Now that you’ve decided how much you will charge and how you will structure it, you will want to professionally present those items to your client in a proposal and then a contract. Each proposal and contract will be unique to each client. You will need to formally structure and present these agreements.
You will likely begin the process of working with a client either by meeting with them in-person, or on the phone to discuss a design problem that they would like addressed, i.e. they need an updated website, refreshed branding etc. Once you have verbally outlined what they need, you will send them a formal proposal. A proposal is a non-binding outline of what you will provide and for what price in a specified amount of time. Next, you will address the contract, which is a legally-binding, formal agreement between your agency and the client.
The content and formality of a proposal will vary based on the potential client, as will the contract. For a smaller client the proposal should be friendly and approachable while clearly defining the scope and timeline of the project. For bigger projects, the proposal should be more thorough and have more information about your capabilities and past projects of similar size. As with any design project, you want to consider your audience and be sure to address their desires and concerns with the content your present and how you design it.
Things To Include In Your Proposals
- A brief overview of your agency and possibly some examples of relevant work.
- An outline of what the potential client has requested.
- An outline of what your design firm will provide. Be sure to include specifics, such as how many pages a website will be, how many rounds of revisions are included etc.
- A rough timeline. Mention contingencies so that if the client fails to provide a file or an approval, they are aware that the timeline will need to shift.
- A price estimate, whether that’s a flat bid broken down into objectives, a proposed hourly or individual rate, or the proposed sales price. (See chapter 4 for a breakdown of how each of these work)
A contract is a document that your agency and the client will both sign, outlining the details of everything both parties have agreed upon. The word “contract” can be intimidating so some agencies may choose to call this document a “letter of agreement”, especially if it is for a smaller job or a small company. Both parties will need to agree on the terms of the contract and provide signatures. A contract is invaluable in establishing expectations, setting limitations, and keeping projects and client relations running smoothly.
We strongly recommend that you do not provide a client with design work before a contract is in place and signed. Failing to establish a contract can lead to a client refusing to pay you for your work. Not having a contract in place can also cause liability concerns. For example, if you were to design a print document that had a typo, you could end up responsible for an expensive reprint even if the client was at fault. Without approval forms and a clause defining responsibility for approvals, errors that slip by could leave your agency taking the blame and covering hefty expenses. Responsibility for lost revenue or damaged SEO ranking caused by hackers or server crashes can also fall on your agency if these issues are not addressed in the contract.
Tips For Righting Your Contract
- Work with a lawyer to define liability
- Keep the terms simple and concise. A contract should act as a way to continue the process, not shut it off by intimidating the potential client. Try to include only what is necessary
- Leave no margin for misunderstanding. Have your lawyer look over the contract for any holes or areas that are not 100% defined
- Set clear expectations. Make no assumptions and outline every necessary detail
- Address potential risks
- Make sure that the document is well-organized and grammatically correct with no typos or spelling errors
It’s good practice to verbally mention to your client that you will not begin work until the contract has been approved and signed by both parties. This will ensure that the job isn’t delayed because they have forgotten to review and sign the contract. If you have received a verbal go ahead for a project, but have not received the signed contract back, it’s not inappropriate to send a friendly reminder email with mention that you are ready to start the project as soon as you receive the executed contract. You may even mention that in order to meet deadlines that you need that document as soon as possible.
Considerations For Writing Your Contracts
Customize the Contract for the Client
YIt is important to know your potential client when writing a proposal as well as a contract. As mentioned above, your contract should reassure your client, not scare them. If your potential client is a small business that has requested a proposal for a simple, 3-page website, your proposal and contract will be a lot less intensive than if a large corporation asked for a proposal for a 500-page website with ongoing maintenance and updates.
While a small business might be scared off by a lengthy contract full of legal terms and jargon, it’s just as likely that a bigger client would be scared off if they received a contract that didn’t address the needs a larger business would expect to see in a professional contract. For the small business, the proposal would most likely only be a few pages and the contract would not need a lengthy legal portion. For the large corporation, your proposal would need to specify everything in the scope of the project, liability definitions, level of service, and more. They will probably send your contract to their legal department and you may need to negotiate some of the terms.
Be sure that all liability is clearly defined and the responsible parties are identified. If you are overseeing the printing of a project you may need to include a sign off approval process for the press run. If you are agreeing to manage a website, your contract will need to cover the potential risks involved, such as down time due to server issues or hackers. Consider that a small business might lose $100 in profit if their site goes down for a day, whereas a large corporation might lose $10,000 or more. While you may be able to comfortably risk not working with a lawyer to write the contract for the small company, you absolutely need to work with an attorney when writing the contract for a large corporation.
Do Your Due Diligence
Before you enter into a contract with a client, make sure that they are the type of business that you are willing to be legally bound to. Check out their rating with The Better Business Bureau and look for reviews on Glassdoor, LinkedIn, and any other online reviews the company might have. Reviewing how employees and customers have rated the business will give you valuable insight into what your relationship with them might be like. Consider early interactions with the client that you’ve had. Did the meeting with your point of contact feel off in any way? Trust your instincts and dig deeper with some simple online research. It might save you valuable time and resources.
Sometimes it’s hard to turn down business, especially when you are just getting started on your own. But a client that is unethical or just plain difficult to work with can often cost you more money than you will make with them in the long run. Ideally, both you and the client should feel good about entering the agreement and be confident that it will be a mutually beneficial relationship.
Planning For The Unexpected
Level of Service Agreement or SLA
A service level agreement will essentially outline the level of service you are agreeing to provide. This sets expectations for all aspects of the project, such as turnaround time, availability for meetings, and types of services provided. Outline the specific design services that you offer i.e. web design, print design, conference collateral etc. This will prevent the client from expecting you to provide a service that is outside of what you’ve indicated in the agreement or contract. You’ll also want to include any other expectations that the client might have, such as turnaround time, hours of the day that you are available for calls, how quickly you will respond to emails, and if you are accessible by text message. It will also give you something to refer back to if the client is asking for something unreasonable such as an aggressive turnaround times or is texting you in the middle of the night.
Change of Scope Addendum
Change of Scope Addendum:
As mentioned, it’s important to outline the parameters of the project in writing. Occasionally, a request will change the project direction or go over the estimated hours. This is called scope creep and it needs to be managed. If the project is well defined at its beginning, it is common and appropriate to say that the additional requests are out of the scope of the original agreement or contract and that the project needs to be rescoped and priced to accommodate the additional work.
Additional Projects and Statements of Work:
Once you have a contract in place with a company, you may need to address a specific project with a statement of work or “SOW”. If you have a long term relationship with a client you will likely have an ongoing contract in place, but you will need to outline the specifics of every individual project in a statement of work. You can think of it as a mini-contract that only addresses the project details while the master agreement outlines all of the terms of payment, liability, and so on.
The statement of work (SOW) will cover aspects such as timeline, estimated hours and cost, along with the deliverables for specific projects. You will also want to address possible continuation fees, termination fees and change of scope. Read more about these below.
When working on a flat bid project, there is the possibility that the project will need to continue past the estimated timeline or never reach a point of completion. This might happen for various reasons. For example the project ownership could changes hands or the client may become too busy with an upcoming event that takes priority over the project you are working on with them. If any part or all of your payment is due at “project completion”, you could end up never receiving that payment. For this reason, it is important to outline continuation fees. We recommend charging a specified continuation fee if the client causes a delay that is more than 30 days past the set completion date. Make sure your client is aware of this fee and that they are coming up on that deadline.
You will also want to address the possibility of contract termination. A client might decide halfway through the project that they no longer need to complete the project or that they no longer need your services. You will need to ensure that you are paid for the work that you’ve already done as well as a termination fee since you can no longer anticipate a payment for the remainder of the project. Often times design firms will require a percentage or complete payment for the contract if the project is terminated. This can be tied to the continuation fee and state something along the lines of “The full amount of the contract is due if the project continues to go on 30 days past the project timeline. There is a continuation fee of 20% every month the project continues past that date.” This ensures that you will receive payment for the project in a reasonable timeframe and that if the project drags on indefinitely, you are being compensated for your ongoing effort. It also provides some financial incentive for the client to see the project through to the end without leaving you waiting on any actions required of the client for successful completion of the job.
Rush fees may seem like a great way to earn more money quickly, and they are. But more importantly they are a tool for encouraging good client behavior. A client that needs everything next day and puts requests in at 4:59PM can make your job stressful and strain your relationship with your clients, your employees, and your family. Rush fees should be defined in your contract and are typically time and a half or two times your normal rate. You should explain what constitutes rush work in the service level agreement.
Rush work can be defined in the following ways:
- A project that needs to be delivered faster than your SLA defined turnaround time.
- A project that requires you to work past normal office hours to meet the imposed deadline.
- A project that requires you to stall work for other clients.
The first definition is the safest. It leaves no room for confusion and it legally outlined in your contract. The best practice is to inform your client that their request will require a rush fee and to get their approval before accepting the project. This will help avoid any surprises when your client receives their invoice, it will also help your client to appreciate the challenge that they are presenting you. This will help them to take steps to avoid expensive fees in the future.
If a project is a flat bid, you might still need to charge a rush fee if the client is asking for a timeline that will cause you to push other clients aside and require you and your employees to work past office hours. You will want to inform your client that you will not be able to complete a project in the amount of time requested without charging a higher rate for the aggressive timeline. It is helpful to write out a proposal with a standard timeline and cost and contrast it with a version showing the shorter timeline and reflected higher price. This will help explain the high price of the project and help them decide if keeping costs low is more important than the deadline or if it’s worth the price to have it completed quickly.
Closely related to the value of your work is the return on investment that your customer can measure, but only after the project is finished. Measuring things like increase in web traffic, increase in sales, increase in leads to their business, or other metrics that provide hard numbers pointing to the success of the design work you’re creating for the clients you work with will help you build your perceived value. As your reputation grows you can show these figures and stats to potential clients as “proof” that you provide a strong ROI. This information can also be used to justify price increases with existing clients.
Clients rarely want to pay more than they have to but if you can make a reasonable case that spending X on your design work can result in a 10X or 50X return on investment, you will find they are much more willing to work with you at a higher price. If the case is well supported by a consistent track record of high ROI, they should be very happy to spend the money because it ultimately means more money for them.
How you schedule payments will depend on how much money you have in the bank, how many monthly expenses you have, your client’s size and many other factors. The way you schedule payment with each client may vary a little. We have outlined a few different possible structures to consider below. However you structure it, make sure that the payment schedule is clearly defined in the contract and includes specific payment dates on a calendar. Make sure to review Chapter 4 to determine how and what to charge before deciding how to structure the payment schedule in your contract. See some payment scheduling options below and decide which works best for you.
The Accountability of Thirds:
For a flat bid project we strongly recommend structuring your payment schedule to be broken up into thirds. This provides accountability for both the client and the designer throughout the project with clear milestones that will help keep the project moving. It also provides milestones where either party can walk away from the agreement with the least amount of harm to everyone involved.
In this structure, the first payment would be a deposit of one third of the total amount of the project. This ensures that the client is serious enough about doing business with you to make a financial commitment. If you have overhead such as employees or supplies that you need for the project, this will help you keep the lights on and buy what you need to get started.
The second payment should be at a well defined midpoint in the project. It could be at the approval of a design direction or delivery of initial key collateral items in the project. If all is going well, your client will be happy to make the payment and excited to see everything taking shape. It is also assurance on the designer’s end that the client is still engaged and committed to the project. Should something go wrong at this stage that can’t be overcome, you’ve ensured that you are not taking a complete loss on the project because you’ve received a deposit. The client also hasn’t taken a major hit because they haven’t lost the entire cost of the project bid. It’s not a win for anyone but both parties have significantly reduced risk and cut losses.
Hopefully, all has gone well and the project is completed. This is typically where all final deliverables are handed over to the client and the final one third payment is made.
One Time Payments
There will be times that you will want to consider asking for payment in advance (PIA). If during your due diligence, you come across any red flags that cause you to think a client might not pay or that they might be unreasonable in any way, you probably should avoid working with them. However, full payment at the beginning of the project is not inappropriate. If the client doesn’t accept the terms, it should serve as confirmation that they were likely going to be difficult anyway. If they do make a full payment you can work confidently knowing that you’ve already been paid for the job.
In this scenario, it’s even more important to make sure that the scope and duration of the project are clearly defined. The accountability on your side of the agreement has been removed and it’s easy for any designer to push a paid for project lower on their priority list as more work comes in. Be aware of this and make sure that you are committed to your end of the agreement and the success of your client. Also be aware that your client is likely to be a little more inclined to ask for more things and drag the project out because there are no clear milestones marked with a payment. Many of the designers we spoke with have shared experiences where a project was paid for up front and the scope just continued to creep and the project dragged on indefinitely.
You rarely want to put yourself in a situation where full payment is due at the completion of a project. Smaller projects with very little money on the line may be exceptions, but make sure that you can take the hit if they decide they don’t want to pay for completed work. If a very large company approaches you for work and you are confident in their reputation, it may be worth the risk, but try to work for a thirds schedule if at all possible. Most large companies will agree to this arrangement, but sometimes because of their size it takes longer to process things and deadlines need to be met.
Periodic Billing and Retainers
Sometimes a project can be hard to define in its entirety or there is an ongoing component that isn’t easily defined. Other times there is an ongoing effort where regular work is needed to support a design effort through recurring marketing campaigns, social media, print promotion, and so on. These opportunities to secure ongoing business should be billed periodically and can help provide financial stability to a design firm by offering reliable income. This ongoing income can be even more reliable if you are able to secure a retainer with your client. This can be extremely helpful when hiring more designers and staff. It can also make strategic purchases such as new equipment, office space, etc less risky and less stressful.
The benefits of a retainer agreement to the client can be any number of incentives offered by the design firm. However the most typical is a guarantee that their design needs will take priority over other clients’ requests, and often, a discounted rate for the promise of a certain amount of business per period.
Common retainer arrangements may bill monthly, quarterly, or even annually and it is often paid for in advance of the work. The agreement would clearly define the hourly rate, the number of hours of service per period that would be provided, when payments would be made, and of course the duration of the contract. Often these will be six month or one year contracts with monthly billing for anywhere between 5 to 80 hours of work or more per month.
You will want to address how you will bill for any hours over the agreed amount. Usually it would be at the same rate agreed upon in the retainer. If you are offering a discounted rate as an incentive for the retainer, sometimes it may be necessary to bill any hours over the retainer hours at your normal rate. This is to ensure that if the retainer client cuts into hours you would typically spend on client work that isn’t discounted, that you’re not losing the money that you would make billing at your normal rate.
You will also want to clearly address what happens with any hours in the retainer that aren’t used by the client. Typically unused hours will be lost or rolled over for a single period and then be lost if still not used. You do not want to be in a situation where unused hours can roll over indefinitely. The danger is that after several slow periods, a client would roll over so many hours that they would be entitled to all of your time for a later period. This can create cash flow problems by monopolizing all of your time, preventing you from taking on any other projects or client work. If you have several clients on retainer agreements and they all have the same slow and busy seasons, you could even find yourself in a situation where you are unable to fulfill your agreement to multiple clients, causing client relation problems and even legal problems.
Some Terms To Be Familiar With
Larger clients will often have bigger and slower infrastructure for submitting invoices. You may come across the term “net-30” or “net-15” in your negotiation with a bigger organization. The term refers to a form of trade credit which specify that the net amount of the invoice is expected to be paid in full by the number of days indicated. For example, if your contract states that the payment term is net-30, it’s expected that your client will pay the full amount within 30 days of receiving the invoice. This is a very common term, especially for larger companies, but be aware of your own expenses and cash flow needs when negotiating these terms.
The defined project services and deliverables. This can include, goals, tasks, collateral, costs, and deadlines.
The tendency of a project’s requirements to increase over the lifecycle of the project. For example, a project might start as a one page website but end with the inclusion of a dynamic form, a navigation reconfiguration, and additional PDF downloadable content that were not anticipated needs when the original scope was defined in the contract.
Payment in Advance (PIA)
Request for full payment received before services are provided.
Statement of Work
A document that defines all aspects of your project including activities, deliverables, deadlines, and costs. This may be part of a contract or an additional document to a contract for each project taken on by the firm under a master agreement.
Terms of Sales
Refers to the agreement between the buyer and the seller of goods and services. The terms of sales includes the conditions the parties agree on, price, quality, quantity, delivery, warranty, payment terms and other special conditions.
The state of being responsible for something, especially by law.
Service Level Agreement (SLA)
A commitment between a service provider and client identifying particular aspects of the service provided, such as but not limited to: quality, availability, responsibility, etc.
The contract or letter of agreement should serve the purposes of both the client and the design firm, protecting them both. It is important to have an attorney review any contract and that services, deadlines, liabilities, fees, and all of the aspects of the relationship are clearly addressed and defined and that the responsibilities of both parties are understood. Proposals and contracts are not only necessary for legal purposes, but if done right, should be powerful tools for defining the relationship with your client and building trust with them.