The Pros and Cons of Anchor Clients
The concept of the “anchor client” in important in freelancing. It’s a company that has you on contract for an indefinite period of time and typically supplies a fairly steady workload that doesn’t fluctuate much. Whether you charge by the hour, the week, or some other unit of measurement, you can expect that they’ll be there for you on a regular, ongoing basis.
Sometimes freelancers get their start because their former employer continues to utilize their services on a contract basis. This can be a great way to launch into a new freelance career—however, there are some real dangers to be aware of (see the cons section below!) that have the potential to derail your business before it has the chance to really get off the ground.
In an ideal world, you’d have two or three anchor clients and be raking in the dough—but things rarely work out that way! Over the years, I’ve usually had only one anchor client at a time and in leaner times haven’t had any. I believe ultimately the pros of having an anchor client outweigh the cons, but these are still issues you should be familiar with. Let’s dive right in.
Pros of Anchor Clients
They provide “jobby job” style cash flow. There’s great comfort in being able to project out several weeks or months and knowing what to expect in your level of income. Smaller client projects will come and go, but with this base of financial stability, it makes it much easier to plan for the future and possibly take on some risks (such as buying new equipment, moving into a new office, bringing on additional personnel, etc.).
They supply a steady stream of work. After a while of juggling a large number of small projects, it can get quite tiring. The ability to block out a significant portion of the day to work on a single project for your anchor client can really help you get into a zen state of flow and maximize your sense of productivity.
They give you the freedom to try out different side projects. With the extra mental capacity that comes from knowing you don’t need to hustle and drum up new contracts constantly just to keep the lights on, it frees you up to spend some extra time on side projects, continuing education, and other creative pursuits.
Cons of Anchor Clients
They might drop your contract suddenly, plunging you into financial chaos. You can attempt to come up with ways to mitigate this contractually, but in my experience you generally won’t see it coming and are suddenly left scrambling for new work. Whether the company has run into their own cash flow constraints and you’re the collateral damage, or they’ve changed directions strategically, it’s always frustrating when the rug is suddenly pulled out from under you.
They can allow you to become complacent. If you have one anchor client that comprises more than 75% of your income, you’re essentially just an employee who happens to pay for your own benefits and other ancillary expenses. This is not a great way to build a business. In my opinion, you shouldn’t have any client that supplies more than 50% of your income. Diversification is what keeps the train rolling along and headed in the right direction, no matter what a single client may do unexpectedly. In addition, having a solid anchor client over time can lead to laziness in your sales pipeline. If you’ve just been working away on a big project for a long time and aren’t finding new leads and bringing in new business, that’s a major red flag.
They might not pay what you feel you’re worth. As someone who charges by the hour, I’ve generally found that I make less money per hour working for anchor clients. Perhaps it’s because they negotiated for a lower rate—nothing wrong with that, since you’ll avoid spending so much time and cost bringing on smaller projects regularly. Or perhaps you’ve raised your rates once or twice since your anchor client first contracted with you and they’re still on the old rate (and possibly not likely to budge). If this is the case, you have a decision to make. Do you just let them get away with paying you less, causing you to lose in potential opportunity costs? Do you try to ratchet down your level of engagement with them as you bring on new, higher-paying clients? Do you simply ask them for more money to do the same work you’ve been doing? I’ve seen a lot of freelancers (including myself!) wrestle with this issue frequently.
Overall, I believe freelance businesses are healthier when they have one or two anchor clients in the mix. As long as you’re aware of the potential pitfalls, avoid sales complacency, and strive to reach the level of income you’re worth, anchor clients will enable you to build a stable and successful freelance business for years to come.