“How we fixed our studio’s cash-flow problem”

Thought I’d share this interesting article, “How we fixed our studio’s cash-flow problem,” since it covers a topic we’ve been chatting about a lot recently (hourly vs scope-based pricing).

Instead of selling our clients things, we allowed them to rent our knowledge and skills.

To start, I called a few groups I wanted to work with, and presented a scenario. I itemized a few of their design problems. Then, I explained what it’d take for them to hire, and pay, a good designer to solve these problems, on site. (I also noted the challenges involved with managing such individuals, for those who don’t have a creative direction background.) Then, I explained how they could instead hire us as an external design department. Whenever they had a design need, they could pick up the phone and call us. We’d then fix that problem in the best/fastest manner we could.

To get started, we asked these organizations to buy a block of time. Most started with 50 or 100 hours. We then worked off that time, as needed. Once we’d exhausted those hours, they could buy more, or call it a day. We explained that if they ever wanted to quit early, we’d just write a check for any unused time.

I’d recommend you read the whole thing if you think it’s interesting.

I’m seeing more and more advantages to hourly-billing but I still am sticking with my structure for now. A few of my thoughts in reaction to this project:

  1. Can this approach work on a smaller scale? “Most started with 50 or 100 hours.” I don’t think I’ve ever worked with a client that could stomach even putting half that down without seeing any results yet.
  2. For us solopreneurs, we only have so many hours we can feasibly bill. One alternative is different rates for each client, but that feels much weirder to me than baking in the “what can you reasonably afford” price adjustments that I’m pretty sure we all do on some level.
  3. For me, I find the scoping process required to make a flat estimate invaluable and the flat price really does force clients to understand that getting things right the first time around is a way to keep costs under control. On the other hand, some of my least favorite projects have been hourly ones where the clients never felt the need to stop. The one thing I would openly disagree with from this article is “(I don’t mind making revisions, so long as I’m paid to make them.)” I do mind if they’re terrible revisions that set the project back. My experience (which is all I can cite) suggests that hourly-pricing gives some clients the impression that they just get to call the shots and I’m the PFM-WordPress-genie that makes their wildest dreams come true.

This is more than I intended to write. Oops. Final conclusion: If this decision were a project, I’d yell at myself to step back and assess the point of it all. So long as we’re making an amount of money we’re comfortable with and not having cash flow problems, it doesn’t matter, and I know both ways work for different people.

Thoughts?

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