailor your pricing and offerings to the needs of the client. You’ll have to come up with an arrangement that’s good for the intermediary, regardless of whether it’s best for the end client. This assumes you even have the ability to negotiate different arrangements, which you often won’t.
4. You may not be able to use your work in your portfolio
If you’re working via an agency or other intermediary, you may be working under an NDA where you’re not allowed to even reveal that you worked on the project, let alone share examples of your work with new potential clients. You probably can’t get great testimonials from the end client either.
So yeah, pretty bad all around.
What qualifies as an intermediary?
There are two primary intermediaries for freelancers that I’m thinking of here:
- Anyone you subcontract to (like agencies)
- Freelancer marketplaces and platforms
Let’s talk about each separately:
If you subcontract (like to agencies), you probably don’t own your clients
The great thing about doing freelance work for agencies, dev shops, etc. is that the good ones are sales machines. They’re constantly selling more than they can fulfill, and because they’re relatively crummy to work for, they have high turnover.
The same rules apply to staffing firms, dev shops, and major corporations that rely heavily on contract labor. It’s relatively easy to get this work, but the conditions are bad, the pay is mediocre, and thus turnover is high.
The result is that they always need good freelancers. This is very tempting when you’re new at this and need money.
And guess what?
I don’t think you should always avoid subcontracting.
I know what it’s like to be in the famine cycle and be desperate for any work you can get. If you’re in that situation, don’t feel bad for taking a subcontract job. Do what you have to.
But I would encourage you to be aware of the tradeoffs, and to put a plan in place to build up your pipeline of direct clients. It’ll make for a much stronger career in the long run.
What qualifies as subcontracting vs. working directly with a client?
The definitions are a little fuzzy here, because unless you sell direct to consumers, your client is never really the end client.
If you handle SEO for a company that makes industrial equipment, aren’t their customers the end clients?
I think the key difference is whether the client is 1) in the business of selling your work to make a profit or 2) leveraging your work to improve their profits.
If my business is built around taking your work and selling it at a marked-up rate (whether I improve upon it or not), then one obvious way to increase my profits is to get your work at a lower price.
Whereas if the work you do either increases my sales or decreases my expenses, then the mere act of hiring you provides a positive return on investment, because it improves my bottom line.
To use a design agency as an example, there’s a huge difference between:
- Working for them as a designer, doing logo designs for the agency’s clients
- Working for them to design and implement a sales management workflow and system to let them close more business
In both cases, they want to minimize your cost, of course. But in the second case, you’re an investment.
If you do subcontracting work, then there isn’t really a return on investment calculation that can be applied to your work. It’s an order fulfillment cost, not an investment in the future.
You want to always be viewed as a profit center, as an investment in the growth of the business, and as a partner in your client’s success.
If you work via a freelancer marketplace, you probably don’t own your clients
Even worse, you don’t own the source of leads that you’re getting.
Let me give you an example:
A few years ago, I did some client work on a freelancer “marketplace” site, which basically connected clients with vetted freelancers and then managed the transaction.
I won’t say who, except that it wasn’t Upwork or one of those, which you should avoid at all costs.
This was a niche vetted marketplace, so they were selective about the clients and the freelancers they let on the platform.
As a result, the clients and the project budgets were great. I did more than a dozen engagements through the platform in about 18 months, all in the five figure range, a few in the high five figure range.
However, after 18 months or so, they raised several million in funding and started to scale the platform up.
Note: whenever any service you rely on raises a huge round, watch out. They’re probably going to be making changes, and usually for the betterment of their founders and investors, not you, regardless of what their breathless blog post proclaims.
Anyway, now that they were scaling up, there was a dramatic increase in the number of freelancers vying for each job.
Previously, once I connected with a client on the platform, I knew I’d probably land the project because they’d only be talking to 1 or 2 people. Now I was often one of a dozen people
I wasted a bit of time for a couple months trying to close projects, but I quickly realized that this channel was dead and moved on.
Now, being on this platform wasn’t my mistake. I think it’s fine to get great projects from wherever you can find them.
My mistake came from the fact that, between my repeat and referral business and this platform, I was staying busy. Really busy. So I let my other sources of leads go cold.
And just like above, let me reiterate that I don’t think you should always avoid these situations. I did hundreds of thousands of dollars in work through this platform, which I have no regrets about. It was great for me at the time. But I put myself in a bad situation by not keeping my other lead sources hot. That was my mistake.
I own an intermediary
So, this doesn’t just go for your relationships with your clients. It goes for your lead sources too. Even if you own the clients you find through a particular lead source, you’ll need new clients in the future. And if this intermediary has clients going to them first and they decide not to send them your way, you’ll be scrambling to find other sources if you’ve relied too heavily on them.
This is a good time for me to mention that I myself run a “intermediary” lead gen service for freelancers, called LetsMakeApps.io. We do freelance lead curation, looking for good clients and projects from 300+ sites around the web. Every day, our members get an email with 50+ leads that we’ve hand-picked, and then they can click through and connect with those clients wherever the lead was found.
Now, we’re only an intermediary for that initial curation. Once you connect with those clients, they’re yours. We don’t handle the transactions through our platform. I’m sure that would be more lucrative, but I don’t think that’s good for freelancers, so I’m not interested.
But still, I would encourage you to not rely too heavily on any source of leads, including mine. Hopefully if you sign up, our mutual needs align and we’ll both get value from the relationship, but neither of us can guarantee that that’ll always be the case. I might shut LMA down, or pivot to another model. You might decide that you want to work in a niche that we don’t cover, or to only work with local clients.
So while I’d love for you to check out LetsMakeApps.io and hopefully make it a core part of your lead generation strategy as a freelancer, I definitely would encourage you to build other sources of leads into your model and maintain them over time.
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