We work in an incredible industry. We have the enviable jobs of being super nerds, infusing the world with our creative energies and clever solutions and getting paid to do it.
But it’s that last point that can oftentimes be the source of much frustration for many web professionals who have the joy of managing the business side of web design and development.
Dealing with the billing process can be a pain. The idea of it is simple enough. You do work. You bill for that work. You (hopefully) get paid. The process however is another story, with many possible points of contention along the way: establishing client expectations, staying on top of the project scope, maintaining high quality of work, working with and around every type of personality or organization, all the while ensuring you are actually making money. When I talk to other designers and agency owners about their own billing frustrations, the conversation typically revolves around those issues.
I believe many of the points above are a direct product of or at least exacerbated by working within a faulty billing system.
There are three significant approaches to billing design services:
Right off the bat, I’ll tell you that within Station Four, we bill based on time, for many good reasons. But I also have past experience with value based and fixed bid, so I can attest to the many allures and pitfalls you will find with those two options. Working within the practice of billing according to actual time opposed to value or a fixed bid allows you, as a web professional, to ensure a smooth creative process and the output of quality work that will ultimately make you money and keep your clients smiling. Two of the best things we could ask for in this business, right?
Not quite convinced? Let me take some of the leg work out of it.
Ah, the holy grail of charging for design. Proponents of this practice assert that we should bill in proportion to the amount of value our work provides the client and not be bound by the amount of time we spend in Illustrator. This type of reasoning is most commonly applied to design, specifically branding, but can be extended to development as well. There are certainly some benefits to going in this direction:
I’ll concede that many of the arguments above have valid points. However, the problem with value-based billing is in application and in the fact that the true value of a creative endeavor cannot be known beforehand. This leads to a number of problems:
Providing fixed-bids is one of the more common ways in which freelancers and less experienced agencies work. Even at my agency, Station Four, we effectively provided fixed-bids in the early years of operation. However, fixed-bid billing isn’t as plain and simple as just coming up with a number. It gets further complicated when the actual work does not match the original scope of the project laid out in the proposal or contract. Modifications must be handled by the submission and approval of change orders. Regardless of how much time the designer spends on a project, the client will not be billed in excess of the original quote without the approval of a change order.
While I believe that, in most cases, providing fixed-bids is a quick way to be unprofitable, obviously there are reasons why people use them:
Estimates: Even in ideal situations, accurate estimates, either in the initial proposal or in subsequent change orders, are difficult to produce. However, most circumstances are not ideal:
Therefore, the true scope of a project is unlikely to be known at the time you are required to provide a quote or estimate for a project.
Proposals and Production: Fixed-bid billing forces you to create proposals that are as detailed as possible. The problem here is that there are certain design or content areas that are heavily dependent upon the strategy, user experience, and direction that have not yet been established for the project. There are a significant number of grey areas that are difficult or impossible to precisely stipulate in a contract. And if you were able to do that you are essentially boxing yourself into an inflexible project that couldn’t take advantage of strategic insights that occurred after the project got started.
Administrative Costs: If you submit a fixed-bid quote and are still determined to keep the project in the black, it is likely you will be forced to into the role of “scope police.” This involves vigilant oversight of the day-to-day discussions and decision making, while keeping your hand on the break in case the project veers out of scope. It involves standing firm and hoping you have a watertight proposal or contract when a client complains that they thought their request was part of the initial project. And, more often than not, it involves making tough choices between a happy client and making money.
Negative Incentives: There are good clients and bad clients, and then there are sales people. Given that one big underlying goal is to increase sales, it’s no surprise that sales staff is commonly involved in a client’s project team. Because of this, they will find every way to keep the price as low as possible. And in a fixed-bid contract, you’re a sitting target – you’ve agreed to a price before doing the work.
You’ve given the client every incentive to push as much work as you’re willing to do without charging them more. Additionally, if you go ahead and perform the work prior to approval of a change order, they can dispute it and see if you will drop it. This is just the salesman personality—I’ve literally had clients tell me that no matter how good the price they’re quoted, they’ll still try to talk it down. On the other side, when a project becomes unprofitable, a designer or agency has the tendency to develop a “just get it done” mentality, which doesn’t lend itself to quality work or a very thorough QA process.
So now that I’ve laid out some of the primary issues with fixed-bid and value-based billing strategies, let’s look at the benefits of time-based billing and how it addresses some of the issues with the other billing methods:
The drawback to time-based billing is that some clients might be uneasy at the prospect of opening their checkbook without concretely knowing how much they’re on the hook for. I feel the solution to engender the potential client’s trust is by demonstrating professionalism and emphasizing communication. This can be done with a variety of tools:
The above three tools are probably the most vital when working within time-based billing. But it is also important to establish trust before the process even begins. One of the best ways to do that is through great references. Almost nothing you can do can sell you better than client references. As it pertains to this article, having client references that you’ve worked with on a time and materials basis (and come in at or under budget) is important.
Another selling point is your body of work. At the end of the day, clients are talking to you because they like your work. One way to make billing practices less of a sticking point is to demonstrate great work. Having well-known clients doesn’t hurt either.
We have covered a lot of ground here, but we can boil it down into a few takeaways:
As the owner of a design agency, my primary professional motivations boil down to doing good work and running a profitable business. While the two do not lie on a continuum or run diametrically opposed to one another, as long as one of the two are being met, I’m probably not going to be totally despondent and hating life. At the very least, billing for your time ensures profitability and reduces the likelihood of having to argue over money with clients. Moreover, in my experience, knowing that the clock is always running tends to discourage clients from constant indecision and wasting your time—you’re a professional, so charge like one. There are many things I do as a business owner that I enjoy, arguing with clients over money and the fine points of a contract are certainly not one of them.
Billing your time solves a number of common problems on the business of design; it essentially solves problems associated with scope-creep and ensures profitability of each and every project. Time-based billing cuts out a lot of unnecessary stress. It allows you to keep structure and accountability within your work, so that creativity and collaboration can thrive.
Chris Olberding is a mediocre ukulele player who owns more Funko Pop figures than any grown man should. In spite of this, he has run a successful agency for the past 10 years by providing creative vision and strategic guidance to the S4 team. Chris has been recognized as one of Jacksonville Business Journal’s 40 Under 40, and S4 has been named to the Gator 100, a list of the 100 fastest-growing businesses owned or run by a UF alumni, for the last two years.