Numbers And FinanceOn Tuesday, I began a discussion about why conducting quarterly revenue analysis is crucial to your success as a freelance writer. Today, let’s continue that conversation by slicing and dicing some numbers.

My hypothetical revenue analysis from October 2014

Last week, I shared my actual time tracking from October, 2014, but I’m not sharing actual numbers this month. The truth is some of my clients read this blog, and I don’t want to disclose my financial data to them. However, I’m going to give you numbers that relate to a hypothetical “typical month” for me, and we’re going to call that month “October 2014.” I hope you find it helpful to compare the time-tracking post with this one to understand how intimately related time tracking and revenue analysis are. I also hope these numbers give you a glimpse into how successful you can become. (Note I recommend doing revenue analysis quarterly but I’m giving a single-month example.)

Quick note: when I talk about “revenue,” I’m talking about monies collected during the time period to be analyzed. Not invoices billed, but invoices collected in a given quarter regardless of when billed. Got it?

My hypothetical gross revenue for October was $6301. I like that. That’s a number I can work with. Now let’s take a closer look.

To calculate the hourly rate achieved, I have to look at my time-tracking (duh). According to my records, I spent 62 hours at my desk in October. Divide the total revenue ($6301) by the total number of desk hours (62) to get $101.63 per hour. Not too shabby, eh? But wait! It gets better.

Of that 62 hours I spent at the desk in October, 9.5 hours were unproductive: web surfing, procrastinating, yadda-yadda. That means I had 52.5 productive hours in October. Making the same calculation (6301/52.5) yields a rate of $120.02. W00t, right?! Well, sort of. You could call $120.02 my “gross” hourly rate because it includes the unbillable time I spent on administrative and marketing tasks.

If you subtract all the administrative and marketing time I invested in October, you’re left with 37.5 billable hours. That is, hours I actually spent working on client projects or coaching. Now let’s do the math to get my real, billable hourly rate: 6301/37.5 = $168.03. I’m quite happy with that. (NB: This is where project pricing really pays off. I don’t actually send clients a bill for X hours at $168.03 per hour. They would freak out. I’ll talk more about value-based project pricing in another post.)

Running through the rest of the numbers

Going through the rest of the calculations:

  • Highest paying client (based on effective per-hour rate): Client A, $3445/11 hours equals a whopping $313 per hour
  • Lowest paying client (same criteria): Client C, $300/9 hours equals a paltry $33 per hour
  • Quarter-on-quarter growth (for the purposes of this example, month-on-month): gross increase of $2109 (September’s gross revenue of $4192 subtracted from October’s $6301), or a percentage increase of about 50% ($2109 is about 50% of $4192)

Why revenue analysis matters

Notice that lowest-paying client calculation? I can’t survive on $33 an hour — and neither can you. Not when you have to pay your own salary, tax withholding, retirement contributions and possibly health insurance premiums. What the revenue analysis tells me is I made a mistake when I took on Client C. Obviously I thought the hourly rate would work out better than it did. But since it didn’t, I need to drop Client C and find another client to replace them. This is just one insight I can glean from performing revenue analysis.

What questions do you have for me about revenue analysis? Post them in the comments thread!

Wishing you well!

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