Is There A Right Way To Bill?
One of the most important questions to ask yourself as a small business is determining how you plan to charge for your services. When you sell a product - that decision is simplified. You pick a base price for your product, and determine whether special conditions like volume discounts, sale prices, or coupon codes apply.
When your business is a service, you can usually get by with charging an hourly rate. Every hour that you work, you charge for, with some thought given to minimum rates, portions of an hour, or discounts for a guaranteed number of hours.
Seems simple, right? So what do you do when your work is primarily creative, and the final product is a mix of deliverables and consulting?
There are no perfect answers, but what Franki and I have focused on is project based work billed off proposals we submit to clients. Basically, we estimate the cost of a project, and charge that estimate based on a mix of pre-set fees and our estimated amount of time. For other small business owners, you can imagine how much time we eat when projects don't go exactly as planned.
The major concern is understanding the value of our time. Over the course of the last few years, we have come to understand the value of our time (as opposed to the value of the work we do). What this means is we tend to avoid small projects (one page sites, short consulting assignments) and work that we could do, but at a lesser rate. We seek to deliver the full value of our time, and that requires us to work on projects where that value is best realized by the client.
It's a good system, but where it breaks down is the add-ons and extra work we get from former clients. After a successful project, our clients want to work with us again. As a referral-based business, that is our lifeblood. We love projects that are already sold from our previous endeavors.
But how do we account for these smaller projects? On the one hand, they don't bear the cost of marketing/selling/prospecting, so they have a higher profit margin. At the same time, working as an outsourced marketing arm on a per task basis plays absolute havoc with our scheduling. How can we plan for large projects when we receive time-sensitive tasks from former clients? How can we turn down tasks from trusted clients, only to see that work go to competitors who may get the next large project?
It's that tension which is at the base of all small business decisions, but creative work in particular. Writing a copy piece, designing a logo, or creating a marketing strategy for a online/offline integrated campaign may not take much time to write, but the process of creating doesn't necessarily fit well into an hourly rate.
If I come up with an idea that takes 15 minutes to work on, but it's based on four days of thinking about it - what is the proper rate to charge?
When your business is a service, you can usually get by with charging an hourly rate. Every hour that you work, you charge for, with some thought given to minimum rates, portions of an hour, or discounts for a guaranteed number of hours.
Seems simple, right? So what do you do when your work is primarily creative, and the final product is a mix of deliverables and consulting?
There are no perfect answers, but what Franki and I have focused on is project based work billed off proposals we submit to clients. Basically, we estimate the cost of a project, and charge that estimate based on a mix of pre-set fees and our estimated amount of time. For other small business owners, you can imagine how much time we eat when projects don't go exactly as planned.
The major concern is understanding the value of our time. Over the course of the last few years, we have come to understand the value of our time (as opposed to the value of the work we do). What this means is we tend to avoid small projects (one page sites, short consulting assignments) and work that we could do, but at a lesser rate. We seek to deliver the full value of our time, and that requires us to work on projects where that value is best realized by the client.
It's a good system, but where it breaks down is the add-ons and extra work we get from former clients. After a successful project, our clients want to work with us again. As a referral-based business, that is our lifeblood. We love projects that are already sold from our previous endeavors.
But how do we account for these smaller projects? On the one hand, they don't bear the cost of marketing/selling/prospecting, so they have a higher profit margin. At the same time, working as an outsourced marketing arm on a per task basis plays absolute havoc with our scheduling. How can we plan for large projects when we receive time-sensitive tasks from former clients? How can we turn down tasks from trusted clients, only to see that work go to competitors who may get the next large project?
It's that tension which is at the base of all small business decisions, but creative work in particular. Writing a copy piece, designing a logo, or creating a marketing strategy for a online/offline integrated campaign may not take much time to write, but the process of creating doesn't necessarily fit well into an hourly rate.
If I come up with an idea that takes 15 minutes to work on, but it's based on four days of thinking about it - what is the proper rate to charge?
posted by James Durbin @ 7:01 AM PERMALINK
5 Comments:
Jim, what a timely and relevant entry. We struggle a lot with the specific situation you just described: prior clients needing more (small) work. As you mentioned, on one hand you don't want to give them the boot because repeat business and client loyalty is integral to sustaining cash flow and generating future growth. on the other--how to charge?!?! and, perhaps more urgently, how to schedule them in?
I have a long-term client now whom I LOVE who needs ongoing work. When she first came into me more than a year ago, my rates were considerably less than they are now. I struggle with what to charge her--she's a supportive client who has helped bring in some business, but her ongoing work is wrecking havoc on my schedule at times. But I don't want to lose her.
The word you used, "tension" is perfect--with some of these jobs, I am hovering between being frustrated, being grateful, and feeling beholden.
if you figure out any solutions to your final question, let me know ;)
Franki has this idea about cloning we've been thinking about pursuing...
The underlying challenge I face on my side is scheduling. I'm the clendar queen, who plots out project schedules with great precision. This helps us forecast and identify weeks where we can mix in additional elements - and conversely, weeks where we need to keep our heads down working.
THIS is where those lovely (beholden, as you say) add-on's get tricky. It is the highest compliment a client can pay to you. They are saying, "We love what you've done. Can you also do this for us?"
The knee-jerk reaction is a joyful "yes" (as it should be), but then the calendar becons and reminds us we have a new company in the queue. This is where the time management really becomes and artform. In my opinion, how you close a project is every bit as important as how you begin one. Possibly more important, as the last impression you make isw likely what the client will recall.
Honestly, it is a problem we love having. It is the best possible challenge to face. But when your business goal is quality of work, not quantity, it can be challenging.
We're glad to hear we are not alone in the dilemma!
Franki, your comment reminds me of something my friend, who works in HR, told me: "The first two weeks at your work and the last two are the most important. It's what people will remember the most." In the same vein, as you said, how we both open and close will be what clients remember.
But what if the clients never 'close'? LOL. Another concern I personally have is that for projects that have a definitive end (or perhaps the person comes back to me much later), I can really control what kind of experience I'm leaving the client with--I know if we're both walking away from it happy and fulfilled. However, with ongoing clients, I'm concerned that the quality of my service will be perceived, over time, as lacking, even though I still go out of my way for them. But let's face it--the calendar issues you addressed make it so that when the returning clients say "jump" we are not as easily able to say "how high." It's the whole diminishing law of returns issue...and that scares me. I don't want what was once a very positive experience for a client to turn less positive over time simply because they perceive they are not as high up in my schedule, etc. That's a stressful thing that I feel I always have to try and counterbalance service wise, and as you know, that can be exhausting over time, to the point where the money is really no longer worth it on some of the jobs.
Jason figured out the solution:
Hire a Junior Designer ;)
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