Over the years, I’ve gotten a bunch of questions about the unorthodox payment terms in my software project proposals. Here are the three most common questions:
- Why I ask for 100% up-front payment
- How often I “get away with it”
- What I do when clients push back
I’m going to answer all of those questions here but before I do, you need to know something very important:
I NEVER lower my prices once I have submitted a proposal.
Seriously. Never, ever.
Since I refuse to budge on price, I need to give myself room to negotiate in other areas. This is where my payment terms come in.
In case you have never seen one of my proposal templates, here’s a typical example of the payment terms I offer:
TERMS AND CONDITIONS
I never assess an hourly or daily fee, since you should not have to make an investment decision every time my assistance may be needed. This is a unique feature of my consulting practice.
The pricing for each option is as follows: option 1 is $10,000.00, option 2 is $22,000.00, and option 3 is $50,000.00 USD. Please note that these are fixed prices, not estimates. You will not pay a dime more than your selected price. The fee must be paid in full on acceptance to schedule the project. I am available to start on Monday, March 27th, 2017. This quote is good for 14 days.
My work is guaranteed. In the event that you feel that I am not meeting the standards described herein, or based on our mutual conversations and agreements, I will refund your entire fee upon such notification.
Roughly 80% of the time, clients agree to these payment terms without question. In the 20% of cases where a client doesn’t, their reply is usually one of the following:
- “Are you CRAZY?!” (aka Sticker Shock)
- “How about 50% now and 50% on completion?” (aka 50/50 Terms)
In the “Are you CRAZY?!” scenario, my prices were just way too high and the prospect is suffering from an acute case of sticker shock. It’s almost impossible to revive the deal at this point so I usually just thank them for their time and move on. (In the rare case when I really want the client, I have a backup approach that can sometimes revive the deal but that’s a story for another day…)
In the “How about 50% now and 50% on completion?” scenario, my prices are in the ballpark but I haven’t built up quite enough trust with the client. To mitigate their perceived risk, the client offers 50/50 payment terms — i.e., “How about we do 50% up-front, 50% when the work is done?”
My reply to them looks like this:
We can discuss but I don’t think it is in your best interest. A software project is like a lake freezing — at some point you are sure it’s solid, but you never know exactly when it happened :-)
In other words, we are not going to know exactly when this project is done. Tying the final payment to the delivery date will put pressure on you to sign-off too soon.
If some bug crops up in a weird corner case three months after you sign-off, I’d prefer to just fix it for free under the terms of this agreement (vs what most other consultants would do: “Sorry, you signed off. I’ll fix it but it’s going to cost you.”)
To remove the sign-off issue, what would you think about doing 50% to get started and 50% in 30 days?
Almost every prospect to whom I’ve suggested this alternative has accepted. Once or twice, I’ve had a prospect balk at my suggested date (i.e., 30 day from project start), to which I say:
That’s fine. The exact date doesn’t matter to me. Pick whatever date you think is reasonable and we can get started.
In this case, the client will probably pick a date around when they think the project will be completed. This date will almost surely be too early, but having agreed to a specific fixed date for the final payment allows everyone to relax about the sign-off (because there won’t be a sign-off).
A wonderful side effect of this agreement is that if the client goes dark, you won’t really care because it doesn’t delay your final payment. They can take all the time in the world to respond to requests for feedback, provide copy changes, send FTP info, etc… It won’t matter to you because you’ll still get paid in full on a known schedule and can do other work while you wait for them to get back to you. No pressure for you, no pressure for them.
Ultimately, asking for 100% up-front is better for you, better for the client, and better for the project. Give it a shot on your next proposal — you’ll be pleasantly surprised by the results.
P.S. You can get a free copy of my proposal template here: