How much payment should be required up front?

Question

When accepting a job and negotiating a price, how much of this should be required up front before starting the work, especially when you haven't dealt with the client before? Should it be a flat retainer or a certain percentage of the work? Would you require this for all contract sizes or only for large ones?

Ideally, answers would be based on the experiences people have had. Was there a case where the client refused to pay after the work was done? Did you ask a client for a part of your fee up front and they refused?

Answer 1

There are a bunch of ways people do this. One way I have seen is for clients pay a retainer and then be billed out of that (of the balance goes to 0, the project stalls until the retainer is refilled). In general larger consulting businesses can more easily do this than freelancers but once you have a name for yourself, this may be an option.

Others range from full billing in arrears to milestones, to 50% down and 50% on completion of a singular project. These have different benefits and costs, and it is important to think through these before hand.

In general I have found that most customers are willing to pay at least 50% up front. The question usually comes down to what you are willing to take on in terms of the dynamics with the customer. These include the risk of projects which may have to be delayed or abandoned. It's a lot easier to decide a customer is too much trouble and to inform them that you are cancelling the project when they haven't paid you than it is when they have.

Answer 2

It depends on the job - over what period and how much it pays.

If this is a short term job with a single deliverable, 50% up front with the remaining payable on delivery is common.

But consider something longer term - months to years in the making. 50% may be too much for a client to pay up-front (for something that hasn't been started yet, or simply, too much money in one go). Such proposals can be structured as milestones with payments being made when milestones are met. A good way to structure the payment is to have a bigger payment for the last milestone, when the full product has been delivered. This give you incentive to finish and the client feels that they have now paid for the finished product.

Answer 3

I use this as a rule of thumb, based on the total project time:

< 1 week

50% upfront, 50% after delivery

< 1 month

25% upfront, 25% in the middle, 50% after delivery

> 1 month

25% upfront, 50% is split into milestones and the remaining 25% after delivery

Answer 4

I do not know how you bill, but let's say that you know exactly how much you will charge for a single job. Ask that the client pay 50% up front.

Let me give you an example from my work. In addition to my computer consulting startup, I co-own an entertainment company. When we book gigs with clients, we ask that they pay a 50% deposit immediately after the closing of the deal. They will pay that via PayPal, the gig comes and goes and they pay us the remaining 50% via check right there and then.

Answer 5

As a freelancer or consultant, you should always charge at least a percent of your total project free upfront. This has two immediate advantages:

1. It makes your client put some skin in the game. Paying a deposit makes your client take you and the project more seriously, and they're much less likely to not go through the project.
2. A deposit let's you safely put time aside for the client instead of having to continue to look for work to sustain yourself in the meantime. You're no longer looking for a light at the end of the tunnel of the most-likely multiple month long engagement. This method also helps you lock in engagements in the future if you're too busy right now and it almost guarantees that you'll have work in the future.

As a rule of thumb, I estimate the time needed for my projects ahead of time, and create a payment schedule accordingly. This means the length of the project affects how often and how much the client pays me.

For example, If I scope out a project for a client which is going to cost over $10k, I know that while working on other projects as well ( I usually do around 3 projects at a time), it will take me at least a couple of months from the kickoff meeting to the delivering the fully-developed website. Since I don't want to /can't wait to be paid after 2 or 3 months, I have a payment schedule based on specific milestones.

Here's my payment schedule for projects over $10k:

1. Deposit upon proposal approval / project kickoff: 25%
2. Wireframe Approval: 25%
3. Design Approval: 25%
4. Development Approval/ Site Upload: 25%

The projects I usually get are under $10k, and typically take under a month to complete. This means I can get paid in bigger chunks, so the payment schedule is typically something like this:

1. Deposit/ Project Kickoff: 50%
2. Project Completion: 50%

Of course, while I only bill them twice through the whole project process, I always keep the clients updated on the specific milestones as above.

Lastly, for any projects under $1,000 I always charge 100% upfront because it usually takes me less than a week to finish.

While these examples pertain to my web design and development consulting, this payment schedule works beautifully for any service that includes a multi-step process. For example, if you're a logo designer, you could have one of your milestones be a hand-drawn sketch and a color palette, then a mockup of your logo, then a mockup, then different marketing materials designed using that logo and color palette.

While I've only been consulting for a little less than 4 years, I've used this payment schedule from day 1 and have never had a client call complain about or question this schedule. This is because it helps them spread their risk too. If they think thats the project isn't working out, they cancel it without having to spend the entire project budget on a freelancer who wasn't a good fit.

Another hidden advantage of this is that during our initial meeting, the split payment schedule helps address pricing objections because most of the time, when they're not sure whether to pay so much for a project, they're really thinking about whether or not the the money will be an investment they can see a return on, or whether it will be money that's going down the drain. Splitting up payments helps them mitigate the risk.

Finally, another method I've seen other consultants do is charge 100% upfront but include a 10% discount in the price. I don't typically recommend this as its very risk averse for the client, and it devalues your work, as you had no reason to charge the extra 10% other than having a higher risk of not getting paid.

If you're starting out I highly recommend you charge 50% upfront regardless of you bill per project or pre-hour (in which case, estimate how many hours the project will take, then divide that by 2) and 50% once you've shown the deliverable and before you actually deliver it.

Answer 6

I've hired a freelancer quite recently, for a quick 1 week job. I find a good price to be around 20%-30%. Anything more than 50% is pushing it, unless the project itself costs a lot of money to start.

Go too high and the employer might think that you're planning to run away with the money. Too low and the employer might worry about your commitment to the job. A little bit of money guilts a freelancer into finishing the job, on time.

In situation where you can be absolutely certain of doing the job, like a signed contract with penalties for failure to deliver, the upfront payment can be much higher. If you can justify your costs for starting this, you can also request a lot more.

Answer 7

If the project sum is too small, then I usually don't ask upfront. This means the project which I can finish in 1 week.

All other projects I take 20% to 25% without exceptions.

If the client is not willing to pay upfront then I kindly tell him that I cannot start working without upfront because of bad experience in the past, and if they still do not want to pay, I don't accept the job.

In some rare cases, I tell them that upfront will be accompanied with myself making a project specs sheet and this usually calms them down.

Recently I started including clients into our tools (SVN server with ticketing, Basecamp message room, Project management tool) and this somehow assures them that I am serious enough to get paid upfront.

If they are still reluctant and I really want the job, then I ask them to work hourly with demo each Fri or Mon.

I hope this helped.

Answer 8

There's no hard rule.

Generally speaking, people don't like to prepay because it's a vulnerability for them. I hire more than I consult, and I almost exclusively never prepay. But I am willing to pay in small increments. I also usually do not require prepayment.

Here are my thoughts:

1) How trustworthy is the client? If very trustworthy, the need for prepayment is less.

2) How guaranteed is it that the client has realistic expectations and budget? If high, the need for prepayment is less.

3) How much early costs will there be? i.e., for staff, expenses, etc? If high, get prepaid (retainer). You should not front much costs for a client.

4) How much institutional vagueness is there? i.e., question #1 is about trust, but sometimes even trustworthy clients don't seem to have their head totally in the game. If you sense that they are indecisive, then a retainer can really crystalize their thinking: The project has begun.

5) Don't waste your time with contracts. And don't sign NDAs unless they very clearly define the nature of the disclosure. But do create a very clear scope of work before starting.