Andy talks to Darren Fell of Crunch and Sarah Thelwall of MyCake about the value of comparing your own business data with your colleagues and competitors.
Podcast 23: Turning boring business data into brilliant business plans [ 17:46 ] Play Now | Play in Popup | Download
Andy: This is Freelance Advisor. Hello and welcome to episode 23 of Freelance Advisor and in today’s show Turning boring business data into brilliant business plans. Hello everyone and welcome to another episode of Freelance Advisor. Now I want to paint a picture for you today. I want you to imagine what you would do if you had your business data visible to you in a way that’s very easy to digest and you could compare your business data with an aggregate of other freelancers’ business data. What sort of things could you do with that?. Imagine for example that you could see that the rate you were charging was perhaps not the optimal rate you could be charging. And you could perhaps raise your rate and therefore have more time to do the marketing to find the sort of clients that you really need to look for. Imagine for example that you were wondering if you were putting the right percentage of your turnover towards your pension and you were able to see what other freelancers were doing on aggregate, would that be useful?
Imagine also if you were wondering if you were doing enough training and how you compared with other freelancers to see how much they were putting aside for training. Well this is all possible. I have with me today, Darren Fell, of course we’re familiar with Darren and also Sarah Thelwall of MyCake. Hello Sarah, hello Darren..
Sarah Thelwall: Hello.
Darren Fell: Hi Andy.
Andy: Sarah, just before we go on, tell us a little bit about MyCake and a little bit about yourself..
Sarah Thelwall: Well MyCake came about because I’ve been working with creative entrepreneurs for the last ten years or so and one of the things that I’ve learnt is that like many of us, they don’t like doing their books. And they often end up with a shoebox of receipts that they look at once a year. And the trouble with that is, all the time that you’re spending it doing it for the taxman, you’re not gaining any benefit for your business.
So if there was a way in which it was easy to get that data into a system and that it could then tell you how you were doing, versus other people like you, it might form an incentive to change the way you do things. And you would run a better business by having numbers easily to hand.
Darren Fell: That’s exactly why I got Sarah on this podcast for Freelance Advisor listeners because it’s absolutely stunning. This is such interesting information that normally this benchmarking isn’t available to the average freelancer. Of course it isn’t, there isn’t any technology available. But to a big corporate, a finance director of a big PLC, it’s very, very available. And they’ve probably paid hundreds of thousands of pounds for a piece of software that will analyse it down to the minutiae so they can see exactly cost bases, cost bases between countries, offices, levels of salary to get away with, literally..
So imagine a system that could really help the freelancer, the contract, the independent consultant to see day rates against his peers, against her peers. And if you come in too low because you thought that was an acceptable level and then you could get away – maybe not the right word ‘get away’. But maybe it is the right word ‘get away’ with a rate that’s much, much better to use. So you wasn’t working every hour under the sun just to make ends meet because you’re charging a lower day rate, you were charging a reasonable rate and that meant that gave you time to market it to the client base you really wanted…
If you wanted Sony Playstation or HP to work with, then you charged high day rates and you spent the other time you weren’t working, marketing to get the clients and the work you really wanted, rather than running around like a headless chicken. So I thought that this was just so fundamentally interesting that we would actually try and convey what potentially could be a really, really complicated subject in the simplest way, just to show you how exciting it could be for you.
Andy: Well let’s cover a few success stories. Sarah, I know that you’re bursting to tell me some success stories. I’m just wondering, how can businesses be helped, when I say businesses, I meant freelancers. How can freelancers gain from this sort of knowledge. A couple of different ways they can gain and then we’ll have a look at some success stories.
Sarah Thelwall: Well Darren has already raised the day rate issue. Knowing that the norms are for whether you’re just entering a field, whether you’re five years in, I think is one place to start. I think another place to look at that is to say, “How are the top 25% doing. And what would it take for you to be part of that crowd rather than the bottom cohort?. So one of the things that people have learnt along the way, is that they need to be investing either in the research and development of new products and services or in training and development of their skill set. Looking at the MyCake data for 2008/9, the average expenditure on R&D is 1% of turnover. That is not going to secure the future of your endeavour.
Darren Fell: That’s kind of interesting and that actually marries up with exactly what we found when we set up a training section for Freelance Advisor. I mean we’re doing everything we possibly can to help freelancers, contractors and independent consultants out there. And we got a fantastic training expert who normally did leadership for big corporates, you know, guys in to do freelancer training. And I don’t know if it was the semantics of it, should it have been called ‘Personal Development’ or ‘Training’ but no-one wanted to buy training for themselves. And I don’t know why.
So this data is kind of typifying that people are not investing in training. Or maybe they’re charging low day rates and don’t have a second to keep their skill sets up with the latest Adobe package or final cut Pro or whatever business they’re in. Maybe that’s what’s happening. So this is why this data and this crystal ball to see exactly what’s going on is so interesting and what you can potentially charge, if I just talk about the day rate side..
Andy: Sarah have you got a couple of success stories about people changing their business models as a result of seeing their data compared to others. I’m specifically thinking of profitability here I think. Have you got some success stories there?
Sarah Thelwall: There are a number of jewellers that we work with and the comparison of a gem based jeweller and the profitability of that where they might be turning over £100,000, but they might only be taking home £10,000 out of that. That’s a hell of a lot of risk for not a lot of return. Whereas some of the non-gem based folks might only be turning over £50,000, but they’re taking home £30,000. So the profit margins that operate in different bits of the market, is something that you could look at.. That may not fundamentally change the way that you want to do things in terms of gem based jewellers like working with gems and don’t want to work with plastic. But just understanding ahead of time what the likely model that you’re going to have to comply through is and whether you’re willing to do that. Rather than three to four years down the line finding out that this isn’t really working for you. Is that crystal ball show you what the future might look like.
Andy: Crystal ball is quite a good analogy really for the jewellers here. I think it’s worth explaining to the audience Sarah, exactly what MyCake, your business is doing at the moment. You’re focusing solely on the creative businesses, hence why you’re talking about gems and jewellers. And all the PHP programmers out there and the graphic designers and the plethora of different people that listen to the podcast who are going, “How does that relate to me?. Well I think that’s clearly why this is on Freelance Advisor as a topic, is that we want to bring this technology at some point into the space for the whole of the digital world of freelancers and consultants.
Sarah Thelwall: And we could talk about website designers instead if you like.
Andy: If you can. Go ahead.
Sarah Thelwall: In that the variations in rates that we see is anything from £20 to a couple of hundred pounds an hour. So of course there are the kind of literally working from bedroom, £20 an hour website designers. And that’s undercutting the market for what others may be able to charge, particularly if the client hasn’t hired this kind of skill set before. So how do you differentiate yourself from the cheapest in the market. Is that to do with the skills you have. Is it to do with what you invest in your future? Is it about the partnerships that you have with other software providers? What is it that makes you stand out from the crowd? Because you don’t really want to be in the £20 an hour range.
Darren Fell: No exactly. I think there’s a whole set of subjects within there and I’ve just done a seminar at the University of Westminster for New Media Knowledge on personal branding and how to get your personality out through the blogs and all your expertise. And then focusing on a case study of a fantastic web designer who went from nought to ten months in his web design business and made a phenomenal success of it; has a Twitter following of 5,300 by really getting his personality out there. So it’s personal branding, but I think this benchmarking, I’m trying to get my head around it…
I think it’s so exciting to be using an online accounting system and then to yes click anonymous data can be sent through to MyCake and then see exactly what is going on. All your peers are getting away with, some of them maybe £600 a day. It’s like, what are they doing differently. So yes, you can apply all of the other learnings and the articles and the seminars that Freelance Advisor is doing to get to that level, but it immediately should give you a kick botty to go “£20 an hour, surely, surely you can do better.. You can definitely get to say £120 a day or £200 a day if you’re new to the business.
Andy: Okay, so just before we go onto what people should be doing. I know Darren, you’ve got a couple of success stories of people that were able to look at their data compared to other data concerning tax efficiency and putting money aside, haven’t you?
Darren Fell: Well yes, this is the crunch system inherently. As long as they keep putting in the invoices and their expenses at least on a weekly basis, they suddenly are empowered and see exactly what’s going on in their core business. I’m not talking about benchmarking now. I’m talking about how much tax to put aside, how much VAT to put aside; their profitability really, their turnover levels. Some things when you ask a freelancer that hasn’t been using a system like this, “What’s your turnover?. “Oh I haven’t got a clue. My day rate is £400, I book maybe 20 days a month and I think I’m doing really well, but I actually haven’t added it up.”.
It gives you that instant dashboard of exactly what’s going on with your business. Now imagine that combined with a benchmarking to see how it relates to other PHP programmers, other graphic designers, other web designers. That’s when it gets interesting.
Andy: It’s very powerful isn’t it. Okay fantastic. So what should all freelancers be doing then Darren?
Darren Fell: Right, #1, I think I’ve alluded to it already. If you’re not using an online accounting system and I don’t want to make this sound like I’m suggesting Crunch, but there are many online accounting systems out there. If you’ve got an old piece of software that you absolutely detest using, then stop using it. Get something out there, there’s loads of them there’s Kash Flow, there’s Crunch, there’s Free Agent Central, all fantastic systems and get into the psyche of actually getting your invoices out on time. Clearly very important so you get paid on time and getting your expenses in. So religiously, save all the receipts and just enter them in on a weekly basis.
Andy: So just drip, drip, drip all the time.
Darren Fell: Absolutely. And it’s just the feeling – as I say on the Crunch side of the business, the calls we get and the emails and the tweets, that people are so elated for the first time ever, in the middle of the year, and it’s not because the taxman wants it, they actually know what’s going on in their business. The profitability as I’ve said before. You know the monies that are coming in. The expenses that are due, charging expenses properly. So many go array, they’ve collected all these travel to site things, then not tapped them in, they’ve lost them and they’ve lost out actually quite a substantial amount of money.
It’s about empowerment. So my key, key directive to all of you is use an online system you enjoy using and enter the information in religiously, weekly, worst case monthly. But you’ll know exactly where you are. And if you do that, the future of this discussion is that there will be benchmarking systems connected to pretty much all the online systems out there and you’ll know far, far more than what’s going on in your own business. You’ll know exactly how it is compared to your peers and the rest of the market place.
Andy: Fantastic…
Sarah Thelwall: So the first part of that is about empowerment and control because you will feel better if you do this, but the other message in here is to say, putting the data in isn’t just for the benefit of the taxman. If you simply see it as a one way feed and as a pain that you have to go through a bit of pain in January each year in order to get it to the taxman, then you’re missing an opportunity because the real opportunity is that this data can inform the decisions that you make and enable you to run a better, more profitable, with better holidays, business than you were doing before…
With relatively not a lot of pain. I would say it’s less painful than some of the old desktop systems because it’s designed for people who are not finance directors and don’t particularly want to spend their time looking at spreadsheets. So the interfaces are better it’s easier and all the data is connected. You don’t have to move it from on. not quite well structured Excel sheet into another not quite well structured excel sheet and a bad chart. That kind of stuff has all been thought out by the people who design these systems.
Andy: Brilliant. So what we’re going to have for all of you is, within Freelance Advisor, there will be an article written very kindly by Sarah and there will be a lot of key learnings in there. So what are all the learnings like. The percentages you should spend on rent for your offices?
Sarah Thelwall: Out of a percentage of turnover, what should you spend on rent, or travel or marketing or training. What are the norms within those. What is too little and what is too much?
Darren Fell: Okay some fundamentals. You don’t normally get that sort of information anywhere. To have actual key tolerances, you often may think to yourself as a freelancer or consultant, “Am I spending too much on travel, am I spending too much for that Savile Row office” or wherever you might need your office. Is that disproportionate to the turnover. So yes, I think this is going to be really, really insightful and hopefully it will really age your business and get the data in and then get it in regularly.
Sarah Thelwall: And your source of that kind of conversation and insight becomes an accurate one. So at the moment, I think the best you can hope for is a conversation down the pub with some other people who work in a similar way to the way that you do but the thing is, if it’s the blind leading the blind, none of you put your data into anything and none of you want to look bad to each other, then you’re going to give a slightly rosier picture than is true, partly because that’s what you want to tell yourself and partly because that’s what you want to tell others.. This will give you an accurate answer to that which may on occasion be not the one you want to hear, but at least it gives you something you can then do about it.
Andy: Absolutely fantastic. Well we’ll have to leave it there. Just before we go Sarah, the website for MyCake is?
Sarah Thelwall: Mycake.org for the website and Mycakefinancialmanagement.co.uk/blog for the blog.
Andy: Fantastic. Now Darren of course the website for Crunch as always is? .
Darren Fell: Crunch.co.uk
Andy: So thank you very, very much to Sarah Thelwall.
Sarah Thelwall: Thank you.
Andy: And to Darren Fell.
Darren Fell: Brilliant thanks very much Andy.
Andy: Thanks everyone. See you soon. Thanks Sarah.
Sarah Thelwall: Bye.
Andy: Thank you for listening to Freelance Advisor. Please send questions and comments to feedback@freelanceadvisor.co.uk. Please note that everyone’s situation is different. Freelance Advisor is intended only as general guidance. Please consult a relevant professional before acting on any advice from the Freelance Advisor podcast or website.
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