Monthly Fee vs. One-Time Payment for a Large Project with Difficult Client

Question

PROBLEM:

A client of mine has asked me to prepare a quote for a rather large project that will take several months to complete. I've worked with this client on multiple projects in the past, and I know for a fact that this upcoming project, will not be completed on time due to the endless change requests. Sometimes deliverables that were confirmed as done were often revisited for more changes.

Now I don't want to fire this client (I've considered it with a smile) since he brings a lot of work my way and I've always been paid on time, though never without a good hour or so of bargaining...after the projects were completed! In any case, I'm willing to give them one last chance.

IDEA:

I was wondering if it would be wiser to agree on a monthly fee for the duration of the project, from start to end, rather than the usual 50% before and 50% after deal. Honestly, I've never tried this type payment arrangement before I'm curious as to what to expect. If I charge a flat rate, there's a very good chance the project will outweigh it's worth in time and effort.

Answer 1

Step 1 is to protect yourself with a clear scope of work. Write up a clear, concise scope of the work you are performing. Include not only the work being performed by also what is NOT being performed. These are called exclusions.

Your scope should also include the price of the project, that billings will be done monthly on the XX day of the month and are due Net 30. Net 30 is a typical payment cycle that just about any company should be fine with. You should spell out how you will arrive at what you are billing monthly. For example, I use the percentage of completion method with billings on the 20th of the month. This means on the 20th of the month, I project ahead to the end of the month how far the project will be complete. If that is 50%, then I bill the client 50% of the project, less any previous billings.

This allows you to get your billing out earlier while still accounting for your expenses through the end of the month and therefore be paid earlier. You should always be ready to justify your bill. I strongly suggest a followup 10 days after sending your progress bill. It should be a very friendly, "I just wanted to make sure you received my progress bill and if you had any questions". This helps remove obstacles to getting paid on time.

You should also consider putting the time the project is to be completed and document any delays on the part of the company you are working for. Delays in work being performed that are not of your making cost you "opportunity costs"; the income for work you did not get to do for other clients or that you turned down because your time was reserved for their project that did not happen as per the schedule agreed to. However, this is a two way street so think it through.

Finally, your scope letter also needs to spell out how you will handle changes to the project (a change order), whether additive and deductive. The best way to protect yourself is to have language that says all change orders must be approved in writing before work commences.

Then whenever a change occurs you need to be proactive with presenting the change in scope (the change order) and the amount the change will increase/decrease the original dollars.

It is always hard to walk that razor's edge between losing work and protecting the work you are doing, but some opening friendly language on your scope letter about how the document exists to outline your mutually beneficial agreement, etc. can help the client see your professionalism.

Any professional company should understand the protection afforded for both parties by a clearly defined project through a scope letter.

You may want to get in the habit of having your bids also be the scope letter to save a step. In this manner the client just needs to sign off on your bid and you are ready to move forward.

Hope this helps.

Answer 2

For large projects I always do monthly billings to the client plus a prepayment before starting the project to pay initial costs.

It is perfectly OK to do like that, it is a mutual responsibility.

If you ask a single payment only at the end you will give a "weapon" that will make the client blackmail you if you don't do all his changes and requests, just because you want to get paid.

You can even establish "milestones" of the project when you will get paid for that specific part when it's done.

Answer 3

I would go beyond a monthly fee and bill it hourly, that is the only way to be happy when working with clients who can't stop pestering you with changes. Another alternative is to break things down into milestones and be paid for each milestone. Never put all of a multi-month project into a single lump-sum payment or a half up-front, half on-delivery split.

Answer 4

I know for a fact that this upcoming project, will not be completed on time due to the endless change requests. Sometimes deliverables that were confirmed as done were often revisited for more changes.

In cases like these, there are three issues at play:

1) Being paid for the original contracted works.

2) stopping change requests from affecting 1)

3) Getting paid for the changes.

So. Deliver the original scope. If they want changes, these are additional works. They need to be specified, just like the original work. They need to be invoiced for. Just like the original work. They need to be paid for. Just like the original work.

If the client is bad at documenting the extras - say you are informed of them in chats, or one-line emails - write them up in a Variation To Order or Extra To Contract form, add your quoted price, and ask for written agreement to proceed.

It might easily be that the client says "Oh, but it's quicker and easier just to do it while you're doing that part of the original work".

In which case, give two quotes:
the first as an extra, assuming the original work in that area has been carried out;
the second as the cost of the hassle of dealing with the extra, plus any increase in total effort on the task itself. Put an expiry date on the second part - i.e. if written agreement to proceed is not given before that date (the date you will be starting work on that screen or module) then it will be the higher price.

This has 2 effects:
1) being changeable starts to cost the client time and effort. This may act as a brake on spur-of-the-moment changes.
2) You have a whole series of mini-contracts to invoice against.

Answer 5

What I find a bit risky with monthly payments is that it can represents a lot of money for you; if something goes wrong, that could be a big loss.

So here's a suggestion:

Offer 2 options to that clients.

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1 - Offer a payment every 2 weeks and ask for a down payment at the beginning of the project.

That 2-weeks payment will be charged at full rate.

When you'll wait for each payment, the project will be put on hold until you get paid.

2 - Offer a pre-paid monthly payment that includes a small rebate

This will also count as some kind of down payment for the work and it's a bit like a subscription. You will be paid for the month to come.

You can also point out to the client that there will be no interruption of work in-between payments since it's pre-paid.

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For you, it will be less of a risk no matter which option the client choose. And ideally, he'll go for the pre-paid 1-month payment.