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How To Guarantee Your Income With Agile Billing

For most creative professionals, this story is a familiar one: A client reaches out to you. They need a name, or a logo, or a website, or an app. Actually, they need it all together, and they need it all in a month — well, maybe a month and a half. The initial meetings go well, and they get you a signed contract and a deposit ASAP. You’re ready to start, and your schedule is clear for the next six weeks. And then you get the call.

“We won’t have the content you requested ready for another month.”

“Oh no,” you think. You were actually counting on that second half to pay your rent next month.

Take Control Of Your Finances Link

You may not be a sole proprietor. Perhaps you run a small boutique firm, or a large ad agency. Even if that’s the case, we all have similar problems: how do we pay our fixed expenses without knowing for sure when we’ll get paid by our clients?

Cash flow is the single most important thing for your business. Without money to pay rent and bills, the business will quickly spiral into Chapter 11. And if you’re a sole proprietor, the stakes are even higher: getting evicted from your office for a late payment is one thing, but if your business is run from a home office, you face the very real prospect of being homeless.

How We Usually Deal With The Cash Flow Problem Link

The most common way of dealing with uncertain revenue is to start with a lot of money in the bank, or enough credit to take out a loan if necessary. Angel investors1, friends and family can help with the former. As designers and developers, we can also create things that bring us passive revenue, although that can become a full-time job in itself2 — and not necessarily a lucrative one.

Different billing practices require different approaches to ensure cash flow. Some of us charge hourly, while others do fixed per-project fees. The former need to estimate as accurately as possible in order to book enough hours to pay the bills, and some of them end up “churning3,” or billing extra hours even if no substantial work is done. The latter must base their estimates on the assumption that every job will take the maximum amount of time possible, and try to work as efficiently as possible.

There’s a serious problem with both of these approaches, however: jobs almost always occupy more of our schedule than we expected.

Delays Cost Money Link

If the client says they’ll get something to us by Monday, more often than not it will arrive Wednesday, or Friday, or maybe even the following Monday. People are imperfect, and unsurprisingly, our clients have dozens of concerns in addition to our work for them.

We normally deal with this by agreeing to delay the date of the final product by an equivalent number of working days. But what happens when something gets delayed for a month, or two months, or six? We can’t reserve our time for one client indefinitely.

Unfortunately, most work-for-hire contracts do not contain explicit protections against client delays. The AIGA’s “Standard Form of Agreement for Design Services4” notes this, but offers little in the way of guidance [emphasis is mine]:

“The danger for you as a businessperson is that an unexpected delay could mean that you’re temporarily unable to produce billable hours. To offset this risk, some creative firms attempt to charge a delay penalty or a restart fee. You may want to raise this issue as a negotiating point. However, most clients are not very receptive to the idea.”

Clients are understandably less than thrilled at the idea of paying to stop work. But that doesn’t mean we can’t protect ourselves against this risk while being up front and fair with our clients.

How To Negotiate A Better Contract Link

Contract negotiation is extremely difficult. Successful negotiation requires both keen insight into the other party’s needs and desires, as well as an understanding of all of the options available. The best negotiators are also experts at “logrolling5“, i.e. trading assets in a negotiation in order to create more value for both parties.

Your initial discussion with a client will set the tone for all of your future negotiations. These talks will inevitably converge on one of two questions.

1. We Want X. How Much Will It Cost? Link

Anyone who’s ever used a home repair service will tell you to bring in a few people to get estimates before deciding on a contractor. Because we work in a service industry, we should expect the same treatment:

“How much for a website?”

“…What about just a logo?”

Most of our clients have no idea what to spend, for the same reason that we have no idea what to spend on a new roof: we’ve never built a house ourselves. Estimating construction costs is not in our skill set. These questions are the client’s way of sussing out our cost structure.

2. We Have $X. What Can We Get? Link

In government organizations and academic institutions, money is often earmarked before anyone knows what it will be spent on. Budgets are set aside for “IT”, “marketing” or “advertising”, and the client will have a price ceiling. This doesn’t mean they won’t try to get the best deal — just that they have a limit to their budget that may be less than you’re willing to accept.

Both of the questions above are based on the assumption that creative work can be delivered at a fixed cost. But in practice, each job is a unique problem and takes a variable amount of time to solve. What if, rather than pretending we know exactly what each job will cost, we embraced uncertainty and moved on?

Changing The Conversation Link

A wise man6 once said, “If you don’t like what’s being said, change the conversation.” In order for us to protect ourselves and our clients from the inevitable project delays, it helps to finish the initial consultation with a brief chat about our “terms of service.”

Below are my terms for mobile software development. They may inspire you to change your own contract. But whatever your terms look like, make sure they are clear and that you apply them consistently. Writing a Plain English explainer can help quite a bit with this.

Agile Billing Cycles Link

Instead of worrying about working enough hours or booking enough fixed-bid assignments for the year to pay our bills, we can choose to bill on a weekly, bi-weekly or monthly cycle. The system is based on scrum sprints: two- or four-week blocks of work during which a predetermined set of software features are implemented.

Agile billing addresses the concerns of both clients. Those with a fixed budget know they’ll get all the work their money can buy, and those without one know they won’t pay for more work than necessary. And when a client asks “How much?,” you can give them a range based on how many cycles a project of that size normally takes. If they need a firm number, you’ll need to work out a list of user stories7 or wireframes with them to determine a fuzzy estimate of how many sprints will be necessary (I use Pivotal Tracker8 for this).

Cycles are scheduled in much the same way as a magazine ad or sponsorship: weeks are blocked out and purchased in advance. During each cycle, we set aside a certain number of hours per day, part time, during which we make ourselves available to the client. It’s best to keep this to around four to five hours per day, which allows for both administrative overhead and a slight overlap between clients in case a job takes longer than expected. Explicitly limiting availability also prevents last-minute “marathon” sessions, which detract from the end product (and our sanity).

The 20- to 25-hour work week has another important benefit: it enables us to serve a limited number of additional clients on monthly retainers with a much lower time commitment. If a client is unsure about their start date, we can offer to add them to our monthly schedule until they figure it out.

Calling “Time Out” Link

There’s a big challenge when working on time-based billing cycles, however: clients often shy away from them, because if things take longer than expected, they end up paying for the difference.

Fortunately, we can address their concerns while protecting ourselves from too much exposure. We can allow the client to place a temporary stop-work order one day per week if something on their end takes longer than expected, and then we add those days to the end of the contract if necessary to complete work. This ensures that the client doesn’t shoulder any extra cost in the event of reasonable delays, while protecting our schedule from too much overlap.

Holds, Cancellations and Uncertain Start Dates Link

Sometimes a project gets cancelled or put on hold. In a “half-up-front, half-on-completion” scenario, mid-project cancellations can cause considerable friction if they happen early and the client feels they are owed some portion of the deposit back.

Freelancers, Stop Charging Hourly And Guarantee Your Income With Agile Billing9
Image credits: The Oatmeal10.

Agile billing deals with this by allowing clients to cancel a cycle in advance with a variable kill fee depending on how much notice they give. For example, one might allow a client to cancel a two-week cycle one week in advance at a cost of 25%, or up to three days in advance by paying 50%.

In addition, sometimes clients know what they want but aren’t sure exactly when they’ll be able to begin. In these cases, rather than provide free consulting services while they figure out how to proceed, we can offer to add them to our monthly retainer schedule and, in the meantime, assist them in the process with a smaller, more flexible time commitment.

How Much Per Week? Link

How much you charge per week will depend on multiple factors, including what the market will bear, your own costs, and what your competitors charge for similar services.

How Much Do You Want To Make? Link

While you should never compete solely on price, talk to a few of your colleagues who freelance to get a sense of what they bill clients. Multiply their hourly rate by around 1000 billable hours per year to get a sense of how much a typical freelance professional in your area bills per annum if they’re booked solid. (If you’re not a sole proprietor, multiply your colleagues’ agency rates accordingly.)

Once you have some realistic figures for comparison, decide how much profit you want to make per year, add your expenses, multiply the sum by 1.5 to account for holidays and low seasons, and divide by 50 to get your weekly rate. If you find that the hourly rate works out to double that of your colleagues’, you may need to revisit your salary expectations or slash some of your expenses.

Closing Thoughts Link

Most of us are naturally shy about discussing money. But we are professionals, and we merit the same level of financial stability as any other professional. Don’t be afraid to ask for a reasonable billing agreement that guarantees cash flow for you. Your clients, your business and your users will be better off because of it.

Other Resources Link

  • Design Is a Job11, Mike Monteiro
    Monteiro breaks down budgeting, client relations and professional conduct in a well-written, acerbic tract on the business of design.
  • Negotiation Genius12, Deepak Malhotra and Max Bazerman
    Two Harvard professors draw on decades of behavioral research and examples to explain the logic behind negotiation strategy.
  • Agile Software Development: A Gentle Introduction13,” Don Wells
    A brief introduction to the agile process. While normally associated with software development, agile project management works well in any profession where people deal regularly with uncertainty.
  • Getting Real About Agile Design14,” Cennydd Bowles
    Agile isn’t just for developers. This article on A List Apart explains why.
  • Agile Estimating and Planning15, Mike Cohn
    Cohn quite literally wrote the book on agile planning for software development.
  • Agile Budgeting: Cash Is King16” Jeff Magnusson
    Agile billing’s bespectacled, mathlete cousin, agile budgeting, enables you to keep a rolling estimate of expenses for the next few months, instead of sticking to a monthly or yearly budget.
  • “10 Contracts for Your Next Agile Software Project,” Peter Stevens
    An extended list of the different types of service agreements available. While this article presents them in the context of software, they apply equally to any service industry.
  • How I Went From $100-an-Hour Programming To $X0,000-a-Week Consulting17,” Patrick McKenzie
    A good, if incomplete, guide to moving towards higher-paid consulting on a monthly retainer.

(il) (al)

Footnotes Link

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SmashingConf Barcelona 2016

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Ben Jackson is an app developer and mobile strategy consultant living in Brooklyn, NY. He worked on iOS apps at the New York Times, and currently works on the Longform app. He loves technology and data reporting, and is a frequent contributor to BuzzFeed and other sites around the web.

  1. 1

    Interesting concept, it takes a lot of risk out of the project. I will try this approach on the next project I get! Thanks!

  2. 2

    My recent strategy to keep cash flow steady when clients are late on their deliverables is to establish a fixed billing schedule based on the agreed development schedule. Clients can delay the project but they are still contracted to pay for the project at the previously agreed to date.

    I then move up the next project in the queue and work on that until the previous client is ready to resume.

    Scheduled payments + consistent work = steady cash flow.

  3. 3

    Thank you very much for this great article. This kind of useful articles are the reason why Smashing Magazine is one of my favorite websites.

  4. 4

    I make people pay a small deposit up front and the rest after completion. Most of my clients are 6+ months behind on getting pictures or content. It’s absolutely killing me!!! This came at just the right time.

  5. 5

    This is very good practical article and would be a good extension for my article about agile:

  6. 6

    I’ve never thought to do it this way. Perhaps it is why I’ve decided to shy away from owning my own business. Anyways, thanks for the great article and insight!

    • 7

      Same here. Reading this has given me ideas how to go about people enquiring for some programming work. Will definitely try this out at some point.

  7. 8

    The projects we have are a fixed amount, 50% is paid up front and the rest is paid when the site is delivered, on the provision that there is no delay from the client side, inclusive of clients waiting on other third parties. We have a set delivery date depending on how long we estimate delivery will take and our invoice and service agreement clearly states that if the delays are not on our end the payment must be made with delivery or not. Of course if we are the reason for delay, we will renegotiate payment dates with the client (though we haven’t had to do this yet).

    Key is a solid contract, and being upfront about it.

  8. 9

    Nice idea, how have clients reacted to this billing structure? Positive?

    • 10

      Benjamin Jackson

      January 24, 2013 8:49 pm

      So far? I’m still beginning to put this into practice, but the reaction has been quite positive when discussing the system with clients. I’ve heard similar stories from my colleagues who have tried billing on weekly or bimonthly schedules. Clients want great results at the best price; your main task is convincing them you’re the one for the job. If you do that, the rest of the process should just be finding common ground in the details of negotiations.

      • 11

        Peter Connolly

        January 31, 2013 9:39 pm

        Sooo….. you’ve not actually *tried* this in the real word, with real clients? Clients who delay delivering content are also the same clients who delay payment; invoice once a week if you want, but you’ll be getting paid once a month (if you’re lucky) by the finance department – who will often be completely separate from the department contracting your services.

        I can see this working in principle with smaller clients, but what’s wrong with a 50% deposit up front, and billing twice a month on the acruued remainder if the project goes over a certain length of time? Much easier, and you don’t need to keep count of all these little ‘day here, day there’ rollovers.

        Clients are simple people. Make the invoicing simple for them, and they’ll be happier, and more likely to give you the work.

  9. 12

    Jonah Dahlquist

    January 24, 2013 3:01 am

    Excellent article. I’d very much like to better understand the part about having additional clients on a “monthly retainer”, I’m not exactly sure what you mean. What are you charging them, and when, and for what?

    • 13

      Benjamin Jackson

      January 24, 2013 8:55 pm

      The monthly retainer schedule is an alternate billing option for situations where the client doesn’t need/want your full time and attention. The services you provide are up to you, but for me they usually include things like requirements definition, user research, wireframing, design critiques, and high-level strategic discussions with stakeholders.

      The cost of your retainer will vary greatly based on your experience and market demand, but a 50-100% markup on your normal hourly rate seems like a reasonable price window to me. The key point here is that the lower your time commitment to a client, the higher the markup should be, as each client comes with a fixed overhead expense in the form of time spent billing, prospecting, etc. Giving 20 clients an hour a month of your time is almost certainly not a great situation to be in unless you’re charging them each a thousand bucks for the privilege.

      • 14

        Portia Stanton

        January 26, 2013 7:34 am

        The retainer situation is not working out lately. Maybe it is because we priced the retainer at half the hourly rate and intended it to be for updates and maintenance related requests plus a way to generate regular inflow of funds. The client would have their work escalated and completed asap. Then, over time, when requests were heavy, we changed it to do all the work at once so the client could see that an hour was indeed used, based on timestamps. They had questioned too often. Another situation, the client would not send requests for a while and several months down the line would expect that we remember they hadn’t done anything four months ago and they should have a time credit. UGH. Another situation, the client was sending requests that were obviously beyond the scope of retainer work and into quotable work yet expecting that it should be covered with their retainer. Demanding. A headache, for sure, all around.
        I am guilty of saying the following words in sheer frustration, “but, you only have one hour. One.”
        I’m definitely going to redefine the retainer to include “high-level strategic discussions with stakeholders” as that pertains to clients who call to micro-manage. The phone calls must stop. Plus, invariably at the end of many calls is a plea to do just one little thing. Just.One.Little.Thing.

  10. 16

    Stanley Parrish

    January 24, 2013 3:23 am

    Great article! Lots of information that can be useful if you’re a freelancer or just starting out building your business.

  11. 17

    This is a great article and I will definitely implement this with my next client. Can you please expand on the one day temporary stop-work order? Im unclear how you would be compensated if it happens every week. Also do you have a sample contract that lays out these terms?

    Again, great article, thank you


    • 18

      Benjamin Jackson

      January 24, 2013 8:59 pm

      There is no extra compensation with the temporary stop-work orders; they’re meant to be a courtesy to protect the client from their own delays. Think of it the same way a cash-only store treats sales tax, and build it into your pricing and scheduling.

  12. 19

    Trevan Hetzel

    January 24, 2013 5:21 am

    Have you ever had clients complain about having to cut a check every week? Just curious. And what if the client’s financial department gets hung up or delivers the payment a few days late; while it’s not your direct report’s fault, do you still not continue with that week’s work until the check is in your hands?

    • 20

      Benjamin Jackson

      January 24, 2013 9:02 pm

      This totally depends on the client.

      I’m always somewhat flexible with precise payment terms during contract negotiations, as different companies have different policies with respect to accounts payable, and they are rarely as flexible as my one-man accounts receivable department. The important thing is to have some type of deposit or payment in advance to make sure you’re never left hanging at invoice time.

  13. 21

    Great article, lots of useful information, we do some times and materials + extra hours packages which benefit the client on being able to control what they purchase. Not sure about the impact of including a monthly retainer tho, but certainly something that small or single operations can benefit from.

  14. 22

    This is actually the darker side of the industry and a bitter fact that most of the small-sized web development companies make promises which they can never keep and frustrate the client unnecessarily. It moreover, dis-reputes an organization instead they should rather keep a transparency with their client in order to build themselves as a brand and earn more projects with healthy relationship and brand name.

  15. 23

    This article gives me the impression that clients would just feel nickle & dimed by a greedy freelancer (whether its true or not). Has anyone used this method? How did your clients feel?

    • 24

      Benjamin Jackson

      January 24, 2013 9:05 pm

      How the client feels is entirely dependent on how you present yourself and your terms. If you’re clear, up-front, and transparent about how your billings are structured and why, I’d wager that clients will trust you more than the shop that sends them a fixed-bid quote with vague line items like “CMS: $35,000”.

  16. 25

    Scott McGregor

    January 24, 2013 3:41 pm

    We moved from web design to animated video and thought we wouldnt have this problem but when a customer takes two months to read a 2 min script we put an 8 week clause in the contract. The balance is due then unless delays are caused by us. It’s amazing how fast we get feedback when They know they have to pay either way.

    • 26

      Benjamin Jackson

      January 24, 2013 9:06 pm

      This helps, but what if they really, truly can’t get you the material on time? Do you end up pushing them to the back of your queue if there’s more work on your plate when they finally deliver?

      • 27

        can’t or won’t?

        Behaviors are subject to natural selection just like any Darwinian evolutionary feature. In other words, if there is a cost of doing something (or benefit) then it will be done less (if a cost) or more (if a benefit).

        YOU MUST make good behavior more profitable for the client (discounts for early payment, fast turnaround) and slightly less favorable terms for long response times, late payments, etc.

  17. 28

    John Surdakowski

    January 24, 2013 4:04 pm

    The problem I see with this strategy is that you are forcing yourself to make less money in situations where clients have larger budgets.

    • 29

      Benjamin Jackson

      January 24, 2013 9:13 pm

      I’d argue two things:

      1. While your hourly rate may work out to more doing fixed bids on some projects, you may not actually be making more money on the whole if those contracts take up more of your availability than expected.

      2. In my experience — with software development at least — clients will generally opt for as much work as their budget will allow, rather than defining a fixed scope and then stopping development when it’s over.

      That said, even if you’re not doing software, if your client has a budget of X, you should know this before you send them an estimate.

      If you’re doing e.g., a corporate identity design, the chances of “finishing early” are close to nil, unless Parkinson’s law has ceased functioning. You can ALWAYS spend more time on user research, the usage manual, etc.

  18. 30

    It took me 3 years attempting (and failing) to make a living on fixed budget contracts before I realized that agile billing is the only way to go.

    The problem with the creative industry is that “X” is often impossible to define, either by the client or the vendor. Ultimately the result is that it becomes impossible to define the cost of “X”. Is “X” going to be a quick and dirty process, or will it consist of weeks or months of revisions from the client? Will there be delays?

    Oh I wish I had read and understood this article years ago. If you are just starting out… This article is Gold.

  19. 31

    I am just starting out and the hardest part I’ve had (aside from getting clients) is figuring out how to bill in a way that clients won’t be afraid of. I’ve been trying to concentrate on small businesses, but they seem to be a hard sell mainly because they have small budgets. This method may be helpful in convincing them that it really is affordable.

    I am wondering though, do you do more than one project at a time? For instance, you’ve given a client a week block with guarantees of a template, home page, contact form, and hosting setup. That shouldn’t take an entire week, so would you spread services to another client to help improve your income?

    • 32

      Benjamin Jackson

      January 24, 2013 9:19 pm

      As a rule, I don’t juggle more than one “full-time” commitment for more than a week or two. This promise helps make sure clients trust that they’ll get my full attention during their allotted time. At the risk of abusing a metaphor, if you have to double-book, you’re probably dating the wrong crowd.

      That said; if you find yourself regularly taking on jobs that merit a shorter sprint interval (say one week, instead of two), by all means bill in shorter periods. And if you have extra time, you’ll be better served by spending it doing business development instead of chasing after loose change.

  20. 33

    I’ve started using this approach since the New Year, here’s the tale of my two current projects:

    For project #1, I didn’t hold my ground and accepted an hourly; I’m now more or less on call for this client (for less than 5 hours a week of work) and doing less interesting work.

    In project #2 I’m using an agile approach. I’m getting paid 5-10x total the value of project #1, the client feels they are getting a lot of value, and they respect my time immensely.

    Lesson learned: if they aren’t able to pay for at least a week of my time, the project isn’t interesting enough or meaty enough to warrant my services. And moving forward, if a client insists on hourly, then I’ll place a premium of 50-100% for this service.


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