In this post we will shed some light on ways to increase your earnings as a freelancer.

No matter what kind of (service) business you have, this observations hold true for most any business that depends on being billed by the hour. (And some are even extendable to other businesses).
Obviously this is a concern for me as well, as I always look for ways to improve my business.

If that does not fit your style of business or if you are an employee, you can still read on to get into the right mindset for a higher payed (developer) job.

What we will cover:

  • How are the earnings generated in the service industry
  • Different ideas to increase your earnings
  • Which aspects we can actively change
  • My personal view and how I approach this topic.

What this post will not cover:

  • Presenting a solution to the scalability issue of a service oriented business

How is the revenue structured

In the most basic form you can describe your revenue and earnings with the following equations:

   hours * rate = revenue
revenue - cost = earnings

This two equations are obviously the most important ones to consider. The first one simply states that your revenue equals your hours times your hourly rate. Not that big of a discovery, as well as the second one.
But it often helps to state the obvious to find leverage.
So we can find leverage in the form:

  • Increase your hourly rate
  • Increase the amount of hours worked
  • Reduce costs
  • Combination of all three things

So far this is probably and hopefully nothing new for you. Still we needed this as a starting point for this discussion.
We will proceed to look at different ways to directly increase the revenue and respectively the income when all other factors are considered equal. We also will later look at indirect ways to up your income and other things to consider for earnings.

We will look at each lever individually, but keep in mind that the most effective strategy will be if you focus on one of those, but still have a look on the others as well.

Direct ways to increase your income

As we saw, we can either increase revenue (hourly rate, amount of hours), or reduce costs to have higher earnings in the end.

Because I like the idea of playing in the offense instead of defense we will look at increasing the revenue first.
Also from my point of view increasing the revenue is something which you can actually control in a better way, because the costs that are inherently connected to outside sources are much harder to reduce and control. This might not be true for every business, but in my experience it mostly holds true for the freelancing business.
Also you will gain more from focusing on increasing your income, because that builds on itself, where reducing costs only has a one time effect (maybe it lasts but it does not multiply). I will go into more detail in the section on my personal view below.

Increasing the revenue, aka playing offense, can be done by expanding the hours you work for your clients, or on the other hand if you increase your hourly rate. Both have their pros and cons.

Increasing your billed hours

This is probably the easiest way to increase your revenue in the short term. It also helps you to learn more stuff related to your work, which will very likely be useful in the future. Obviously the more time you spend with your craft the better you get.

On the flip side more hours worked translate on a one-to-one relationship to fewer spare time.
It also brings the danger of making costly mistakes, and/or not satisfying your clients. Because lets face it you cannot hold up your best for a prolonged period of time if you do not get proper rest.

So this kind of approach is only well suited for short term periods of time and should not be considered a general solution, but be reserved for highly demanding scenarios, which are motivated from the project side and not from the money incentive.

So for directly affecting the revenue this leaves us with the method of increasing the hourly rate.

Increase your hourly rate

This is especially effective, because you can work the same amount of hours as before but getting paid (a lot) more in revenue. This is also easier to sustain than increasing your billed hours (albeit not being easy at all).
There is also some evidence (one of which might be the Veblen effect) that when you demand a higher price that you will be perceived as more competent and will only be considered by clients that are looking for highly skilled engineers. So it might even increase the chance of acquiring interesting and demanding projects even though this sounds counter intuitive.

Increasing your rate does of course not come without some cons. If you demand a higher rate the overall availability to clients naturally will decrease. This might also be a good thing though. But if it is for the better or worse is up to you to decide what you expect from your clients and projects etc.

Especially when you are just starting out as a freelancer, this is way harder than increasing the worked hours. It also requires much more upfront investment in your skills. Although I’d say one that is a freelancer ought to have at least the most important skill of learning anything quickly. If not make sure to check out my blog post on this one 😉 .

This already was my advice on playing offense in a direct way. We will now look at reducing the costs.
After that we come back to the interesting topics of indirect revenue increase via different channels and approaches.

Reducing costs

I will not analyze all the costs that are there for the business of freelancing. The costs can be divided into two important categories:

  1. one time costs
  2. recurring costs

From this two very different cost structures you need to watch the second one extremely closely. Even though the first one can come in hard, with expensive hardware, seminars, exams and stuff like that, the second one are those that will break your neck in the long run if you are not consistently on the watch. This is why we will mostly look at the type of recurring costs in this post. The reduction of one time costs mostly comes down to the question is the cost an investment/asset aka does it bring more revenue to the business than the price that was paid for it?

We will not look at all the recurring costs, yet the most common ones (from my experience) are the following ones:

  • Taxes (yes those are costs to your business, although they are a special case)
  • Travel costs and hotels
  • Hardware
  • Software licences
  • Other office stuff

Taxes might be the highest and most recurring on this list. But taxes are a special case. For one they are not as easy reduceable because of the ever changing laws. Also they are not directly costs to your revenue, but only applied after your earnings are calculated. So the equation then becomes:

revenue - costs = earnings_before_taxes
earnings_before_taxes * (1 - tax_rate) = actual_earnings

So to reduce those costs, you will need to ask your tax accountant, because I myself are neither allowed, nor do I have the necessary skills to help you with this.
But in general the reduction of costs has the benefit of being easy to do for the most part. You just have to think about how necessary some of the costs are. How do one know if costs are necessary? This is actually not always easy but as a start you can ask yourself the following questions:

  1. Does this increase my revenue in the future?
    1. Is this gain in revenue actually higher than the costs?
    2. Is it in a direct or indirect way?
    3. Does it improve my product/service or the perception of it (or maybe both?)
  2. Does it make my life a little bit easier?
    1. Does it increase my flexibility?
    2. Does it increase my time at hand
    3. Do I get some (perceived) increase in quality of life

And lots more in the same ballpark. Following you can see some real life examples:

  • Do I need a car or does the public transportation also do the trick?
  • Will the next device improve my business in the sense of more earnings or higher revenue.
  • Do I need all my software licenses
  • Does the telecommunications contract need to be that expensive
  • Can I delegate my office work to someone else

Even though I talk about playing the offense, from time to time you ought to look at your costs. Because we as humans tend to accommodate fast to things. What I mean is, that step by step you increase your costs and cannot even come to grips with it.

Sure if your recurring costs would increase from one day to another by 3650 € you would be scared (probably). But if you would increase your recurring costs by 10€ /day this would not seem like that big of a deal. So to avoid this, take a step back from time to time and analyze your cost structure.

Also sometimes reducing some costs, actually can increase your overall costs (at least here in Germany). This is because you pay taxes based on your earnings, and your earnings are reduced by your costs. Then based on that earnings your taxes are calculated, as I think you are aware of. But if you have no costs the taxes might actually at some times and in some cases be higher because your higher earnings gets you in a higher tax bracket. But details of this should be discussed with your friendly tax accountant, this is just a reminder to keep an eye on this when you make decisions about your cost structure.

On a side note you sometimes need to do a qualitative assessment of things that you want (and maybe to some degree need) for your business. I know this is a pretty broad generalization but it is actually not that easy and another reason why I prefer concentrate my efforts on the offense.

In the end reducing your costs does not grow your business and is therefore not a sustainable long term solution to begin with. This has several reasons, as we saw. Where as the most important is, that you get no multiplying effect but only a one time effect.

Next up we will look at other ideas, how one can grow their services business in a sustainable way.

Not so direct ways to play in the offense

When it comes to increase your income there are a lot of ways that might not be so obvious at first.

For a start, everything you can build around your business or that is in some sense related to it, and might yield you higher income in the future is a non direct way.
Some people would call this investing in your business. And as a freelancer, essentially YOU ARE THE BUSINESS.
What this means is that you should first and foremost invest in yourself. For example with learning something new, even when you are not at a client and maybe even not related to the engineering stuff in general, but something like people skills, negotiation techniques and so on.
With that said, we will now look at some ideas that might inspire you for other ways of generating or improving your income.

Offer high paying services. This includes something like blockchain, or other currently high in demand skills that are well payed, but not well known by many developers. It will be a hard time learning it, but if you are one of a few you will probably not have many projects but few with very high rates.

Widen and diversify your product portfolio with digital services. This category includes the following:

  • Create and sell online (video) courses on your blog, or if you have no blog then utilize platforms like udemy, pluralsight, youtube and others. (albeit I highly recommend you to start your own blog on technical stuff as you can read here)
  • Write an e-book on amazon
  • In general think of digital services connected to your business like B2B software or even open source as a kinda marketing gig
  • delegate contract work to lower income countries (if the contract allows for it)
  • use digital platforms like fiverr to generate extra income

Cut out the middle man. If you are in the software industry you will very well know that most jobs and projects are given to you by recruiters, head hunters or staffing agencies. A super simple way (if one has the required network to do so) is to cut out the agency and acquire customers in a direct fashion. (I personally like the idea of not bothering myself with that stuff, but it is a good approach one should consider in terms of higher income).

Increase your Marketing efforts. I talked about it before on my blog. So I will make it short: more marketing, the more well known you are, the better projects you get and the higher your pay is in the end.

Reduce your Tax burden. I know I said this is defense, but still this is one of the best investments you could ever make (besides investing in yourself). Have a good tax accountant and it will serve you well on reducing your tax burden. How do you find a good one? I don’t know actually, just try some and compare the results I guess…Let me know how you find yours ;-).

Use financial products. Invest in dividend paying stock, real estate or bonds (or any other vehicle). Or better even invest in ETF or index funds so you do not need to look into this stuff too much (unless you like this stuff, then of course go for it!).

Concentrate on income producing activities. Try to cut out all the time you do mindless stuff (read: something you do not enjoy doing), that other people could do for you and that does not yield any extra income. I will go into detail on the section Personal View below. Because I’ll be honest this is not something for everybody as I learned from experience.

Learn people skills. Even though you can delegate pretty much everything, this is something you ought to do, if you want to become successful (I define success as increasing your income in this context). One of the best books I have ever read on this topic is the following:
How to win friends and influence people. An absolute must read in my opinion if you want to be successful or live a more fulfilled life in general

Grow your Business in every other way you can imagine. All the aspects above tie into this general scheme, but I simply like to state this point so here it is 😉

Maybe you will not and even cannot apply all of those ideas, but in general try some out and see what works for you and what does not. Some may make more sense to you than others, and maybe you can even find some new ones for yourself on your own.

In the next section we will have a look on my personal opinions about this topic and how I approach this concepts.

Personal view

Even though this post was rigged with personal opinion, I will now add to this by stating how I see growing my business in general and for some specific topics I talked about in this post in particular.

One of my main themes is that, at all times as a freelancer you sell yourself, but are being paid for your services rendered. This not only demands high proficiency in technical skills, but also in terms of people skills. Even though this holds true for an employee as well, it is especially important as a freelancer. So first of all you ought to leave a good impression on people. This means you should be aptly clothed, talk and behave like the company you are representing. This is because the freelancing business is kinda your life and you should treat it as if your life depended on this…because it does!

From a more technical side you should focus your efforts on investing in yourself. Which means to improve your technical skills by learning those technologies you are interested in, but also invest your time in technologies that will improve your business for the sole reason of improving your business. In the end the market does not really care what you do like, but what it is in demand.
Even though most skills in the software industry are in high demand and you can choose pretty much anything and still do well with it. But from my point of view, one needs to have different services in their product portfolio, be it different languages or different domains, or different aspects of software engineering like data science, architecture, dev ops, frontend/backend you name it. This again can broaden your skills, how you look at different problems and widen your understanding for different domains.

Besides investing in yourself and leaving a good impression on people, you also should be able to somewhat manipulate people in a way that you get what you want in an easier fashion. What I mean with manipulation is not being egoistic about it and using people for your ends. But steering people away from their ego and their pride which way too often stands in the way of an obvious solution that would benefit everyone involved in the discussion. In the end this leaves all with a win and thats what you and your clients want.
I do not want to go into detail in this post, but there are a lot of books on the topic like:

So to make the best out of it you need to leave a good impression on people. This means you should be humble, honest and polite as well as trained in speaking, controlling your body language and other things like that.
This sounds way easier than it actually is, and I think one will never be fully accomplished in this regards. Still improvement in this categories not only leads to better customer relations, higher paid projects and ultimatively more fun at work, but most importantly to a more fulfilled life in general.

Choose direct or indirect approach? Reduce costs first or invest in yourself?

In my personal opinion the reduction of costs of your business should not be the first thing to do, (if you are getting in some earnings). I stated that above multiple times, still I think it is such a core concept, I will not retreat of repeating it again and again.

I also get that this needs to be done from time to time and is an ongoing process throughout the business. But still it will not increase your income in a sustainable manner. And most importantly it will not create feedback loops.

What do I mean by this? A feedback loop in its simplest form is created when you work paid hours at a client. You will learn something new there everyday whilst getting paid for it. So in the future you can increase your rate and again will learn while working for a client. Rinse repeat.
But that is not all, this can be extended by the things you do beside your billed hours. Again this means creating digital products or services, writing your blog, creating any other marketing efforts etc.

To come back to the question play offense or defense, I always try to play offense and increase the revenue first. What I mean by this is, that you win a game not by playing defense alone. If you do not score points you will never win, and a draw might be the best thing that can happen, which is not exactly why you created a business in the first place, right?

In terms of business this means if revenue is in place you can still reduce costs where necessary afterwards. It is an important rule for every business. Sales and liquidity fixes everything. I mean it is obvious if you have little to no cost, but no income you are not getting anywhere. As long as your costs do not outrun your income, that is your costs are not growing faster than your income is growing, you are good.

I would even go one step further. IMHO you should improve your skills or do billable work in every moment you can, even though that might incur some costs that you deemed not necessary before.

Not only does this create the aforementioned feedback loops but one also needs to look at this from an opportunity cost point of view. I for one do not cook, clean or do any other household work because it is unproductive and uninspirational to me. In other words I pay someone else to do this for me. This frees up some time that I can use to improve my skills or even use directly to produce income. As they say: Time is money.
This always makes sense if you gain more by this additional costs than you pay, simple as that.
And I even take this one step further. I tend to value my spare time with my hourly rate times a factor > 1. This then lets me decide if I really want to spend my time on something I do not like to do. This can then easily be decided on a monetary basis if I am not really able to decide on the spot. This might again be something not everybody is comfortable with, but it works well for me.
The freelancing business and business in general is for me not just a means to generate money, but a lifestyle that allows for the degree of freedom I want in my life, as well as interesting work with interesting people that demands a lot of me to focus on delivering the best solution possible. This also means for me to delegate and automate as much as I can of those things that I do not want to spend time on in my private life. This is a more qualitative aspect of this discussion, and might be different for all people. Yet it is such an important concept to me that I wanted to include it in this post.


In this post we looked at ways you can actually improve your income as well as your earnings.

We started with the simplest equation possible, derived some ways to directly influence your revenue.
After that we proceeded to a more general and qualitative approach to foster your income down the road.

At last I gave some of my personal views on the topic and how I do approach these kind of things.

Categories: Freelancing


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