“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?

Advertisements

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

  1. 1. Can this approach work on a smaller scale?
    Absolutely. I have had new clients start out by contracting for as little as one or two hours of time, if they called me to fix a small, specific problem. Many of these tiny jobs have grown into valuable long-term relationships. Even those that don’t may instead grow into valuable referrals from happy clients who got what they came to me for, quickly and easily.

    3. I do mind if they’re terrible revisions that set the project back.
    Sure, no one wants that. But I set the expectation from the beginning that the client isn’t just buying my time: they are buying my expertise. This means they’re paying me to tell them (graciously) when their proposed revision isn’t a good idea … and to offer them a better alternative that meets their needs.

    Also, working on an hourly basis makes it much easier to end a relationship with a client who isn’t a good fit. I can usually figure that out early on, and simply decline further work.

    • Have you ever used this exact setup where clients *prepay* for your hours? That was possibly what I found most intriguing and hardest to imagine working.

      • I usually send invoices at the end of each month, but I do have some clients who like to pre-pay for blocks of time. I simply send them a monthly statement instead of a monthly invoice, showing what I spent the time doing, and how much balance is still on their account.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s