What should an experienced developer choose? Freelance vs agency
There is a myth that a developer can earn more as a freelancer than working for an agency. Maybe this would be the case if the developers knew how to sell themselves. According to statistics, if you take two specialists with absolutely identical hard and soft skills, but one of them works for a large integrator, and the other is a freelancer, the cost of their hour will differ by at least two times. And not in favor of “free swimming”.
Why is this happening? Let's figure it out.
What does an hour of specialist work consist of?
First, let's look at what the cost of an hour of work usually includes. A typical outsourcing agency spends 50 to 60% of its income on salaries – its largest expense. Next come the costs of accounting, taxes, marketing, etc. All cost items account for approximately 20% of revenue, resulting in a total of approximately 70-80% of costs using the usual formula for calculating an hourly rate, 1.5-2 times the cost of a specialist’s salary.
The cost items of a freelance programmer consist mainly of servicing his activities and workplace: equipment, telephone communications, Internet; searching for contacts and working as a manager: looking for orders, selling, etc.
As a result, it turns out that it has only costs and cannot convey to customers the value that usually provides the main income. As a result, the bottom line is only a small part of the profit.
So, why is it more profitable to work for an integrator?
Salesmanship
This is perhaps the first and most important thing. A large agency employs a whole staff of marketers who can convey the value of their employees’ services to the right audience. And a large integrator adds this value to the cost of an hour. Here you no longer have to fight your “impostor syndrome”, agonize over the topic of “whether I’m paying for it or not” and other psychological hang-ups. You just read your profile on the site and realize how cool you are.
The value that needs to be created is divided into two indicators:
Benefit: helping your client increase income, profit, recognition, reputation.
Pain: helping your client reduce costs, risks, problems.
When planning sales, integrators rely on the so-called revenue model – a key component of the company's business model. It primarily determines what product or service will be created to generate income and how it will be sold. What revenue stream should you aim for, what value to offer, how to measure it, and who pays.
The problem with the freelancing income model is that there is essentially no model, just a cost structure.
An effective revenue model includes multiple revenue streams based on pricing strategies. A billable hour hardly meets this definition.
Pyramid of company service values
Before bringing their specialists to market, large integrators essentially digitize all their skills and provide customers with not just the cost of an hour of work, but also a list of the values that they will receive by choosing a specific developer.
For example, in the area of outsource development, Kokoc Group, in addition to the cost of an hour, provides the following values to the client:
predictability;
reducing client labor costs;
expertise;
efficiency;
proactivity;
risk reduction.
All of these product values can be broken down into levels of the pyramid: those that provide more objective value at the base, and those that offer more subjective value at the top. The model's roots lie in the hierarchy of needs, which Abraham Maslow first described in 1943.
First layer: developer hour rate, risk reduction.
Second layer: expertise, predictability;
Third layer: efficiency, reducing client labor costs;
Fourth layer: proactivity.
Difficulty communicating with the client
We know from experience that developers are often introverted and find it difficult to communicate a lot with people. Especially with “difficult” clients. This is often associated with reaching a net profit ceiling in freelancing. After all, it is important not only to provide high-quality services and carry out “amounts of work,” but also to solve customer problems, do research, ask a lot of questions and analyze.
The agency takes over the project evaluation stage. Experts ask the right questions, and this often results in a discussion, during which it becomes clear that the real problem is larger or smaller than it seems at first glance, and, perhaps, lies on a completely different plane.
Only after this entire energy-consuming process does the client fall into the hands of a developer with absolutely specific goals and objectives.
Competition
The freelance market is highly competitive. And to be noticeable on it, you need to make a lot of effort and spend a colossal amount of time and effort on it. By collaborating with an integrator, you find yourself in a creative environment of growth and development, where there are enough tasks and clients for everyone.
Space for creativity
By the way, about creativity. One of the problems facing the freelancing market among developers is the mechanical execution of pre-set task lists. The worst possible approach is to answer every question exactly as asked, check all the boxes exactly as asked, and provide the requested information to the letter, no matter how irrelevant it is. Your mission is to demonstrate that you are unlike anyone else, not in terms of style and design of the CP, but in terms of immersion in the essence of the problem.
How do you plan to stand out from everyone else if all your actions are specifically made as stated in the statement of work?
Moreover, this does not mean that you should not pay attention to this process at all or rudely ignore requests for obtaining information necessary for the client.
Top agencies are using increasingly inventive methods to interact with clients at the assessment stage, they consider problems beyond the terms of reference that the client provided. They focus their energy and vector on creative solutions to marketing, product and other problems.
We've all heard the expression, “The biggest risk is not taking any risks.” Nowhere is this principle more applicable than when preselling a new client.
If you want to grow as a professional, develop competitive skills, learn to think creatively and stand out from others in the development market, it definitely makes sense to become part of a large integrator. Because, as a rule, this is not just boring work, it is a whole ecosystem in which you not only earn 2 times more than freelancing, but are also maximally protected from market turbulence. For example, our Coconut for everyone is one big and friendly family with common goals and values, where we always welcome new faces.
