Forum Moderators: LifeinAsia
As webmasters we obviously want a billing structure which is advantageous to ourselves in the first instance. Things which I have identified as advantages are:
To reduce exposure to credit it would make sense to bill early. For a webmaster, having the funds which relate to an item of work before the work is done seems the ideal situation. It doesn't matter how unreliable your customer is, if you have his money up-front then at least your costs will be covered. The down-side to this is that your clients may not be able to get funds into your account quickly - big business can have difficulty meeting one working day credit terms due to antiquated payment structures and sheer bloody-mindedness in the protection of their own cashflow. Billing government agencies on one-working-day terms is impossible as anyone who has tried to get even N30 paid on time can attest. Logically speaking, the answer is to tell your client that they can take as long as they like to pay, but that particular bit of work doesn't start until that particular payment is made. I wonder how well that is likely to sit with clients? In some ways, it is no different to a standard retail arrangement - your local supermarket doesn't give you goods until you have paid in full, but having said that, you can take as long as you like to pay.
Regular cash-flow is essential particularly for the smaller company. Getting a large payment every few months and nothing in-between can make various commitments, particularly rental and payroll, difficult to meet. Being able to split the income from a client into regular payments can help massively with this, as well as theoretically being easier for the client to find the money as each time it is a lower sum. Splitting payments can be done either on a percentage basis in which a three month project is billed 33.33% at a time, or on a work-package basis in which each major item of work to be completed has an attached payment which needs to be made in relation to it. The first method is predicatable for both you and the client, however it could expose the client to making payment for most of the site before you have even started, just by you waiting and sending invoices. The second method is, in some ways, an honest man's take on billing - you bill based on what you do, and when you do something you bill for it. Down-sides to this include the fact that many businesses pay invoices only once or twice a month - meaning that your bill presented on the 3rd of the month might go unpaid until the 30th, leaving you either to take on the risk of work without the related payment or to delay the project by almost a month.
Recurring cash-flow is a very important thing to consider. If you make an average profit of 200% on a project, then your costs are a third of your project price. If you can obtain that third of a project price each month independantly of payments from your new developments then your company is insulated against late payments by those new clients. You will have the income stream with which you can pay your staff, rental, utilities, etc. The following are a few models for recurring income:
Fees for webhosting and server administration are only justifiable if you are providing the hosting or server administration, and at all points your fees can be easily compared to other commercial offerings. As you are expected to provide the service as well as make a profit, it is difficult to build this into a true source of recurring income.
Licensing content / copyright is becoming an increasingly-used method of bringing in recurring income. Based upon ownership of the creative work in the website design by the developer, this effectively means that the client must maintain payment of license fees to continue to use the website; and if the website is transferred elsewhere, it would lead to significant brand disruption due to the need for a redesign. Copyright-purchase clauses are becoming more common, in which the client is able to purchase the copyright outright for a significant fee.
Licensing the software behind the site is used mostly for Ecommerce and high-end CMS systems. A twist upon this is that 'updates' and 'patching' are included as part of the licensing fee agreement.
Maintainance and retainer fees are one of the oldest forms of recurring income for webdevelopers and they are certainly the first form which I encountered. The idea behind these is that the client makes a monthly payment for which you make yourself available if needed, often include a number of hours of 'inclusive' work, and you agree to undertake some certain list of maintainance tasks.
Additional services are a more risky form of recurring income, but seem to be growing rapidly as a way in which a developer can continue to get sizable payments from a client. With this model, you must provide services which build upon and enhance the website, building upon the trust established during development, and the ease with which you can perform these tasks on your own website. Handling SEM campaigns or undertaking regular SEO are two examples of this - it enables a happy new website owner to keep making those payments, and it enables you to help that owner to promote his website and make the money from which the payments will be drawn.
What are your thoughts on billing? What makes the best sense to you as a web developer?
Licensing content / copyright is becoming an increasingly-used method of bringing in recurring income. Based upon ownership of the creative work in the website design by the developer, this effectively means that the client must maintain payment of license fees to continue to use the website
I am not sure if I can view this objectively, but I can't see someone doing very well with this idea. If I were getting a web site done I would insist that I own it when finished. I would view this the same as say a brochure. I don't pay the graphic designer that created a brochure a license fee every month or year to continue to use a brochure. I pay up front and it is mine forever. I guess I view the web site the same way. Maybe I am wrong here, but with so many developers available I just can't see someone agreeing to pay a license fee for a design forever when I am certain they can find a developer to create a similar site with no licensing in pretty short order.
Regarding the billing for initial projects, I have been jammed up a couple of times, but not too often. My normal billing cycle is 50% down at the start of the a project (or 100% with a 10% discount) and 50% upon completion, although it is worded in my contract as intermediate billing. If the project is a quick turn around effectively I bill the other 50% upon completion, but if I am waiting for content from a client forever and I have all of my stuff done I will typically bill out the other 50% and then I don't care if the client waits forever to finish the project as I have already been paid.
I think the trick with billing in chunks is to have enough projects at various stages of development (and billing) to insure that you always have chunks of cash coming in from either new, intermediate billed, or finished projects. I agree going 3 months between cash infusions can be a bit painful, but if you have cash coming in from many projects at all times you aren't waiting 3 months in between pay days as it were. I have also found having a commercial line of credit available to draw on in between cash dry periods is very helpful. I draw on the line for operations when I know I have fees coming in soon to pay it back. I haven't worked this out perfectly yet as sometimes I end up carrying a balance longer than I would like, but I am getting better at it each time I do it.
Your final point about ongoing cash from existing clients is something I have struggled with since I started my business 4 years ago. I also found the maintenance and hosting to be part of the equation, but in both cases those are small amounts. When you add all the accounts up it creates a reasonable amount of renewable income each month, but I would really love to hear other ideas that others have come up with to generate ongoing monthly cash that is level and predictable.
I feel in any type of business, including web development, that is project or job shop driven the downside is the constant cycle of eating only what you kill as the saying goes. Which means that you require a constant flow of new sites to eat. I would love to find another model where income comes in other ways each month and projects just add to that instead of depending on it.
Fortune Hunter
If I were getting a web site done I would insist that I own it when finished.
and 50% upon completion
how do you ensure you get that payment?
Yes, you are correct, I hold the files on my server until I receive final payment. Once that is done I then transfer the files to whatever hosting company they want. Now I don't always do this, especially if it is somebody I have worked with before and I have a relationship with them. Usually in those case I simply do the work and bill them and I have never had a problem getting paid on those jobs.
In 4 years in business I have only had one situation, where payment was a bit rough to get. I have been paid for my actual time into the project but my profit hasn't been paid yet.
Also you should know that sometimes I don't wait until the end for the other 50%, sometimes I bill in thirds and sometimes I bill out the last 50% before I finish the project. Each scenario is a little different and I don't really have any hard and fast rules as it were.
