A large and growing number of Americans are choosing self-employment and owning a small business over traditional full-time jobs with various entitlements like steady income, health benefits, and 401(k) plans. Despite evolving career preferences, policies and benefits are still very much structured for the 9-to-5 employee of a branded (Fortune 500) company. From tax codes and political promises to health care and lending and retirement, the infrastructure we have in place for workers tends to favor traditional employees over independent professionals.
We wanted to understand these trends better, so we commissioned a study led by Ellen Eastwood, an independent market research professional. Eastwood polled more than 1,700 self-employed professionals and small business owners between Dec 1-16, 2016. The survey defines independent professionals as those with fewer than 10 employees and includes only those individuals earning a meaningful portion of their personal income via self-employment.
Independent professionals must contend with the demands of a traditional business while simultaneously building a network of support tools to help them operate a successful small business. These demands include: carving out a unique value proposition, finding and keeping customers, delivering work profitably and on time, managing money, investing in the future, and balancing the demands of family.
The survey results highlight four major aspects of running and owning a small business that many independent professionals can improve upon to help their chances of success.
1. Tap Into Effective Prospecting Approaches
A steady stream of customers is crucial for any business; it’s particularly important for self-employed professionals. Identifying new potential customers and engaging them is a difficult and time-intensive process. Unfortunately, many independent professionals underutilize effective prospecting approaches.
One underutilized prospecting method is content marketing. Just 22 percent of independent professionals use this tool, despite the fact it is one of the most effective methods of reaching new potential customers. Many more independent professionals (44 percent) use some form of social media marketing. Social media and content marketing complement each other well. One might argue that the two are necessary parts of a larger digital prospect-outreach strategy.
Email marketing is another tactic that many self-employed professionals underutilize (just 24 percent operate email campaigns). While email marketing is likely only realistic for professionals who have amassed a following, the prospecting approach remains relatively untapped.
2. Perform Research to Develop Market-Value Rates
Many self-employed professionals and small business owners are unsure of how to value their services. As a result, they undercharge for the work they perform. Luckily, these professionals have at their disposal a number of online tools to complement input they receive from their professional network.
Many independent professionals still do not use any kind of tools to develop rates that are more in-line with market demand. Few, just 25 percent, attempt to calculate the value of their service using their previous salary and a surprisingly small proportion (32 percent) of independent professionals uses online searches to perform rate research.
Independent professionals’ inability to set market-appropriate rates leads to undesired consequences. For example, some might turn down work that would have paid less than perceived value (40 percent); others have lost jobs to competitors due to rates that are too high (26 percent); and, some (27 percent) have even deliberately undercharged to ensure customers perceive their service to be of good value.
3. Prepare for The Unknown
The majority of self-employed professionals and small business owners surveyed work independently because they want to, not because they have to. Independent pros find the benefits of working for themselves far outweigh the costs of running their own businesses. However, over half (51 percent) feel they are unprepared in the event an invoice goes unpaid; and 48 percent are unprepared in the event someone sues their business.
Younger business owners in more creative or hands-on areas are more likely to be unprepared in the event of a disaster. Even more frightening, 39 percent of independent professionals are unprepared should they suffer a disability and cannot continue to run their business. With busy entrepreneurs focused on the present matters at hand, an alarming proportion (42%) of self-employed professionals are doing nothing about their retirement despite a median age close to 50 years old.
4. Focus on Supporting Yourself
The large majority of self-employed professionals are satisfied with their present situation and have no ambitions to return to traditional employment. More than 7 in 10 self-employed professionals intend to grow their businesses in terms of staff or revenue.
Here are a few ways these professionals might improve their risk/reward ratio:
- Focus more resources on prospecting: Two-thirds of professionals say they must find new clients, but 40 percent say they put one-tenth or less of their time into prospecting and sales.
- Do your due diligence: A little bit of research can go a long way toward setting market-value rates for services.
- Plan for the unpredictable: The majority of respondents feel unprepared in the event an invoice goes unpaid, and 46 percent say they should be managing their money better. Independent professionals can help themselves by improving their money management and setting aside rainy day funds in the event disaster strikes.
These suggestions are not the only ways independent professionals can better support themselves. Those ideas offer glimpses into the ways small business owners and self-employed individuals can help manage the rigors of owning their own business. It’s not easy for independent professionals, but a little bit of work can help make their jobs much easier.
Matt Baker is the VP of Strategy at FreshBooks. Matt has a long track record of successfully bridging business and technology. Prior to FreshBooks, Matt was a Management Consultant at McKinsey & Company and a Senior Strategist at Google, Inc.