Budget vs Hourly Charging

[wheeler]

Just curious as to what Sitepoint members prefer from their clients with a pre-paid monthly budget vs hourly charging.

Perhaps I should point out that the type of clients are long-term where you will be working with them for 12 months minimum. I think definitely follow the KISS model for short term work.

Monthly Budget:
For -
potential to earn more per hour in a laid back month
easier to outsource/bring more people into the project
more decision making power to the developer in terms of how money should be spent
prepaid credit rather that postpaid compensation

Against -
potential to earn less per hour in a hectic month
more expectations and responsibility to produce results

Charge by hour:
For -
simple get-paid-for-what-you-do system
lots of hours means lots of money

Against -
easier to put tasks off indefinitely
a quiet month means you earn FA
$xx an hour sounds like more than $xxxx a month (doesn't it?)

[Shyflower]

I think anytime you add ambiguity to work agreements, you're looking for trouble and risk destroying a good long-term relationship.

When I work monthy, I guarantee a set number of hours per week or month (whatever works best for the client's needs). Of course, if the client doesn't "use" those hours, the monthly fee stays the same and that's understood in the beginning.

However, in my experience, good clients (the ones you'd like to keep long-term) have an idea of what it will take, in terms of work and/or time, to meet their goals so they're pretty good at using their hours.

[wheeler]

thanks for the advice.

My motivation to move to a monthly budget model with a couple of good quality clients is because I have recently arranged for a marketing specialist business to help out with one of my projects. It was agreed they would work to a monthly budget whereas my work has always been hourly.

I can see straight away that they are operating in a much more flexible environment than myself because they have the clients money in the bank to work with. I am focused on expanding my own business at the moment and the idea of a budget to work with seems to instantly enable me to stop operating as an individual (for the most part) and start incorporating more people into my work.

That sounds a really good idea to commit to a benchmark whether it be guaranteed hours or reaching certain milestones... if the client does not take you up on that obviously they only have themselves to blame. No doubt if you get bored one day you can always call them up and get the ball rolling again

[wheeler]

After some more pondering I wonder - what happens if you go over the dedicated hours?

Lets say mid-way through a month you suddenly have a major server problem and have to put in overtime. How do you account for that?

[Shyflower]

Scope creep can be a problem on any project. Communication is always the key to keeping your business under control.

Just let the client know. "That new job this month is going to put me over and I'll have to bill you for the extra hours. Are you comfortable with that or would you rather have me hold on on some of the normal maintenance?"

Or structure it into your agreement at the beginning. You'll work "x" number of hours per month (week, etc) on your client's project(s), but if you go over that number of hours, you'll bill the client at your regular rate of ???

Before starting work, remember to always define your responsibilities as you understand them. You can do that by project, by month, by hour.

[phppoddotcom77]

Charging per project is one of the options. You can do have diverse charging to the clients depending on terms of involvement.

[stymiee]

I'm surprised no one mentioned this sticky: How to determine what to charge a client. It covers this in detail.

[amf45]

I've done both hourly and a monthly retainer. I actually prefer hourly, just because it's less to keep up with. With the retainer, some months I struggled to get the hours in, some months I went over. Too much hassle. I'd rather just bill for the time I use and let the client manage their budget to use me as they need. Yes, it's a less reliable income stream, but that's why I always try to have at least two or three projects going at one time.

[wheeler]

Charging per project is one of the options. You can do have diverse charging to the clients depending on terms of involvement.

The thing that prevents me from doing that is that I seem to have a knack of establishing working relationships with clients who need my services for a very long time.

In fact I have 4 clients that have kept me 110% busy for the last 12 months and I don't see that changing anytime in the next 12 months (even if I start working from another country)... so i'm really on the hunt for the easiest way to bring other developers on board all the while having the clients money in the bank, ready to use - rather than dipping into my previously earned funds.

reading that sticky i'd have to say I guess i'm trying to combine a mixture of hourly and results based charging.

The budget is estimated on the hours I will put in at my going rate + some room to cover some outsourcing. The budget would be provided on the assumption I can make headway on overall website development and server stability.

I'm thinking I might ask to trial this payment model for 3 months and see whether it works out or not.

[jt_va]

Don't charge using either model. Simply decide what you think the client would be willing to pay for said service then charge them as much as you can get out of them.

[Shyflower]

Don't charge using either model. Simply decide what you think the client would be willing to pay for said service then charge them as much as you can get out of them.

That's a great way to price yourself right out of business and you'll see why in my response below:

I'm thinking I might ask to trial this payment model for 3 months and see whether it works out or not.

Never ask a client what you can or can't charge or what kind of business model fits their needs. They are already using the model that fits their needs within their own businesses. Determine what you need to do to keep your business profitable and do it.

I know there are providers who use a client's budget as a benchmark for quoting. However, I think you'll find that the reputable ones

1. Use the budget to determine if they can work for the client at all. (If your minimum project is a four figure number and a client comes to you with a three figure budget, knowing that saves you both a lot of time and space on your dance card.)

2. Use the budget to quote work for services that fit into the budget. For instance, a client wants a custom shopping cart but doesn't have the budget for it. You don't want to lose the job totally so you tell him, "We can't do a total customization within your budget, but we can do a standard cart with a, b, and c customizations."

Those who use a client's budget as their only pricing guide are poor business people who biggest earning is a poor reputation as either greedy people who are out to take his clients for all they can get or poor providers who have to work for what they can get instead of working for what their services are truly worth.

[wheeler]

Thanks Linda, I can feel the years of experience and wisdom coming through in what you are saying - invaluable. I've never formally learnt anything about running a business so i'm left to work things out myself and soak up good advice.

I totally agree in the notion of charging for what your service is worth rather than charging for what you can get.

Going from a multimedia student to full-time web developer my rates have been on an upward trajectory for 2.5 years to the point where I simply turn down quite a bit of work from cheap end prospects. Now that i'm finding my feet I can see I am still good value compared to well established businesses, so just looking for ways to expand and improve.

I think a monthly budget benefits both me and the client in that it allows me to take my business to the next level - meaning faster and higher quality work provided to the client.