Overview
Franỗois Dominic Laramộe
<francoislaramee@videotron.ca>
Long hours, interminable projects, bad bosses, and layoffs are but a handful of the reasons why some game developers forego the relative security of regular paychecks and create their own freelance businesses. The rewards of self-employment are such that most of them never go back to regular jobs, except under extreme financial duress. However, going into business is a risky proposition, and one not suited to everyone.
This article summarizes the techniques developed by the author, over a period of five years, to minimize the risks associated with a freelance business. Valuable insight gathered from the Freelancer's Roundtable at the GDC in 2001 [Laramée01] and 2002 [Laramée02] is also presented.
Should You Make the Switch?
Before you invest in a home office, ask yourself whether freelancing would be good for you:
Will you develop an ulcer if you go three months without receiving a check?
Will insecurity cause friction between you and your spouse?
Do you love chatting with co-workers over lunch or coffee every day?
Do you have nightmares before important meetings and presentations?
Do you enjoy being able to delegate responsibility?
Do you have trouble handling rejection?
Are you afraid you'll procrastinate and spend all day watching soap operas?
Are you too timid to call a client, repeatedly, until he pays what he owes you?
If you have answered "yes" to most of these questions, freelancing might not be your best choice. Perhaps you should consider going into business with partners, or merely changing jobs.
What Kind of Business Do You Want?
Some choose freelancing as their main career path, while others do it part-time while holding a regular job, or on an intermittent basis to fulfill specific goals, like saving for a vacation or a down payment on a house.
Whatever your situation, you must know the skills you can sell, and the companies likely to buy them.
Generalists
Generalist freelancers take on a variety of roles, often at a moment's notice, and routinely handle multiple projects of wildly different durations in parallel.
For example, in the past year, this author has received assignments in game design, translation, artificial intelligence, business consulting, book and magazine writing, Web design, press relations, teaching, and comedy writing. Some lasted 30 minutes and had to be completed within 24 hours; the longest took about 200 hours over a period of three months.
Generalists fare well in most environments. They can often rely on a small stable of regular clients to provide most of their income, particularly in geographical areas where few experienced developers live.
Content Specialists
3D artists, audio specialists, some programmers, scriptwriters, and other professionals who provide well- defined, isolated game components fall into this category. They can literally set up shop anywhere; well- designed character models, for example, can be plugged into an engine with a minimum of back and forth between freelancer and client, so it doesn't matter if the two are next door neighbors or if they live on different continents.
The amount of repeat business that a content specialist will receive varies a lot; an artist can work on a project for years, while a piece of code might be paid for once and used in several products. If your perspectives are weak in this regard, do not hesitate to take advantage of geographic freedom and market yourself far and wide.
Process Specialists
Producers, lead designers, and project salvage specialists are intricately involved in the corporate process.
That makes it difficult for them to become freelancers; the ones I know are very senior people whose tremendous credentials overwhelm clients' natural reluctance to risk so much of their projects on external resources. Even then, process specialists must spend significant amounts of time in their clients' offices, interacting with the rest of the team. Thus, they tend to live in high-density game development areas, like California or Texas, or travel extensively.
Setting Your Priorities
Before you start your freelance business, you must define the criteria by which you will judge its success. Do you want to work fewer hours, and have more time to spend with your family? Choose your projects? Make more money? Work from home, and move to the mountains? Acquire prestige within the game development community? Make games that the usual studio structure can't develop profitably?
Be honest with yourself. You can't be satisfied unless you aim for goals you really care about. And once you set your priorities, stick to them: judging your own success by someone else's standards will get you nowhere. If you want to work three days a week and use the rest to take care of your children, to write a novel, or to volunteer at the Red Cross, who cares if you earn less than you could as a studio executive?
Business Priorities
However, within the boundaries of your work, your priorities must be:
Completing projects on deadline Generating new and repeat business Maintaining your skills
Managing your money
Nothing else matters. If your office is a little messy, clean it up—but only after you return that new client's telephone call.
The Freelancer's Finances
In any business, the ultimate key to success lies in making sensible financial decisions. For freelancers, this means selling services at optimal prices, and managing cash flow effectively.
Your Target Income
First, you must determine how much revenue you have to generate every year to meet your goals and
obligations. Again, depending on why you want to freelance, this might be significantly more or significantly less than what you earn right now. Don't lose sight of your goals, even when money is involved.
At the very least, the amounts you invoice to customers must cover the following:
Living expenses. How much must you contribute to your household every month? What do you need to be happy? Make a reasonable budget, and include everything you need and want: rent/mortgage payments, transportation, insurance, clothing, vacation, petty cash, groceries, cable TV, savings, and so forth.
Income tax. Fill out a tax return in reverse, starting with the after-tax income you need for your household budget, and determine the required pre-tax, after-expenses income.
Business expenses. You will need a new computer every two to three years, software, office furniture, books, Internet access (don't forget anti-virus and firewall software), postage, trips to trade shows, training, transportation, professional services, and various supplies. Talk to a tax specialist to see what you can write off, what you must amortize over several years, and how you can use your home office as a deduction. Typical expenses amount to about 20% of sales every year, give or take 5%. Yours might be higher, especially if you need to lease office space or hire an assistant, but tax authorities frown upon anything in excess of 50%.
Case Study 2.8.1 includes a simple target income calculation.
Case Study 2.8.1: Financial Planning
Here is a sample grid to help you plan your business' finances:
Sales Objectives Value Formula Result
Monthly household needs $2,500 × 12 $30,000
Average tax rate 30% $30,000 / 70% $42,800
Expenses $10,000 $42,000 + $10,000 $52,800
Working Hours Value Result
52 weeks ¥ 5 days 260 days 260
Minus: Vacation 20 days 240
Minus: Holidays 10 days 230
Minus: Sick days 5 days 225
Minus: Trade shows 15 days 210
Total, at 7 hours per working day: 1,470 hours
Billable Hours Value Result
Working Hours 1,470 hours 1,470
Minus: Training 200 hours 1,270
Minus: Banking and invoicing 30 hours 1,240 Minus: Shopping for supplies 20 hours 1,220 Minus: Marketing and promotion 150 hours 1,070 Minus: Office maintenance 25 hours 1,025 Minus: Various contingencies 25 hours 1,000 Hourly Rate
Basic average rate:$52,800 / 1,000 hrs = $52,80 per hour
"Rule of 800" target rate:$52,800 / (80% ¥ 1,000 hrs) = $66 per hour
The Rule of 800: Calculating Your Billable Hours
Next, you must determine how many of your working hours you will be able to bill to clients. Again, refer to Case Study 2.8.1 for an example.
First, find out how many hours a year you will spend working. Take into account the length of your normal workweek, vacation, holidays, sick days, and travel time going back and forth from your home to trade shows and clients' premises.
Then, subtract time spent on tasks not directly related to client assignments, like marketing your services, banking, shopping for supplies, invoicing, training, cleaning up the office, installing software upgrades, and handling of all the other chores someone else would be taking care of in an ordinary company.
For most full-time freelancers, this computation will result in about 1,000 billable hours a year. However, you may want to cut that number by 20%, to about 800, to account for slow periods (which you can't always spend training) and for bad payers.
Your Target Hourly Rate
To determine your hourly rate, divide target income by billable hours. This is an average; on occasion, you will have to accept a lower rate because a client has limited resources or a project is just too interesting to pass up.
This is another reason to apply the Rule of 800: having a higher base rate will give you a margin with which to work.
In most cases, the calculations in Case Study 2.8.1 will yield a rate that is about twice an employee's hourly salary for similar work. This is perfectly normal; the client expects a higher fee because he does not have to pay office space, benefits, vacation time, and so forth.
Financial Safety Margins
[Laurance88] suggests setting aside the equivalent of 3 months' living expenses and 3 months' business expenses before you launch your business. This is enough to bridge the gap between your last paycheck and the first payments you will receive from clients, 30 to 60 days after you have delivered the work.
Then, to assure your business' long-term viability, gather an emergency fund twice as large—and restore it as fast as possible after drawing funds from it. Otherwise, a few months without assignments or a big client going
out of business while he owes you money will leave you in financial difficulty.
Other Considerations
The pricing method outlined previously will work in most cases, but be wary of the extremes:
Even if you need little money, do not undersell your services. Clients often assume that "cheap" equals
"shoddy."
If you determine that you need $100 an hour for work that full-time employees do for $30,000 a year, your business is unsustainable. Change your assumptions.
If you constantly find yourself turning down business because you're too busy, you might be able to raise your prices at no risk.
If you're in a bind, you might have to take assignments at discount prices. The shorter the better in this case, because you don't want to tie up time that you could sell at premium rates later on.
Marketing Freelance Services
Now comes the most delicate part of the operation: securing enough assignments to make your business self- sufficient. This requires excellent knowledge of your market and a significant promotional effort.
Who Will Retain You?
Companies hire when they have needs, and only if the service fulfilling the need can be acquired at an economically sensible price. Of course, "economically sensible" is a relative term:
In some jurisdictions, game companies receive government subsidies when they create full-time jobs, but not when they subcontract. Thus, it becomes almost impossible to convince them to hire freelancers for anything that could be done by employees.
The greater and more urgent the need, the higher the fees that the company will be willing to pay.
An artist who lives in Montana will be able to charge more for the same work if she sells it to a California company than to one based in Kentucky, because the price of an employee is higher on the West Coast.
Freelancers living in countries where the cost of living is low will have an easier time underselling their foreign competition.
In general, you will have to prove that giving you a freelance assignment will result in better, cheaper, and/or more convenient work for the company. This is not as difficult as it might seem, because the cost of a regular employee is much higher than his or her salary: hiring costs, office space, computer equipment, benefits, social charges, management overhead, vacation, paid holidays, and layoff costs all have to be taken into account.
Examples of situations in which hiring an employee at $30 an hour might end up costlier and less practical than hiring a freelancer at two to three times the rate include:
Frequent but small assignments. Sound effect design, translation, press releases, and second opinion on management decisions.
Very specialized knowledge. Music composition, screenwriting.
Seasonal overflows. Beta testing, trade shows.
Unusual tasks. Business plan writing, staffing, employee training.
Disaster recovery. Project salvage, critical bug fixes, filling the gap between an employee's departure and a new hire.
Shortage of experienced people in a specialty. Senior programmers, game design.
A volatile job market. Why go to the expense of a formal hiring process when the employee is likely to quit within three to six months?
Your Marketing Targets
That being said, it is always easier to secure freelance assignments from people who already know and trust you. Talk to former co-workers and employers first, and once you complete an assignment with a company, keep asking them for more (unless the first project went horribly wrong). You can expect repeat business to
account for 80% or more of your income after a couple of years.
That's the good news. The bad news is that existing relationships are the only reliable source of assignments.
Finding work in any other way will require time, effort, and the stoic handling of many rejections.
Thus, you should spend your promotion effort on the following, in decreasing order of importance:
Repeat business. Call your current clients a month after completing a project, and every three months thereafter.
Former clients/co-workers who change companies. Producers, in particular, know when a project team needs assistance, and they often recommend the freelancers to hire.
Referrals. Make contacts at local institutions where people with limited knowledge of the industry are likely to call for information. Good relationships with schools and chambers of commerce might be especially helpful.
Visibility. Build a Web site advertising your credentials and current projects. Write for magazines and books like this one. Teach at a local college. Get involved in the IGDA. People who have seen your name before are likely to think of you when they have a project to assign.
Companies you can meet in person. If you can visit a client's offices during off-peak periods or set up a meeting at an IGDA chapter event, do so. Face time is valuable.
Trade shows. You can meet many people at E3 or the GDC, but they will have limited time for you. Make sure to book key meetings at least four to six weeks in advance.
Direct marketing. When you call, write, or e-mail potential clients, concentrate on those not actively looking for full-time staff; they will have more time to look at your proposals.
One final word: never stop marketing yourself. Companies go out of business all the time. A regular client might grow until it becomes cheaper for him to hire a fulltime employee to take over your duties. Or a new manager with her own stable of freelancers might replace your key contact. As a rule of thumb, you shouldn't let one client account for more than a third of your income on a consistent basis, because if this client ever disappears, you will be in trouble.
Handling Bad Debts
Speaking of trouble, what should you do if a client refuses to pay you?
Unfortunately, your options are limited. [Laurance88] says that law firms won't get involved unless a debt of
$10,000 to $25,000 has been outstanding for at least six months. Collection agencies might present an alternative, but they will cost you 20 to 50% of the amount they recover, and in case of failure, you are still going to have to get a court order and have it executed by bailiffs—at your own expense.
Indeed, the best way to deal with bad debts is to not let them happen in the first place. Protect your interests:
Keep the first assignment small. This way, if the client shows bad faith, you have limited your losses.
Initiation of Service fee. When dealing with a new client, or starting any large project, ask for 20 to 50% of the assignment's value up front. This establishes good faith on both parts.
Split large assignments into several milestones. [Onder02] also recommends making payments part of the project schedule: inscribe payment due dates in the contract, and put in a clause stating that any delay will push back all further milestone deliveries accordingly.
Avoid making the final payment too large. Once you have delivered all of the work, a bad client has no further incentive to pay you.
Apply these rules to everyone, even people you know and like. A former co-worker and friend still owes this author thousands of dollars, four years after a project's completion.
Be careful if you spread the word about the bad client. It is all too easy to acquire a reputation as a troublemaker—and a libel lawsuit can ruin your life, whether you win or lose in court.
Case Study 2.8.2: Mark Barrett, Prairie Arts
Mark Barrett went directly from college to being a freelance screenwriter, and he wouldn't have it any other way.
"Freelancing affords me two main benefits: I get to move from project to project, which keeps my interest high, and whenever I'm not employed I get blocks of time to pursue my own initiatives, some of which also generate income. Plus, since most of my freelancing is done via telecommute, I'm able to live where I want."
Since Mark's family has never seen him work any other way, obtaining their support for his freelance venture was not an issue. "While a steady paycheck might provide us greater liquidity—primarily because we wouldn't have to keep reserves on hand for the lean months—I think that would be the only direct benefit of being an employee. Having said that, if the lean months ever turned into lean years, the level of support I am currently receiving would probably drop precipitously."
Mark receives most of his assignments through word of mouth. "I am almost always contacted by people who know my work and my reputation from a trusted third party, rather than because of claims I have made about myself. Since it can be difficult for a company to get over the fear associated with hiring outside workers, particularly offsite ones, first contacts usually happen when the prospective client is in trouble: the original writer or designer failed, and there is little time in which to correct the damage and finish the job."
For Mark, the most important quality freelancers must possess is discipline. "If you are not comfortable working alone and being alone, and if you do not have a history of initiating and completing your own projects,
freelancing is not for you."