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Summary:

WWD recently received a great question from a reader regarding contracts, terms and pricing. Celine Roque and Aliza Sherman partnered to address this question.

WWD recently received a great question from a reader regarding contracts, terms and pricing. Celine Roque and Aliza Sherman partnered to address this question:

I’ve been a contracted web designer for 3 years now. I have two steady contracts, both paying me monthly and I work remotely for both out of my home. One of the contracts pays me based on the idea that I will work up to 25 hours a week for them. The other company I work for pays me based on me doing repeated monthly projects (web updates + newsletters). I have problems with both. The first one who pays me to work 25 hours a week expects me to do what they say when they say (which is hard since I don’t just work for them). There’s also no real way of proving I did 25 hours of work which bothers me because if they ask me to do more and I can’t prove it. My problem with the other company is that I don’t get compensated for my work all the time. I could charge more, but not all months I am taken advantage of and I don’t want them to feel like they are being gouged.

I have a chance this January to re-new my contracts and change the terms. I was thinking of saying to both that I will work for a set amount of hours during the day. So like 9am-1pm for company A and 2pm-6pm for company B. They could make sure I was online and working through gchat. I’m hesitant to do this because I don’t like the idea of being tied down every day and losing my freedom.

What’s the best solution for managing how I charge for my labor?

Aliza Says…

How to charge for the work you do seems to be a constant question on every Web worker’s mind, and I think we all come up with our own formulas on how to handle pricing issues.

Personally, I’ve moved away from the hourly model as much as possible for several reasons:

  1. My time tracking deficiency. I’m terrible at estimating or even tracking hours. I’ve tried time tracking widgets, and while they work great, they only work if and when I remember to use them which is never.
  2. How do you count dream time? There is much more to the work I do than just hours of actual labor. My clients are also paying me for the value of my years of experience, my ability to perform tasks quickly and efficiently, and my strategic and creative thinking. Even before I sit down to do the actual work, I’ve been ruminating on client projects and issues for hours, days or weeks so that when I do sit down, I can hit the ground running. How do you charge for rumination??
  3. Avoiding the pain. I hate being micro-managed and having to account for each and every hour of my time is painful to me. I do my work the way I do it so I won’t be experiencing that kind of pain. The bottom line is that I deliver what I say I’m going to deliver, I do what I say I’m going to do.

So even in my contracts, I list the specific things I will be doing for my clients and set a timeline. Then I put a cost to each part of the project – each deliverable – and set my payments in increments throughout the duration of the project, either as deliverables are met or as percentages of the overall project cost paid over time until the project is complete.

In terms of when clients can call me, I can only work 10:30am until 4:00pm due to family obligations so I turn my phone off or do not answer it before that time frame, after that time frame, or when I’m tied up in the middle of a project. I also lead clients, by example, to use email far more than the telephone which cuts down on time-consuming calls.

Celine defines several solid solutions and explains more of the nuts and bolts of how to carry them out.

Celine Says…

As Aliza mentioned, one solution is to shift the focus of both your contracts from a time-oriented way to measure work, to a results-oriented way. This means that your deliverables should be based on what you accomplish rather than how much time they took. There is a set list of tasks that you have to finish each day/week/month, and your ability to commit to the list is how they’ll measure your performance.

The tasks that need to be accomplished should be mutually agreed upon, so that you won’t feel exploited and your client knows what to expect from you. You should also discuss the pricing for each task, as well as projected average total cost for each month based on your client’s previous requests.

This entails a lot of initial work, especially since you’re currently being paid by the hour. You’ll need to have a long discussion with your client about these changes. Also, it’s difficult to implement a solely results-oriented approach, especially if the tasks you do each month vary greatly. Ideally, this method should work fine for simple projects.

Another approach is somewhat halfway between your current arrangement and the results-oriented arrangement above. First, you can define the tasks covered for the 25-hour period. You can start with the regular tasks they ask you to do such as text changes on the website, addition of a few images, sending out the newsletter, etc.

The defined tasks could even include a set time each workday where you will be available for consultation. You can make yourself available twice a day for each client, where they can give you feedback or make additional requests. Whether you use email or the phone, having a fixed schedule to communicate will be more efficient.

This might be tough to propose, especially if they’re used to having you at their beck and call. Let your clients know that this change is for their own benefit, because implementing this will allow you to spend more time actually doing the work. Tell them that this saves them time as well. Instead of calling or email you multiple times at irregular intervals throughout the day, they can batch their requests.

Since there is still time measurement involved in this approach, it helps to send the client a daily or weekly report of what you’ve accomplished and how long each task took. You can use time-tracking tools to provide the information in your report. Most clients usually underestimate the time and effort needed for some tasks, which is probably why your client tends to demand more of you. Seeing this regular update will allow the client to have a better idea of how long certain tasks take, and they’ll know what to expect in the future.

For the heavier work you’re asked to do, such as, say, the creation of a new sub-page, creating forms, making changes to the layout, you should quote separately for them. Discuss this with your client when negotiating your new contract so that they will expect the quotes, and even ask for it when they request these major tasks.

The Bottom Line

You need to create a fee structure that best serves you and your business but that is acceptable to your client. As you change over to a new way of pricing, develop a “handout” or fact sheet that outlines the new structure, giving an explanation in writing to your clients and offering them the opportunity for discussion before changing the contract.

Present your change in pricing and billing as an entire restructuring of your business, not as a way to right any wrongs with the previous pricing structure and contract. You’re not trying to “punish” your clients. You are trying to get the new year off on the right path to strengthen and grow your business. If you have a good relationship with your clients, they should be supportive of the new move – as long as they can see the mutual benefit. They are ultimately looking out for themselves. You need to do the same.

By Aliza Sherman & Celine Roque

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  1. You need to track your hours–starting now. There is simply no excuse not to. If you are expected to work 25 hrs a week, you need to track the time you spend doing what. Just keep a little spiral notebook log, enter date, contract, job, time worked. Total it every week. If you are on hour 24 and your client asks for a 5 hour job, tell him/her it will put you over 25.

    It is what any other professional would do. The log becomes a legal document in case of a dispute. So use pen, and if you change an entry make a single line through the mistake (so you can still see what was originally written), and make the correction. I note as to why the correction was needed is good too–and a date if done at a later date.

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  2. Tracking hours is painful, but also illuminating. It’s a very good way to discover just how you’re spending your day, and also what projects weren’t very profitable.

    Years ago, I started tracking everything, and discovered the press releases I thought I was “cranking out” (and doing cheaply) took a great deal more time than I thought due to the research involved.

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  3. Tracking hours sucks and takes time away from the actual work. Estimating in hours is inaccurate at best. It is, for the most part, near impossible to estimate any task with 100% accuracy, unless all factors are exactly the same from one job to the next, which they almost never are. For development, we charge in two-week blocks. For design, we charge either by the day or by the week, depending on the size of the job. Smaller items are charged hourly, however those are just 1-2 hour things. My suggestion is to begin estimating in days, and always give a range. The same goes for when the goods will be delivered.

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  4. @ Robert: The time required to track time is minimal. While your suggestion for estimating in days is a good one, anyone billing by the hour (on a “time and materials contract) needs to track the hours. Just like an architect or a carpenter.

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  5. I usually prefer a results-based approach, but it sounds like these clients have lots of little, ongoing needs that would be a pain to estimate and bill individually.

    Maybe you would benefit from using a more strict retainer with the 25 hr/week client, and maybe with both of them. The retainer would be *paid in advance* for a set number of hours/month (such as 100); often there’s a small discount since they’re buying a package of hours.

    During the month, you would track your hours as you worked. As they neared 100, you would warn your client that any time over that would be an additional charge at a higher hourly rate.

    If the client doesn’t use all 100 hours, that’s too bad for them. Unused hours don’t roll over. It’s the price they pay for having you at their beck and call. This is standard retainer practice.

    There are many easy time-tracking apps that just require you to click when you start and click again when you stop. I use Freshbooks. If you track your hours using Freshbooks and give the client a login, your client could log in at any time to see how much time they had left in their account.

    I would recommend against giving clients a daily schedule of your availability. A schedule can encourage them to consider you a remote employee, which means they’re even more likely to think you should drop everything else to take care of them.

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  6. @dhimes: tracking time can take a bit depending on what the task is and how many of them there are. Time and material contracts would require hourly time tracking, which is why we sell blocks of time for a fixed cost :)

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  7. I think results based is best. It might lose you a lot of customers but maybe you need to lose them.

    If you can have a real productivity edge results based is magic. For example if you write quick programs to automate parts of a job you might be 1000 times as productive as the person who does it manually. Why on earth would you want to pass on all the benefits of your skill and technique to the customer who had no part in getting you where you are.

    On top of that time billing is a can of worms. I imagine that everybody who has ever done it understands that the time booked can come out way different for exactly the same job. I looked at data within a single company once. I don’t have details to hand but I think the differences in bookings for the same work varied by greater than 1 : 1.67 for the same time spent. It depended on the “philosophy” of the person making the booking. When you piggy back that on productivity the “rule of thumb” that some programmers are worth 28X others per hours starts looking conservative.

    True those paying may well not to have a clue so you can cheat them. On top of that if you charge them a higher rate for less hours actually worked they might not hire you. So those who contract you might inadvertently influence you to be dishonest, book tea breaks, rest room breaks and lunch breaks so that you can charge a “lower hourly rate”.

    Pick your path, but you do have choices. A plain spoken simple description and contract can work very well with the customer you actually want to have!! You’ll only know if you try.

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  8. We track *everything* simply because it’s good practice and makes you work better. You don’t have to charge for every hour you track, but you do need to track it. And if you are in web design, it is especially important to charge for the time when you are dreaming, thinking, sketching, whatever. They are paying you for your creative time. Sometimes clients will complain that you are billing them for things like project management, email correspondence and thinking time. In that case, politely explain to them that time spent on their project is billable time because it’s time out of your day, and you only have so much time.

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  9. I’m trying to move towards a time-based billing structure.

    I have done a lot of work on results-based billing, but find that the clients are constantly changing the requirements, so unless I am constantly revising the estimate that doesn’t work well.

    Even if I am working on a results-based contract, I still try to track my time, in an effort to figure out how long stuff takes and make results-based estimates as accurate as possible.

    For time tracking, I use a timesheet to track my time, and keep one for each project. I find it works much better than time-tracking widgets and such, although it does add the overhead of transcribing everything every once in a while.

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  10. You should keep track of your hours, but ONLY for you to learn about yourself. Never show that to a client!

    You’ll be taken advantage of every time. The client will never value all the skills, experience, and talent you bring to their project.

    The worst part of doing something right the first time is that nobody appreciates how hard it was. You should be able to constantly develop your processes, skills, and tools so that you can do your job in less time and make the same or more money. Reducing your production costs and time to market will allow you to make more profit, be more competitive, just like any business. Tracking your hours helps you to know if you are estimating correctly, handling project scope creep, and things like that.

    Also, why would you want to limit your income potential to some hourly rate x the max number of hours you want to work? One of the biggest benefits to freelance is that you (should) free yourself from the income ceiling most jobs have.

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