Freelancing for a while now, I’ve figured out my basic expenses but I feel lost when it comes to understanding my financial growth.
What key indicators should I be looking at to really gauge if my business is thriving or just getting by?
Cash flow timing matters more than total revenue. I track how long money takes to come in after finishing work.
If payments stretch past 45 days regularly, that tells me I need different clients or payment terms. Quick paying clients mean steady cash flow even when work dips.
I also compare what I keep versus what I bill out each quarter. Materials and expenses eat up profit fast if you don’t watch them.
I track three main things that tell me the real story.
First is my monthly take home after all business expenses. I compare this to what I made doing the same work as an employee. If I’m not beating that by at least 20%, something needs to change.
Second is how many months of expenses I have saved up. Started with one month, now I keep three months worth. This buffer lets me be picky about clients and not panic when work slows down.
Third is my hourly rate trend over time. I write down what I charge each new client. If that number isn’t going up every six months, I’m not growing.
I also set a target for how much work comes from referrals versus me hunting for it. When 60% of new work comes from referrals, I know I’m doing something right.
I just look at what I made last month compared to the month before. Simple as that.
Track your profit margin on each job and your booking rate.
Profit margin tells you which types of work actually make money after materials, travel, and your time. I aim for 40% minimum. Anything less and you’re working for peanuts.
Booking rate shows how far out you’re scheduled. If you’re scrambling for work next week, rates are too low. If you’re booked solid two months out, you can raise prices.
Also watch your collection time. Good clients pay within 30 days. If money takes longer than that, you need better clients or stricter payment terms.
The one metric that changed everything for me was tracking revenue per working day.
I take my monthly income and divide it by actual days I worked. Not calendar days, but days I actually did billable work. This number tells me if I’m getting more efficient or just working more hours.
When that daily rate stays flat for months, I know I’m stuck. When it goes up, I’m either charging better clients or getting faster at my work.
I also keep a simple list of:
- How many prospects I need to land one project
- Average project value this year versus last year
- Percentage of income from repeat clients
The prospect conversion rate shows if my positioning is working. If I’m pitching ten people to land one job, my rates are probably too high or I’m targeting wrong clients.
Repeat client percentage tells me about quality. When half my income comes from people who hired me before, I know I’m doing solid work and not just cheap work.
I just check if bills get paid and there’s leftover money.