Getting started in freelancing might be a deliberate step or it might happen serendipitously. But how can you make sure that your freelancing business is successful? Eric Covino, founder of Creative Signals, shares his story about building an agency from freelancing.

He started freelancing after he volunteered to make a website for his sensei. Over 8 years, he grew this side interest into an agency, through chance, deliberately seeking out knowledge, learning from mistakes, and actively deciding what he wants his business and his personal life to look like. Eric shares how he got started with freelancing, how freelancing became his full-time job, his decision to build an agency, and how he’s done it in a financially sustainable and stable way.

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Eric shares with us:

Eric's founding story:

Eric founded Creative Signals, a full service digital agency, 8 years ago, but its story starts in a karate class. When his sensei started looking around for someone to build him a website, Eric, an eager white-belt, excitedly volunteered. He bought a book on Microsoft Frontpage and made a website with a “very, very ugly design, at least looking at it now”. Eric found that he liked making the website and started a side business making websites for local businesses.

“It turned out to be quite a hassel. In some cases, with the design work, a lot of back and forth. I didn't really think about all that when I started it.”

To improve his skills, he started taking design classes on Lynda.com, which opened his eyes to SEO. SEO peaked his interest so he went searching for more and found SEObook.com and Moz.com. At the time, he was still working full-time at an insurance company while trying to improve his skills.

Eric became so involved in the material and forums on SEO Book, contributing and giving back on the things that he was learning, that the owner, Aaron Wall, offered him a part-time job to manage the forums and later a full-time position as a community manager. In a leap of faith, he took it and left his full-time job at the insurance company.

From there, he started to get his name out there, develop his own websites with affiliate offers, adsense, etc., meeting people, networking, and, eventually, Creative Signals.

Choosing Contractors, not Employees

Eric has several reasons for why he has decided to keep his core team small.

“I wanted to really just be the one who was doing the work and reporting on it because it is a passion of mine.”

When he started out, he thought he would be the wal-mart of websites, undercutting the competition with the lowest prices so they would choose him. Lots of cheap clients!

As he matured and learned, he realized that he wanted fewer clients, fewer staff, and better margins. Much more fulfilling. But there is risk: what if one big client leaves?

“You fall into a trap that you are almost an employee of these clients, but you're not.”

You need to be prepared financially and psychologically to not having that pay check come in every month. And if you have a large full-time team, you still have to pay them, even though you lost a big client.

You need to take all this into account to figure out if you want to have a full-time team or depend more on contractors.

Eric followed the business model of keeping things as lean as possible, which meant depending on trusted contractors, that may cost more per project compared to someone in-house, rather than growing a huge team. You might not need a particular skill-set full-time, so you can engage the contractor again when you have the work for them. Using contractors lets you manage your fixed costs.

Eric also cautions that having a large in-house team also means managing personalities of everyone on the team. If you aren't good at managing office conflicts and miscommunications, then having a big in-house team may not be for you. Eric, for example, says:

“I'm not a personality manager. For me, I like to do the work. I like not to be bothered while I'm doing the work, and just get it done, and do it right, and do it well, and deliver it. Not everyone is like that.”

The livelihood of a contractor depends on their performance. If they do well and have happy clients, they get more work and get paid well. If not, then they starve. In contrast, employees get a pay cheque every week even if they didn't perform up to expectations that week or even month. Eric has found that contractors are therefore more eager and hungrier to please.

Exception to contractor only:

Eric never really wanted to hire an employee and engage in an employer-employee relationship, which has a lot of implications beyond getting work done, such as responsibility of the employer to the employee and taxes, etc. All that said, Eric does have one employee who is his project manager or director of marketing, managing the day to day. You can't expect a contractor to manage other contractors because you want them to have close to the same commitment level to the company that you have.

“If you get big enough and you have a few different contractors that you're managing, it makes sense to bring someone in to manage them.”

His current project manager had been a contractor for Eric for a while so he knew her well, trusted her knowledge and felt that she really earned the position. He completely trusts his project manager to represent him to the clients and contractors as the company face for day-to-day management. The company wouldn't be in its current form without her. It is really hard to find people like that, that you can trust completely.

For design, content creation, and that sort of thing, Eric uses contractors. Most of them have been working on projects with him for a long time so they feel like part of the team, even though they aren't there 9-5, M-F.

Potential issues working with contractors:

When working with contractors, there is a risk that the contractor you want to work with won't be available. In the early years, Eric had some difficulty with this because he wasn't as well established. But now that he has a much more consistent client base, he has been able to offer consistent work to the contractors that he knows are reliable and dependable. You have to earn the loyalty from contractors by giving them work consistently over the years and treating them like part of the team.

Sometimes, clients will ask if their project will be worked on by in-house employees or “just contractors.” Eric will often turn down projects if the prospective client has a negative connotation with contractors. It is a red flag that there will be trust issues with the client.

Remember, if you turn down a client, another will come that will be a better fit.

Eric also likes to stay involved with all of the projects. This way, he can charge a premium because he isn't selling someone and then passing the project off to a less experienced employee – the client is paying for Eric's experience. Plus, he enjoys it.

What makes a sustainable agency

Budgeting is one of the most important things that you have to do as a business owner. You need to make sure you are able to cover all your fixed costs, such as internet, equipment, rent, software, etc., ready for the big tax bill, and be ready for rainy days. This means budgeting for the business and keeping fixed costs low, hiring contractors helps here, but also knowing your own personal finances.

“You have to make sure that you're getting paid enough to support yourself and your family.”

It is really important to figure out how much you want to take home after taxes and all the business expenses are paid. Now you have a baseline to compare to when looking at how your business is doing at any point or if you should take on a new client.

Before signing a deal, it is also wise to figure out the potential client's profitability. Estimate the expenses associated with the client's project, such as your time, paying your contractors, and fixed costs like development tools, and calculate what the margin of income will be when you subtract these expenses from the project price agreed upon with the client. This is the Profit and Loss of the client. Then compare this number to your desired margin. Will this client be a good fit for you? Eric does this exercise for every quote.

Eric also tracks each of his clients through QuickBooks. He knows how much each client has cost him and how much income he got from the client.

Eric invites you to contact him if you have any questions about starting or growing your business from this episode, especially about budgeting, which he knows from experience is really hard to implement and follow.

Resources Mentioned:

• Lynda.com
• SEObook.com
• Moz.com

Find Eric Online:

• Creative Signals
• Contact Eric by emial: eric@ericcovino.com