Money First

Talk about money first.

Talking about money can be awkward, which is why it’s often brought up too late. But no other diagnostic question you ask matters unless your client can afford to pay you for the work they’re hoping you’ll do. And oh boy does that mean that you had better be charging enough. But that’s another article …

I’ve learned that the best way to begin talking about a project is to discuss money. Too often, we wait until after the client has assumed control of the negotiations, after you’ve already spent a ton of time trying to close on the job, or worse yet, after work has already been done. By then, you’ve set a precedent that is almost impossible to reverse. And if you’re operating this way, you likely aren’t even certain what you need to earn for the work you’re doing. You’re winging it, and the client can see that. The only way you’re going to get the budget you need is to have the money conversation right away.

If you haven’t mastered this discipline, the first barrier to overcome is fear. There’s often this reverse “If you have to ask, you can’t afford it” vibe that designers bring to negotiations, where they feel that if they mention money too soon, they’ll come off needy—and really good designers are always in demand, right? Well, not really. Everyone needs work. Some designers may have more opportunity than capacity—that’s certainly a strategic position to aspire to—but even they need the work that they say yes to. Getting there takes discipline and practice.

Clients are like bees. They can smell your fear. If you’re at all hesitant about bringing up money, or betray your lack of confidence through clumsy speech, body language, or lots of written hemming and hawing, you’re not likely to get what you’re asking for.

Just to be clear, when I talk about discussing money up front, I mean remaining firmly in estimate territory. That means ranges are appropriate until you’ve gotten confirmation that the bigger number is something your client can afford and is prepared to spend (different things, believe me). You should be able to provide an estimate after hearing even the “elevator pitch” version of what your client needs, which in turn will make your client feel more confident about your ability to provide what they need.

Think about it this way: When you go to the doctor, you want to hear something like, “Yes, this is quite common. A few weeks on this medication will take care of it.” Your client wants the same kind of authority from you. Translated into web-designese, it should sound something like, “It looks like you need a full site rebuild with a focus on lead-generation functionality and integration with your CRM. Sites like that cost between $35 – $55k, depending upon some details we can go over.” If they’ve got $55k, you can move into talking specifics.

So, what about the specifics? First, keep your hourly rate to yourself; make it the unit by which you determine prices, but not the price itself. You should have such a clear sense for what your deliverables are—even with the typical project-to-project particularities—that estimating costs is a system that you hold yourself accountable to, not the other way around. Ideally, your prospective client will see one large, round number. (There are exceptions, of course: Sometimes it will be appropriate to have line items for additional functionality, each with a single price.)

As soon as you work through qualification, let your client know this number verbally—either in person or over the phone, then follow up with a contract. As one of our trusted colleagues, Blair Enns of Win Without Pitching fame, says: No proposals, just a brief contract detailing scope, price, and terms. If you’re still selling the job in your proposal, you don’t have control. By the way, if you’re interested in going deeper on this subject, seek out Blair. He wrote the book on it, literally.

Finally, a couple of things to keep in mind. There are actually two budgets that your client needs to consider and allocate in advance of beginning any web project. The first is the cost of the initial project, which should cover the planning, prototyping, design, and development leading up to the first launch of the site. The second budget is the yearly amount they are likely to spend maintaining their website. This might include specific costs like support and hosting fees, as well as any functional upgrades or design changes they need moving forward. Often, this amount is commensurate with the initial project cost; the more complex and costly a website, the more complex and costly it is to support and maintain. The more experience you have with web work, the more you’ll be able to help your clients anticipate the long-term costs.

You can do this. Now, look in the mirror and say, “I can do this.

Just kidding, don’t do the mirror thing.

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ADD A COMMENT

11 COMMENTS

  1. Karen, As I mentioned in an aside in my reply to Lizzy, charging an hourly rate is not necessarily a bad practice. Plenty of freelance designers are quite happy to do so, provided their hourly rate is adequate to sustain them, given the average amount of opportunity they have.

    But, if you decide that having a simple hourly rate is right for you (as apposed to project/deliverable-specific fees or retainers), you’ll want to consider whether the actual number is right–in other words, whether or not it’s too expensive for your market and prospects, or too low such that it’s attracting the kind of clientele and work you don’t want to be doing. In this sense, pricing is definitely positioning.

    If you decide to make your hourly rate a unit by which you estimate project costs, then I would advise keeping the hourly rate to yourself. If you’re charging your client $15,000 for a website, then you are assuming that budget is adequate to get the job done. If it’s not, then the scope of work is the problem, not the time. So if you end up in a scope creep situation, you are better off estimating the cost of the additional work, factoring in how it will affect your schedule, and amending your contract. Handling it that way should avoid any question of hourly rate.

  2. Interesting article and I appreciate your last post to Lizzy, it covers a situation I’ve run into, clients who dictate the hourly rate or ask what my rate is upfront. Your article repeats the sound advice that you don’t have to reveal your hourly rate, but how do you handle this situation?

    As Lizzie says, you don’t want to turn away work, but it feels like clients have the upper hand these days.

  3. Lizzy, Well, maybe the mirror thing isn’t such a cheesy idea after all ;-) Seriously, though, I completely understand the inclination to do work at low cost to build up your portfolio. In fact, I did that exact thing when I was starting out, and though I’d probably do a few things differently had I the chance to do them over again, I don’t necessarily think that it’s an all-bad approach…provided you do it strategically.

    If you’re a freelancer, every client is a potential referral, so it’s certainly tempting to keep them happy. After all, a happy client is likely to tell others about their experience. But keep this in mind: Referrals often don’t stop at, “I worked with Chris and he’s great!” Especially if that client got a good deal, their referral is probably going to sound more like, “I worked with Chris. He’s great…and cheap!” If I hope to increase my fees at some point, I’m probably going to end up pricing out many of the referrals from the clients who worked with me when I charged less. See what I mean? My point is this: Every freelancer that undercharges is going to have to make a decision to charge more at some point, at the risk of losing potential work from clients that can’t afford what they really need to earn.

    However, sometimes you can make this work, just taking a slightly different approach. Let’s say you determine that you really need to charge $95 per hour, but an opportunity comes along with a client that could be a strategically advantageous relationship, but whom you sense cannot afford your rate. Rather than just reducing your rate (because, let’s face it, you need the work), offer them a discount. Be up front with them by saying that your rate is $95/hour but because you’d really like to work with them and you have a window of availability now, you’d be happy to do the work for $50/hour. (By the way, any of this could work with set project prices, too, not just hourly rates.) Just make sure the scope of work is very clear. This way, your client knows exactly what you are worth and will advertise your actual rate when they (hopefully) refer you later on.

    That’s just one of many strategies you could take while intentionally building your business. I’d love to hear other designers’ suggestions and stories from the field…

  4. i did the mirror thing before reading the last line! darnit! jk jk :)
    i feel that fear in not wanting to lose an opportunity.. at the same time i tell myself, that i like creating things so in a way the money doesn’t matter. (i’m sure that’ll burn out quickly!) I’m also trying to build my freelance portfolio…sooo there is the struggle for me in getting a client in on a good price, to build a portfolio.

  5. Melissa, Thanks for reading and for your comment!

    I just got back from the HOW Mind Your Own Business conference, and during one of the evening happy hours, the question of how the business of design factors in to design education came up in conversation. It seemed clear from everyone I spoke with that there is not enough exposure to business disciplines and that they should be either integrated into the curriculum or dealt with in some kind of auxillary program. I even suggested to some of the people who publish the HOW and Print magazines that they try to partner with design schools (like RISD, my alma mater) to work on this. Debbie Millman suggested that HOW expand its Mind Your Own Business brand to include a “Mind Your Own Career” segment – a great idea. In any case, its on many peoples’ minds.

    I’m glad to hear that you pressed through the fear and gathered the information you needed to make freelancing work. I hope you’re still enjoying being out on your own!

  6. Great article. As someone who has spent the last 6 months doing freelance exclusively, I can positively say that everything you’ve said here is dead on.

    @Meredith: I think part of the problem is not so much the firms that people are starting out in as it is the education they’re getting in college. The business side of design is simply not taught, certainly not to the extent it should be. Perhaps schools need to start offering more business courses that are geared toward designers?

    As for overcoming the fear, I realized in a month that it was something I had to get over and quick. It helped to tell myself that my time and skills are something that my clients cannot have unless they are prepared to pay the price. They wouldn’t expect a lawyer or accountant to help them without paying their fees, and it’s the same for me. Doing the research to see what I should be charging upped my confidence in a big way and my clients have not been complaining so I must be doing something right.

  7. Al, I’m glad to hear that this was helpful to you!

    Meredith, You raise a very good point. To summarize it: Designers may accrue significant experience in the practice of design, and motivated by all kinds of things–entrepreneurial drive, more creative freedom, the desire to lead, client suggestion, or just basic ambition–might think that starting their own firm is the next natural step in their careers. But, without experience of the business of design, that is likely to be a rough road. However, many firms have established a corporate structure that divides up the client/firm relationship into many distinct roles. Business development and sales done by some roles, client account management and financial considerations by Account Execs, creative management done by Creative Directors, schedule and budget accountability by Project Managers, and the production by Designers. That’s 7 or more individual roles that are often consolidated into one–at least for a time–when designers try to start their own firms. For a mid-size to large firm, that structure makes sense, but it does make it difficult to gain expertise across all of those disciplines. So we have a bit of a Catch-22, don’t we?

    Well, first of all (and I think this will answer @Designer’s comment), this post was written with the small firm in mind, the reason being that when these distinct roles are consolidated at all–perhaps with one person doing new business, sales, personnel management, and creative direction, while another does account and project management and maybe even production–the things that make one good at a particular discipline but not another can come into conflict. Someone who is inherently a fantastic creative director–someone who cares about the concept and execution of the work–may struggle with limiting himself in order to remain accountable to the scope and budget. See what I mean? It’s not impossible to blend roles, but it takes some education and practice. So this post was written with these kinds of fuzzy areas in mind, where new business is being done for the first time by a sincere but perhaps untested agency principal. For those who only want to be designers within a corporate structure that supports that kind of role definition, financial considerations like pricing and negotiation may not be that relevant to them.

    By the way, if this post *was* relevant to you, I’d like to recommend another book in addition to Blair Enns’ manifesto. David Baker has just come out with an in-depth book on financial management for creative firms, based upon 16 years of analyzing over 600 firms. If you have a small to mid-size creative firm and continue to struggle with financial issues even as fundamental as those I mentioned in this post, I think David’s book will help you. You can learn more about it here: http://www.recourses.com/financial-management-of-a-marketing-firm

    Thanks for your comments!

  8. I’m a designer, not a suit! I get the point here, but I have to ask why this is important to designers in the first place? @Meredith gets it that designers shouldn’t have to think about budgets. They should think about the creative. Anyone who’s ever worked at a firm that matters knows exactly why these are different jobs.

  9. Many designers that decide to leave their jobs at larger firms and venture out on their own think they are ready because of their experience pitching ideas, making work, and maybe working directly with clients. But most of them don’t have experience with the financial side of design. They don’t know how to price work or even the value of their own time; just talking about budgets is going to reveal that. I want to complain about the lack of exposure to business disciplines in most design positions, but my experience has shown why these roles tend to be separate. I think there’s a greater ability to focus on the design problem and produce meaningful and focused results if you don’t have to worry about the dollars and cents. So the creative directors can hold the designers accountable to the goals of the project and the standards of the firm. The designers can produce. The budget accountability is there, but the decision to exceed a budget (even the specific knowledge of what the budget is) is kept separate for good reason. But this does leave most designers with a substantial gap in their practical knowledge. This is particular to larger firms – I’m sure that designers at smaller firms may get more of this kind of experience. So I’m wondering what can/should be done? Should the industry even care about preparing designers for all facets of design, including business? Or is it fine the way it is?

  10. Man did I need to hear this. Such good advice! The fear bit is such a real thing. I always realize it later… after I’ve already fallen victim to it. Thanks for the clarity.