Web Project Pricing & Budgets
Note: This post applies more to outsource freelancers and agencies who charge clients for work rather than for in-house teams.
Don’t shy away from bringing up money right at the start, in your first conversation about any project. Everyone knows that money is going to need to change hands so there’s no point beating around the bush. Budgeting is hard. You essentially have to guess how long the project or feature set is going to take, or guess the value of the work to the client, in order to calculate how much to charge. Like with any difficult problem, it’s easier to try and break it down as much as possible. Ensure that you consider time for research, planning, discovery, admin, prototyping, design, development, testing, fixes & revisions, and deployment. Typically 10–15% might be added for project management, but consider anything that might require more time or commitment — dealing with multiple stakeholders for instance, thus increasing the management time, might encourage you to increase your fee as well.
Indeed you’re not just charging for the design and development or even the final deliverables. You may have PDFs, training workshops, interactive guides, and other educational material to prepare as part of the course that should be charged under client education. You have more organising, writing, designing, planning, and coding than you might at first be aware. The amount of client education required may vary depending on the project owner so this will need to be factored into your pricing — hours spent helping your client use your product should be billable time. Typically you might also want to add 10% onto your price as a contingency for “Support & Training” or “On-boarding”. If they’re going to need a lot of education but are not willing to pay for it then it may be wise to pass on the job. Most clients actually understand this. Those who are interested in improving their business are interested in improving themselves as well. This is the foundation for a truly fulfilling and mutually beneficial client relationship. Seek out these relationships. Bear in mind though that whether they want to pay for it or not, it is your responsibility to teach your client to use your product, otherwise your team’s work will be for nothing (well, except some money… but we’re trying to make the web better, right?). In some cases, you may be able to factor client education hours and their opportunity cost as part of your company’s marketing budget. A happy client and a successful product may be worth more in the long run.
No matter the size of your team or organisation, always get a deposit at the start of a project. A deposit shows that the client is willing and able to pay, and tells them that you won’t work without being paid. The size of deposit you ask for depends on the size of the project. Very big or lengthy projects may require ongoing payment instalments. If a client is reluctant to pay a deposit, then you shouldn’t work with them, plain and simple. Chances are they aren’t serious and probably won’t pay later anyway. The worst thing you can do is have your team work for literally nothing.
Another budget you may want to propose is an ongoing retainer. You can provide the client with all the documentation and tools and excitement as you like before pushing them out to sea, but how about rowing out with them? You could call it a digital strategy retainer, or whatever other buzz phrase you like, and help them grow their business online. Such a service, if your team is able to offer it, may include audience research, content creation, ongoing SEO, advertising, technical maintenance and upgrades, social media management, and analytics reporting. This is usually not only educating and rewarding, but may even enable you to up-sell more work.
When it comes to presenting your cost estimate to your client, sending it as a plain number in an email is unprofessional and disorganised. Costs should be laid out in your proposal or agreement where it can be set alongside a full and detailed description of what you are offering, and therefore can be fully justified. The more emails back and forth between you and your client discussing the cost, the more the value of the project is reduced as you spend more time haggling. By all means quote a final ballpark figure, but clearly state that the cost is variable depending on a number of factors such as eventual scope and the level of post-delivery support required.
You might want to break down the cost into design & development phases, costs for 3rd-party tools and software, and admin costs like client-servicing and project-management. This will provide an overall cost that is helpful for project owners as they are usually shopping around for different service vendors so it helps them to compare. However, it’s almost impossible for you to estimate accurately.
So how can you accurately assess how much to charge the client? Whatever you do, don’t charge hourly rates. This limits your potential revenue and presents plenty of other problems:
- hourly rates have a ceiling — you can only charge so much until the client pushes back, regardless of whether the work is finished or not
- hourly rates are limited by the fact that there are only so many billable hours in a year
- hourly rates are too easy to compare but offer no reflection of the quality of services offered (e.g. you might charge $100 / hour compared with someone else who charges $95 / hour — on paper $95 seems more tempting, even though the production team may vary wildly.) — this may lead to clients trying to low-ball you
- hourly rates mean you’re selling time, not results, and it’s results that clients care about
- clients may become stressed as they worry about every single hour you and your team are working
A better way would be to charge on a weekly or monthly basis, as long as the focus is on the outcome or the project deliverables and not the time spent. Monthly billing is more appropriate for ongoing maintenance retainers, and through experience you’ll become more familiar with what your team as a whole can produce within these larger time intervals.
Better still is a way that’s also perhaps easier to estimate and is known as value-based pricing. Essentially, you determine a number based around what the project is worth to the client. In order to be able to determine this, you need to obviously understand the project requirements in detail (see previous post). For example, if the goal is to increase revenue of an online store by $1,000,000 per year, why not charge a one-off cost of $100,000, even if it wouldn’t necessarily take too much time or resources to produce the work? The client gets a good return on their investment and your organisation hopefully gets paid enough to cover costs and turn a profit yourselves.
At the very least, you should offer a fixed price on a per-project basis. The client knows the cost up-front, which also makes it easier for them to compare you with other vendors. Meanwhile you can focus your offering around the return on investment so that the client focuses on the result and not on the time or cost.
Estimating costs can be made easier through time tracking. While past experience doesn’t offer guaranteed information about how long certain tasks will take — different people work at different speeds, and have good and bad days — it does at least narrow down your guesstimates. Time tracking can be annoying and disruptive but there are a multitude of tools and apps available that are specifically designed to integrate smoothly into any workflow, minimising the disruption. Costs can also be estimated more accurately by getting constraints from the project owner, for instance a hard deadline or a maximum budget. Rather than plucking a number out of the air, you can more easily determine what you can confidently build within those constraints. They may be reluctant to offer budgets — surely you’ll just take however much they’ve got, right? This actually gives you an opportunity to explain the mechanics of your cost and determine how much of your team’s time they are comfortable with paying for. Being able to explain your costs to your client is a great way to instill trust and confidence!
Surely the best way to approach pricing is collaboratively. By creating some kind of shared table or spreadsheet where you can outline what your understanding of the work required entails, you can work with the client to find a budget, feature scope, and timeline that is mutually beneficial. It’s open, honest, and transparent, making everyone feel comfortable. An added benefit of this approach, especially considering that it’s happening early on, is that right from the outset your client is introduced to a collaborative workflow that builds trust.
The big question is whether the work you are producing is worth more than the money your client is spending. If yes then the value is clear and the details about what exactly your team is going to do become less important. If no then perhaps you need to shift your focus or the client needs to find someone else to undertake their project.
No matter what method you use to determine pricing, you must admit that you’re not going to get it right all of the time — it takes good ol’ trial and error. There will inevitably changes to the scope, some projects more than others, and the different projects and project owners will present different challenges. It may be a good idea, particularly if you’re quoting a fixed fee, to add a 10–20% contingency.
Remember that the changing industry is not just the design tools, the coding languages, and development practices. Everything is changing, so don’t be afraid to experiment with changing the way you do things. Hopefully you’ll always have plenty of opportunities to try again and keep refining your cost estimating process. As your organisation and team changes, you may find that what you were doing before no longer works and that a new approach would be more suitable.
This is part of a series of blog posts about web project management, drawn from years of personal experience. If you’d like to find out more about me then please visit my website: https://yourweb.expert
- The Web is Hard
- What is a “Web Project”
- Web Project Roles & Responsibilities
- It Can Be Better
- Personal Management
- Do People Even Need to be Managed?
- Adding Value
- Embracing Change
- Working with Others
- Health & Happiness
- It’s All About Empathy
- Finding the Right Work
- Advice for Web Project Owners
- …Preparing Your Business
- …Customer Service
- …Know Your Users
- …State Your Goals
- …Set Expectations
- …Leave it to the Experts
- …Timelines & Deadlines
- …Useful Feedback
- …Gathering Data
- …Do You Need to Hire an Agency?
- …How About Hiring a Freelancer?
- Production Team Leaders
- …Setting the Tone
- …Building a Team
- …Who to Hire
- …Full-Stack Unicorns
- …Supporting People
- …Picking the Project
- …Client Feedback
- …What About Software as a Service?
- Client/Account Managers
- …Finding the Work
- …Kicking Off
- …Be an Expert
- …Be Enthusiastic
- …Contracts & Agreements
- …Gathering Requirements
- …Schedules & Deadlines
- …Change Requests