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As someone who has created multiple businesses, I’ve thought a lot about why so few freelancers end up transitioning to full scale business owners (defined as the owner of a business that can thrive without your involvement), and I recently did a financial analysis that seems to answer the question better than I expected.

Essentially, if you are a super successful freelancer where you pocket 80-90% of revenue as take-home pay, then you might pull in $250k-$270k on revenue of $300,000.  If that same successful freelancer decides to “grow,” they will add lots of expenses that are necessary around scaling, and they will likely shrink the profit margin to around 15%, if they’re lucky.  So, instead of taking home $270k on $300,000 in revenue, they’ll take home $45k on $300,000 in revenue, and they will need to grow to $2,000,000 in revenue before they start passing their freelancer take-home pay.  But if it takes 2 years of growth to get from $300k to $2M in revenue, then they will still be doing worse than before, because instead of pocketing $500k+ over those two years, they may have only pocketed $100k-$150k as they reach the goal of $2M.  So we might be looking at 2-4 years before you are ahead financially, even if things are great.

Personally, I think that you need to be motivated by more than just money if you want to transition from freelancer to business owner, because the economics are usually terrible before they (may) get wonderful.  In my opinion, if you have an amazing freelance career, you should assume that a transition to full business owner will set you back financially for 3-7 years, and you should be aiming for 16x revenue growth to make the transition worthwhile, and if you quit anywhere before 16x revenue growth, you’ll never recoup the losses.

Of course, if you make it 16x revenue growth, and do so via proper built-to-sell scaling, you’ll have a company that can (a) thrive without you, and (b) produce more income than you could realize as a freelancer.