Posts Tagged ‘Time Tracking’

How Freelancers Can Use Retainers to Remove the Guessing From Project Estimates

Update: 3/5/2010

I had a one-on-one telephone session with Ryan Kovach yesterday about not leaving money on the table with clients, and I’m now thinking of calling the business model mentioned below “micro-retainers” since Ryan advocates using much larger retainers ($20,000+/year) to better sustain a web development business.

Anyway, I still advocate these “micro-retainers” for a number of circumstances, such as:

  • You’ve just been introduced to the client and you want to test out the working relationship before you agree to anything long term.
  • The client is a jerk and you want to do as little work for them as possible (in that case, you may want to think about firing the client outright. Getting rid of a difficult client is tough in the short-term but pays off richly in the long).
  • You’re doing work for a friend

The issue is that these micro-retainers aren’t going to generate a lot of cash (which is fine if you’re working for friend) unless the client gives you permission to burn through the hours freely (eventually, you will run out of work to do, though). It’s probably best to at least double your normal hourly rate and round up your tasks to the nearest half hour (within reason, of course). That way, all the little things you do for a client, like project manage and provide quick responses to their emails, get accounted for in the end. It’s also important to note that your availability is worth something to the client (probably a lot, actually).

It’s nice not to have to burn out on a project to make rent, as well as give yourself the ability to count research, communication and other similar extracurricular work towards your clients’ workload, all of which probably accounted more fairly in a monthly/yearly retainer setup.

Now, back to the original post…

Lawyers love retainers, and as a web, print, copy or any other type of freelancer, you should, too. It takes a while to figure out a comfortable project pricing structure (not to mention the main variables that go into pricing, such as the hourly rate and estimated time), so I can understand any hesitation to try something new. But instead of forcing every project into a static, long-term contractual price, a lot of times it’s just easier to at first offer a retainer and see where the project goes from there.

This is an example of an estimate I’ve sent to a client in the past using the Ballpark web app by Metalab (to note, Ballpark is an awesome, affordable and beautiful estimate and invoice creator). This estimate, like almost all estimates, entails a lot of guessing. That’s exactly why it’s called an estimate.

Now, I, like most freelance web developers would have, used this initial estimate as my first, last and only bill to my customer. Of course, I turned the estimate into an invoice first, but hardly ever will the project price change from the beginning of the project to the end. That’s why I’ve always tried to accurately estimate time for web projects, but like Smashing Magazine wrote, underestimation is common because:

  • The technologies required by the project have never been used before
  • At the time of estimating, there are grey areas or complete unknowns
  • The client operates in a specialized industry and the solution needs bespoke features that are not familiar to the supplier
  • Splitting the project down into the detail would require as much as work as the requirements gathering phase that is chargeable

As well as:

  • The client needs an estimate for their project tomorrow or they will go elsewhere
  • Revenue needs for cash flow now trump the effects of not winning the new work now
  • No previous project ‘estimated vs. actual’ data analysis has been conducted to draw on
  • Estimating time for a project is not fun!

So, 90% of the time, the freelancer is going to get screwed on the estimate. My guess is that 9.9% of the time, the client gets screwed (I use the term loosely—as long as the site is completed within the contractual constraints of the project, the client is generally happy). That leaves 0.1% of all estimates that accurately reflected the correct amount of time it took to accomplish the project. (Of course, any time valuation should to be taken with a grain of salt because what takes an hour today might take 90 minutes or 45 minutes tomorrow depending on all external factors, not the least of which is distraction).

The bigger point here is that clients hate unexpected change, especially a price increase due to underestimation on your part. There are few things more likely to guarantee that you won’t be asked to do second project with a client than raising the cost of your invoice halfway through a project (in fact, most contracts aren’t going to permit this anyway, so again, you’ll likely eat the extra time and costs yourself, anyway).

Using a Retainer to Eliminate Guessing

Herein lies the beauty of the retainer block. You might already be using retainers after the project is complete for tasks like website maintenance or social media marketing (if you’re not, you should—it’s a great way to earn residual income).

I know some developers charge a monthly rate for site upkeep, but again, this is just another inaccurate way to price a project. What happens when the client needs something done, but it falls outside of the normal scope of maintenance? Chances are, the client is going to:

  1. Be afraid to ask you and go elsewhere else with the task, or
  2. You’re going to end up completing the task on your own time, AKA Scope Creep

Getting into the retainer habit after projects were completed allowed me to see an opportunity I was missing with my potential clients. I get a lot of work requests, especially from local business owners that tell me that they have a limited budget. In the past, I might have ignored these requests because I didn’t have much to gain. I would likely spend an hour giving them free consulting advice, but in the end, they wouldn’t have the budget to move forward with their project and work with me. It would have been a wash for both of us.

Now, once I figure out that the client’s budget isn’t going to garner a full site redevelopment (pretty much anyone talking below $1,000), I immediate push them towards purchasing a retainer block so at least we can address their most pressing website needs. This might not be perfect for every situation (some clients do not have websites at all or their sites might be completely useless), but for the most part, my team and I can accomplish some serious results in five hours of time, including:

The best part is, most of these tasks only take about 15 minutes for me to do, whereas the client either doesn’t know how to do these or more likely, doesn’t even realize how important they are to his site.

Another good feature of using a retainer is that if I outsource the task to one of my team members, I don’t have to think very hard about how to split up the tab (I hire my team using a retainer system, as well, just in the opposite direction and at a slightly lower rate than what I charge my clients).

At the end of the retainer block, my team and I tally up all the time and tasks we recorded using a time tracker client and submit the time sheet to the client. At that point, the client can re-up for another retainer block or we can choose to go our separate ways (hopefully, with a LinkedIn recommendation in tow, though).

In the end, I’m able to:

  • Pick up work that I normally would have lost,
  • Get paid accurately and fairly for any work I might do
  • And maybe most importantly, I get to try out clients before engaging in a long-term contract with them.

I’m calling this system the Retainer Revolution and I truly think that all businesses will move away from the salary system (where work does not come even close to equaling pay) and into this retainer format for all personnel within the next ten years. I guess we’ll just have to see what the experts have to say about these matters. Stay tuned…