Billing is the lifeblood of your (and our) agency. Too often agencies and other firms use simple billing practices like the classic 50/50… 50% deposit and 50% upon completion. That’s great for small projects (whatever small means to you, but to us it’s under $10k). While this may seem the most fair and equitable way, it can easily throw your cash flow into peril when projects are delayed by the client. I’ve seen it too many times in my career, you get 95% through a project and then the project gets stalled out when last minute client deliverables are delayed or priorities are shifted. Sometimes for weeks and (ugh) sometimes it’s months. When you’re counting on the cash to be there, delays can be deadly to your firm’s bottom line.
So here are 5 ways to bill for your services and some advice we’ve learned over the years.
Option 1: Project Scope & Deliverables
Basically scope the entire project and come up with a project budget. This seems to be the most common way to quote and deliver project based work. Clients see what their budget is and our team knows what is being delivered. This is the best method we’ve found when you are doing a value pricing model. Typically, billing is based on some type of milestones achieved. For us at Right Here Interactive, our preference is some variation of the example below:
- 50% deposit. Most clients accept this. There are some clients that prefer a lower deposit, which is fine, you just need to adjust the milestone payment or payments.
- 35% milestone payment. If we’re building a website, then this happens when we get to the first beta preview of the project, so after design and the setup, configuration and content loading. Admittedly, the term “beta” is a bit arbitrary, so you just need to declare it at the point it seems reasonable and make sure the client understands that.
Some of our agency partners report on non-web related projects for design, after they get through creative, then they move to production and when you show a proof for review, that’s the milestone. Also, if the project is larger, you can look at having multiple milestone payments.
- 15% upon go live or release of assets. The key there is to be mostly paid when you reach the end of the project, minimizing the total amount that could have delayed payments.
Option 2: Fee Schedule
A fee schedule is straight forward, but it can come with some complications. You can do a fee schedule on a time increment, whether it’s the number of days from project start or dates on a calendar. So if you are doing a $12k project, you might consider $3k deposit, $3k on day 30, day 60 and day 90. In our experience working on this type of billing arrangement, if the project gets delayed the clients don’t like to keep paying, but if you have a good written agreement, then they’re on the hook. But even that is negotiable since you want to keep the client happy.
Option 3: Time & Materials
Ohhhhh, the holy grail of billing. Just keep track of my time with a time tracking tool like Clockify or Harvest and kick out a bill on the agreed to intervals (monthly, bi-weekly, semi-monthly, etc.). This seems to be a dying breed of billing, reserved for Madison Avenue Law firms and high-tech consultancies. If you do T&M billing, it’s likely you will still be on a budget. Well that’s why they created what I think of as T&M 2.0…. “progressive” billing.
Option 4: Progressive billing
Progressive billing has become our preferred method since 2015. Basically, it combines a scope of work with the essence of time and materials. We use progressive billing on larger projects (over $10k) where there are a lot of people on the team and the actual work gets produced on an often fluctuating schedule. So… in our case, we choose to bill on the 1st and 16th of every month. The invoice on the 16th is all time from the 1st day to the 15th of the month. We typically have the invoices out by the 20th after we carefully check all time entries and we do Net 10 or Net 15. The invoice on the first of the month covers all work from the 16th to the last day of the month you are in. Same Net 10/15 rules.
The one thing about progressive billing is that it doesn’t support a value pricing model whatsoever because it’s entirely time based. Still though, we love it and would take this billing model over any other in our firm.
Option 5: Retained Services
If you’re in this industry, you know how great retained services can be. You get a monthly or quarterly fee in exchange for a set of services. Sometimes that’s time and sometimes it’s a type of service. This is great when you have recurring tasks that should be completed. Most of our clients choose our “Managed Services” plans on websites running some type of CMS like WordPress where bi-monthly updates are needed as well as evaluating analytics to make recommendations on how to improve the website’s performance.
What about Change Orders or “Out of Scope” Work?
Essentially, bill it separately from the project and don’t let the initial project get delayed.
What are “unreasonable delays” and can you charge for them?
Unreasonable delays are a common clause in professional services contracts. Why? Because the firm needs to allocate resources for a given project and when delays occur due to the client, then it can negatively affect the resource allocations. As such, we have an (albeit rarely used) clause in our contract for unreasonable delays. It goes like this….
Client acknowledges that RHI must allocate resources over a period of time to complete the deliverables and that the scheduling of those resources creates costs for RHI. If after the commencement of work, Client creates a delay in RHI’s work effort for more than Ten (10) consecutive days for any reason, the project will be considered “Stalled” and RHI may temporarily remove it from production. Once Client is able to resume the Job Order and is approved by RHI, Client will pay in advance any remaining balance that brings them to Ninety Five Percent (95%) of the sum total of the Job Order and any Change Orders, plus a Reinstatement Fee of Seven and a Half Percent (7.5%) of the Job Order total. Once the amounts are paid in full, production will resume with a new schedule issued by RHI.
PLEASE NOTE… THIS IS PURELY FOR INFORMATIONAL PURPOSES AND SHOULD NOT BE CONSIDERED LEGAL TERMINOLOGY OR LEGAL ADVICE. CONSULT YOUR ATTORNEY.
That said… the clause looks really harsh and truth be told, we’ve run into a few clients who are not fans, some demanding it be removed from our Job Orders with them. But most clients accept them and it’s your choice on the enforceability. We use the word “may” in the clause to highlight it’s at our discretion. The key is to give you some leverage in the negotiation process. We’ve never once enforced this to the letter of the clause in the 6 years we’ve been using it. The clause itself has helped us many times in our conversations with the clients because they often don’t consider how much resource reallocation can cause problems.