Ripping-up the rulebook: Recognising freelance costs in a different way

To start with, it’s vital to make the distinction between different types of freelancers when looking at KPIs.

There are ‘Freelancers’ in the traditional sense, hired to fill a capacity need on a project-by-project basis and also ‘Permalancers’ who are hired on a long-term basis.

Permalancers should be treated in the same way as employees when evaluating staff costs.

But agencies need to start looking at true Freelancers as a ‘cost of sale’, identifying their costs as a separate line in operating reports. Effectively an agency is sharing the income generated from a project with external collaborators that we call Freelancers.

Therefore the agency’s true income is the amount left after deducting the cost of Freelancers, which we should call Gross Profit. KPIs relating to staff costs, overheads and operating profit should be measured using Gross Profit as the denominator rather than Gross Income. As an example: 

Gross Income still has an important role to play but it’s more limited, used primarily as the denominator in expressing the % of Freelancers and Gross Profit.