Someone is hiring all the freelancers. It turns out that it’s often other freelancers using subcontractors to grow.
Although the past few years have ushered in incredible change for the overall labor market, the appeal of freelancing remains constant.
According to a 2021 Upwork survey, 59 million Americans performed freelance work over a 12-month period. That’s 36%—or more than one-third—of the entire U.S. workforce! And we can thank those freelancers for contributing $1.3 trillion to the U.S. economy in annual earnings, which is up $100 million from 2020.
Most of this change is enabled by technology. Better communication tools make remote work more possible, and dozens of specialized freelance websites that innovate on the Upwork model have emerged to help solo creatives and consultants find gigs.
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The Emergence of Peer-to-Peer Hiring
One driver of this growth in freelancing is on the demand side in the form of other freelancers. We are seeing the emergence of peer-to-peer hiring. I might hire a freelancer to assist in my business, for example, by improving my website. Or I might hire a freelancer to assist with client work so that I can sell web design as part of a more complete solution along with my own services.
In this arrangement, one person finds a gig bigger than they can handle themselves, so they act as the primary independent contractor and bring in subcontractors. The 2 parties are often called primes and subcontractors.
Entrepreneurial freelancers, aka solopreneurs, hire subcontractors because they see the opportunity to overcome a basic math problem. There is a natural limit to your business growth if the equation is the market value of your skills times the hours you are able to bill personally. If you want your freelance business to go from surviving to thriving, you have to find a hack to that problem, and that’s where subcontractors come in.
My own evolution from freelance writer to content marketing consultant is one example. In the early days, I would hustle for clients who wanted stuff written, try to charge the high end of the market rate, try to minimize how many hours it took to deliver on a contract and try to maximize how many clients I had.
Assuming the best-case scenario with each of those variables, you can see it was never going to multiply out to serious scratch.
One day I had a client who required more content than I could personally deliver, and that was the start of my transition to a freelance business based on hiring subcontractors. Since then, I’ve hired dozens of freelancers, and I’ve built up a core group of about 8 who I think of as my go-to team. These have included transcriptionists, graphic designers, virtual assistants, a logo designer, SEO specialists, and lots and lots of writers and copy editors.
The Advantages of Hiring Subcontractors as a Freelancer
You can think of the advantages to hiring subcontractors in 3 ways:
First, subcontractors let you scale your business by increasing the number of deliverables you turn in to clients. As long as you can price the contract to pay yourself for the trouble of hiring and managing your subcontractors, then you can scale up your income. That’s not possible by selling your skills one deliverable or one hour at a time.
Second, when you hire subcontractors, you change the work you do personally to something that you can charge more money for. Right off the bat, at least some of your hours are working as a project manager, which may pay more than the core service you were providing.
Ultimately, though, you can make the transition from direct provider to consultant. Hiring subcontractors frees up your time to develop more expertise and establish yourself as an authority your field. (In my case, I specialize in education technology, online learning and talent management, so I’ve been able to demonstrate domain expertise there.) This allows you to price in the strategic insight and to charge more for your own billable hours.
In my freelance business, I used to be a writer taking the going rate for writers. Now I’m a content marketing services firm that uses subcontractors to deliver on a more comprehensive contract. Whereas I was providing X, I now provide XYZ. My subcontractors concentrate on X and Y, and a lot more of it (scale). I am providing Z, which represents strategy, planning and management (higher value).
Finally, using subcontractors is less risky than the the traditional way of growing your business, which would be to build a payroll and sign a lease. Consider that moment when I had a little more client work than I could handle. In the old days, if I wanted to build on that opportunity, my only choice would be take out a big loan to hire some employees and open an office.
The ability to scale up with subcontractors means you can scale up slowly as needed, day by day, and you can scale down when needed. You don’t have to become a firm or agency to scale up. You can stay solo, with most of the same flexibility that being a solo allows.
The Risks of Hiring Subcontractors
When you are a prime on a big project, you become something like a boss. Except that the talent you rely on are themselves independent contractors so there is a limit to how much you can direct them. They can just decide not to show up. What happens if your subcontractors don’t come through for you?
In that case, you’re staying up late to get 2 jobs done.
Or, less dramatic but still common, what if you were satisfied with what the subcontractor delivered and you initiate payment, but your client wants revisions? Then you will be busy trying to satisfy your client on your own.
2. Cash flow
Another risk of hiring subcontractors is cash flow. You have made a commitment to pay your subcontractors even when you don’t get paid. And if you’re waiting on a late payment from your client, you’re stuck making ends in the meantime. That can seriously affect your monthly cash flow, especially if you’re not closely keep track of when money is flowing in (from clients) and out (to subcontractors).
The third possible risk is in the area of branding and credit. Will the deliverables to your client have your name on them or your subcontractor’s name? Meanwhile, if something goes wrong with your freelance hire, it will be your brand that suffers. You are counting on them to be as professional in their interactions with your client as you would be.
All of this is manageable. There is plenty of credit to go around, and in my experience, clients don’t care that the work they are getting is coming from subcontractors rather than from employees or from you directly, as long as you are vouching for it and are ensuring quality control.
How to Use Subcontractors Effectively in Your Freelance Business
You’ve probably heard you should run your freelancing work like a business. Once you start working with subcontractors, that will be unavoidable. You have to have good systems in place and maybe get more familiar than many freelancers are with the basics of running a business
1. Get Good Software Tools
You can think of these systems as covering 2 areas: Back office and client work.
A software tool like FreshBooks touches on both of those areas. You may already know that it helps you send invoices to your client or that it helps you pay invoices to your subcontractors (i.e., back office operations).
Another client-facing work tool built into FreshBooks is Projects, which acts as a collaboration space where the prime, the client and the subcontractors can all communicate.
2. Create a “Manual”
Many of your processes will be idiosyncratic to your freelance business. All the more reason to document it. One rule of thumb is that if you find yourself writing the same email message twice to 2 different people, turn it into documentation.
In this way, my assistant editor (freelance, naturally) gradually helped me put together what we jokingly call the “employee manual.” It’s a collection of material in a shared Google Drive folder that documents everything we need to refer a new subcontractor to. It includes screencasts on how we format blogs, a house style guide and step-by-step instructions on some of the software tools we use.
3. Onboarding Counts
Just like employers have an onboarding process for new employees, you can set yourself apart by having a process to onboard your subcontractors. It may not be as comprehensive because freelancers are usually doing a short project for you, but the same principle applies. You want your subcontractors to know the background and context necessary to do the job well for you and your client.
When you’re rushing to ramp up a project, it’s easy to let this orientation process fall through the cracks. I find that when subpar work comes in, it’s not because the freelancer isn’t skilled. It’s because they didn’t get onboarded to the project and to our team’s way of working.
4. The Key Part of Subcontracting Is the Contract
An effective contract between you and your subcontractor is critical. At Nation1099, we have a number of subcontractor agreement templates and a longer discussion of what it should include. Some of the issues a subcontractor agreement should cover are:
- Payment terms, especially when you pay
- Change orders and kill fees
- How and when the agreement ends
- Confidentiality and white labeling
- Non-compete clauses
5. Get Paid so You Can Pay
I mentioned the cash flow risk above. The way to minimize this risk is to revisit the contract you have with your client. Establish terms to get payments flowing toward you in ways that match how you’ll be paying out for your expenses. It may not be realistic to have the client pay you first, but you don’t want their payments lagging too many months behind your payments to the subcontractors.
I shifted my clients from “pay on completion”—which is common in content marketing—to monthly invoices for a prorated piece of the project. That way I’m getting paid regularly enough to cover the reserve I need to pay my subcontractors.
You can also negotiate for deposits or upfront payments from your clients. If the client wants the more complete solution you are providing, they will be more open to that and will understand that you have start-up expenses for the project.
6. Start Small but Start
If you have considered hiring subcontractors and haven’t done it yet, you have probably been telling yourself that “it would be quicker to do it myself.” You know what?
You’re right. It would be quicker to do it yourself. But you should hire a subcontractor anyway.
The first time you hire a subcontractor will probably be very inefficient. You’ll charge your client for 5 hours of work and spend 20 hours finding the sub, giving them guidance on what you need and then fixing the work they sent you. Who has time for that?
But that is a period that you have to push through to get to the other side. That time you spend dealing with a subcontractor and re-doing their work is the sweat equity you are investing in your business growth. The first time you hire a subcontractor—starting small with just a little piece of the project—you are essentially paying for your own learning as a project manager. You will get a return on that investment later as you get better at finding and working with subcontractors.
Stand out by Treating Your Subcontractors Well
At the top, I talked about the demand side of the growing freelance economy. Ultimately, that means when I go on Upwork or someplace else to find a graphic designer, I’m competing with Fortune 500 companies and well-funded startups to get that talent…and those companies companies are competing with me. Just let them try.
My goal is always to be my subcontractor’s best client, regardless of how much work I am able to give them. I want the freelancers I’ve worked with before to answer my emails even if it’s been a year since I used them last. I want them to give me their best effort. When we’re working on a project, I want them to put my project at the top of their to do list every morning.
In short, I hire freelancers not just to get a bit of work done. I hire them to be instrumental in growing my business. I want them to help me retain clients or to let me say confidently to prospective clients “we can do it.”
That happens when freelancers remember being engaged and treated with respect. Do that by giving them the right tools, getting them oriented, letting them know the vision, sharing credit and—most of all—paying them on time. Do that, and you’ll be on track to scale up your own freelance business with the help of a talented and flexible team of subcontractors.
This post was updated in April 2023.