Making money freelancing can be hugely profitable for you while helping business owners, solopreneurs, and everyday folks with tasks they can’t do. Most freelancers charge by the hour or by the project. In this article, you’ll discover a different compensation model that can be more convenient for your client and earn you way more money than with hourly or project-based fees.
First, let’s look at what most freelancers earn and the compensation models they use to get paid.
How Much Money Do Most Freelancers Make?
According to this study by freelancing job site Upwork, 44% of freelancers say they make more money doing contract work than they would in a traditional, full-time job.
And Payoneer cites an increase in the rates freelancers are enjoying worldwide, rising from an average of $21 per hour in 2020 to $28 per hour in 2022.
But how much you earn as a freelancer depends on a ton of factors such as experience, past results, industry, skills, recommendations, and certifications.
(For the top paying freelance jobs, check out this article.)
What Compensation Models Do Freelancers Use?
I go more in-depth into these compensation models here, but here are the most common ways freelancers get paid.
Hourly
This option is so basic, it hardly warrants explanation. However, setting the right hourly rate determines whether you’ll be busy with the right kinds of clients, tearing your hair out with the wrong clients, or sitting at your desk wondering why the leads aren’t pouring in.
Flat Fee
I love flat fee projects, but they’re a double-edged sword. If you have clear deliverables, the right expectations, and manage scope-creep, this can be a tremendous compensation model. But it also has a big downside (more on that in a moment).
Retainer
Retainers are fantastic if you do them right. It’s the easiest way to build dependable cash flow, especially if you have several clients. You never want to depend on a single client to pay your bills.
And while each of those methods has its advantages, they all miss out on the upside: you make the agreed-upon amount. No more, no less.
But what if there was a payment model where your comp had no ceiling?
This brings us to…
How Freelancers Can Get Paid BIG MONEY Compared To Hourly, Flat-Fee, and Retainer Projects
Is it possible to make more money giving your work away than getting paid flat fees?
I’ll show you why you might consider free work (and why it could be far more lucrative than project-based work . . . even when you’re just starting out).
Because unless you’ve got excellent skills and experience already, finding work is a grind at the beginning of your freelance journey.
And if you are highly skilled, this model can be even more lucrative. More on that further down the page…
Unlimited Upside as a Freelancer
Imagine a business owner approaches you for some work. They want to fill their new mastermind with students, and they’re charging a premium to do it.
You have some experience copywriting, and know you can help.
When they ask you what you need to make, you freeze.
“Should I charge an hourly rate? What about a larger flat fee?”
Neither of those are bad options, but if you choose them you’re not getting any upside.
You’re making what you make, regardless of how well your work performs.
So let’s flip that around…
What would happen if you took some risk on the front-end, but had no ceiling on what you could make when your work was sent out into the market to work?
That’s the essence of performance-based compensation. And it can be your ticket to making more money as a freelancer than you ever thought possible.
Now, since I’m a copywriter, I’m going to stick with copywriting examples. But this can work for any freelance work that drives revenue.
For example, are you a social media expert who’s amazing with paid ads? Great, this works perfectly for you.
Are you a sales pro who’s looking to freelance your rainmaking skills? You know the drill.
The key here is that your work has tie directly to revenue, otherwise it’s hard to make this work in a way that benefits you.
So let’s dig into what this looks like…
How Flat Fees Work as a New Freelancer
When you’re getting started as a freelancer and don’t have experience in your chosen trade, you don’t have a record of success . . . or even of failure.
No portfolio.
No testimonials.
So how do you get jobs when (let’s be honest) you don’t know what you’re doing?
The answer is FREE work.
And before you run screaming to the hills, let me tell you that offering free work can be lucrative on a few different levels.
But first, a word about integrity.
If you’re new to freelancing, make sure you’re upfront with the people hiring you about your experience.
Maybe you’ve done the work as a regular employee, and this is your first attempt at contract work.
Or perhaps you have very little experience and you want to use this job as an experience-builder.
Either way, if you blow them out of the water with positive results, the word will spread. Similarly, if you lay an egg and don’t follow through on what you promise, the word will spread about that too. So protect yourself, and protect your clients.
Onward…
So why would a company want to hire a new freelancer to do the work they need?
Well, we’re talking about paying for performance.
This reduces the company’s risk and puts the burden on you. If you don’t perform, they don’t pay. And their only loss is time. If you do perform, they’ll be glad to pay, and will likely keep sending you business.
Now, why would you want to enter into this agreement?
Here are a few reasons:
- Experience. This is your chance to put your skills (new or seasoned) to work for a real client. You’ll gain valuable experience, both good and bad, that will help you on future projects.
- Portfolio builder. At the end of the project, you’ll have something you can add to your portfolio that you can show to future prospects. When they ask, “What have you done for other businesses like mine?”, you’ll have an answer.
- Money. As mentioned above, when you pay for performance, there is an unlimited upside. For example, if you’re a copywriter and agree to write a sales webinar script for a percentage of the gross revenue, there is no cap on what you can earn. Sell $100,000 with 5% commission, and you’re making $5,000. Sell $1,000,000 at 5% and you’ve made yourself $50,000.
If you can deliver, this could be the most lucrative way to make money freelancing.
The challenge here is that you’re not in a strong negotiating position as someone without a proven record of success. If they agree to pay you a percentage of what your work earns, you may not be able to get a large percentage.
But the more work you get, and the larger your list of successes grows, your ability to command a higher percentage grows with it.
This leads us to…
How Flat Fees Work as a Seasoned Freelancing Pro
If you’ve got a deep well of experience, the pay-for-performance model can be even more lucrative.
As someone with a strong portfolio, client recommendations, and demonstrated success, you’re in the driver’s seat.
I can tell you that as a freelancer for almost ten years (and someone who’s spent $50,000 per month in the past for freelance help), proven talent is a rarity.
And when you want to get into the equity game, that puts you in a strong position when it comes time to negotiate.
Think of it like this…
Your prospect wants a result.
There’s a universe of contractors out there, and they have no clue how to sift the dirt and find the gold.
You walk in with a portfolio stuffed with successes.
Your expertise is unquestionable.
And most importantly, you know how to get your prospect the result they want.
And you’re not even asking for any money upfront (or, if you do, you ask for a nominal amount to make sure they’re serious).
As someone with a deep well of experience and success, you have a few ways to work this compensation model.
My favorite way is to get an upfront, non-refundable deposit, and then get a performance-based percentage.
This ensures the client is serious. And if the worst-case scenario happens and they refuse to pay (yes, it happens) or your work doesn’t produce the results you were hoping for, then you’ll at least have something out of the arrangement.
Performance-Based Pay Versus Other Methods of Making Money as a Freelancer
Here’s a hypothetical scenario to illustrate how much more you can make money freelancing with performance-based pay versus hourly or flat-fee work.
Here’s our imaginary project…
- Job: Copywriting
- Task: Write a sales webinar script, plus launch emails and follow-up sequences
- Goal: Sell 17 seats to a $12,000 per year mastermind, for a total of $340,000
Now I’ll break down how I might charge for this…
Hourly Scratch Pad
As an hourly rate, the risk is on the client in terms of how long it will take me to complete this project. They negotiate me down from my $125 hourly rate to $75 per hour (I know, I need to sharpen my negotiating skills).
Flat-Fee Scratch Pad
Here’s what I might charge as a flat fee if I did this hourly. Now the burden is on me and my skill at estimating the time it takes to complete this project. Since I’m still getting shellacked at negotiating, I’m only able to bring up my effective hourly rate to $100 per hour.
Now For My Estimate
- Webinar Script: 40 hours to complete (estimate)
- Invite Emails (17): 20 hours
- Follow-up Sequences: 8 hours
This brings the estimate to 68 hours. And to account for any unexpected issues, let’s increase the time estimate by 10%, adding 7 hours for a total of 75 hours.
My flat fee is $7,500 for this project.
Performance-Based Agreement
Given that I have a proven track record of great results, I estimate I can beat their desired projections, so I negotiate a flat fee of $2,500 to hold my attention. I also charge 10% of sales up to their projected 17 seats, and 20% of sales beyond that number.
(I know my skills, so I believe I’ll come out way ahead.)
Performance of Our Hypothetical Webinar Campaign
Let’s say we get 2,500 people to register for the webinar.
20% show up, giving us 500 eyeballs to sell to. Fewer people than we’d hoped, but not bad.
Of these, half stay until the pitch, leaving us 250 people who see the offer.
Of the people who see the offer, 8% buy. Not as good as we were hoping, but solid given it’s a cold audience.
Where does that leave us?
20 buyers.
Hot dog! I’m already doing well.
But we’re not done.
There’s a three-day follow-up email sequence with replays of the webinar.
As expected, this doesn’t do as well as the live webinar, but it does okay.
Another 2,000 people register for the replays.
15% show up (300 people).
Again, half stay through the pitch, with 7% buying… that’s 11 buyers.
The Final Tally
Let’s say my time estimate fell short and I ended up working 82 hours.
Here’s how things break down:
- Total masterminds sold: 31
- Total revenue: $372,000
Actual Money Made By Charging Hourly
Since the project ended up taking me 82 hours, here’s how that works out:
82 hours * $75/hr = $6,150
Actual Money Made By Charging a Flat-Fee
No surprise here since we knew what we’d be paid going into it: $7,500. And stacked up against the hourly haul of $6,150, we’re coming out ahead by $1,350, even though it took longer for me to finish the project than my estimate.
Actual Money Made via Performance-Based Compensation
This is where things get interesting.
Since we outperformed the client’s goals, we reached that second tier of commission level. So here’s where everything shook out for the performance-based compensation model:
- Flat fee: $2,500. We got this upfront as a non-refundable fee.
- Tier 1 Commission: $20,400. Remember that I negotiated 10% of gross sales up to the client’s goal of 17 new mastermind members. 17 * $12,000 (the cost of the mastermind) = $204,000. 10% * $204,000 = $20,400.
- Tier 2 Commission: $33,600. Recall that I’m getting 15% commission on any sales above 17 new mastermind members. Since our campaign sold 31, it breaks down like this. 31 * $12,000 = $372,000. $372,000 – $204,000 = $168,000. $168,000 * 15% = $33,600.
Grand total: $56,500.
The difference in how much money you make freelancing based on the compensation model you choose is dramatic. Look at this chart that illustrates the difference.
What’s even wilder is when you realize that among all three compensation levels, the amount of work was the same.
The difference is how much you take home from the fruits of your labor.
You and the client are coming out ahead. The question is, how much do you value your work?
Closing Thoughts
When you’re trying to make money freelancing, there is no right or wrong way to structure your compensation. If you’re more comfortable charging an hourly rate, by all means, do it.
My goal is to open your eyes to other ways of getting paid.
If you’re confident in your skills and know the results your clients typically get from your work, working for “free” on the back end could get you to your financial goals much faster.