Join Terry Lee Stone for an in-depth discussion in this video Ten payment strategies, part of Running a Design Business: Pricing and Estimating.
Designers can be compensated for their work with a variety of payment methods. Having several strategies can make your fees more workable for a range of clients. I know, nothing beats cash. But sometimes creative financing is great. The client and designer should negotiate a payment strategy that meets both of their needs, and that deal should be in place before any design begins. Here's some interesting options. The first one is Fixed Fee. This is the most common strategy. You and the client agree to a total fee for the project. Then you invoice 50% before work begins and 50% upon completion.
Bill expenses at the end of the project. This is a very good strategy for smaller projects with clear deliverables. The second is Progress Payments. The project is broken down into sequential phases of work. And the fees are invoiced at the completion of each phase. This is a great strategy for larger projects. It helps with cash flow. The third is Monthly Installments. Which is a specific kind of progress payment. In this option, divide the total project fee into monthly payments. These progress payments are based on the calendar, and not the work completed.
This is another great strategy for big projects. A fourth strategy is Modular payments. Divide a large project into smaller project modules of work and bill them as separate jobs. This is good for related, but not sequential work. For example, design a company's corporate identity in January and then do the website for them in June. Bill them as two separate jobs upon completion. Even though you made a deal for both jobs, before beginning the first one. A Retainer is another good idea. In this ongoing designer client relationship, the designer agrees to a fixed fee for a specific amount of work, typically invoiced weekly, monthly or some other agreed upon schedule.
This strategy is good for ongoing publications or other clearly defined repetitive tasks. For example, developing a new rotating image for a website every week. A sixth payment strategy is Hourly. In this open-ended method, the client pays the designer an hourly rate for every hour worked on a project. Good record keeping is essential. Some clients ask for a not to exceed ceiling on hours prior to commencement of work, so that they can stay within a certain budget. The seventh would be Deferred payment.
The designer and client negotiate a fee, but payment is deferred until a mutually agreed-upon date. This is sometimes risky for the designer, but good for a client with a start-up business. To offset the risk, perhaps the negotiated fee is slightly higher than normal. An eighth option is Profit Participation. The designer agrees to be paid a certain fee, typically lower than their standard, but in addition to money, they receive profit participation in the client's business. This ties design effectiveness to sales and business results, and is another good strategy for start up clients or new products the designer is involved in creating.
The ninth is trade, in this one the designers are paid in kind with the client's services or products instead of with money. These barter arrangements succeed if a clear value for the designer's work is established upfront. And make sure the design is traded for the wholesale, not the retail value of the client's service or product, to make it equitable. And finally, there's Pro Bono. This is not really a payment strategy because the designer works for free, typically for a cause they believe in.
Pro Bono means for good. Donating your time and talents to a charity or nonprofit in return for fun, glory, and a contribution to society is its own reward. Plus, great creative might lead to paying work. Each of these strategies has its own benefits and downfalls. You can try several of them. Depending on the kinds of clients you have. Usually, you pick one strategy and continue with it throughout the entire relationship. Knowing these different payment strategies, may help you be more flexible and allow you to take on different kinds of clients and projects.
- Thinking about money
- Factors to consider when pricing design
- Comparing time-based vs. component-based pricing strategies
- Scoping a project
- Determining your rate based on factors like industry standards and budget
- Creating estimates
- Communicating additional costs
- Invoicing the client