Should you go with fixed fee or time-and-materials for that project?

Sarah Durham: Welcome back to The Smart Communications Podcast. I am your host, Sarah Durham, and I’m going to talk today about something that I get a lot of questions about and comes up a lot in RFP processes. So if you’re a communications person and you are about to issue an RFP for a website, or a new branding project, or some other significant communications project that might take a lot of time, cost a lot of money. I hope this will be helpful and give you some guidance for things to think about as you decide how to approach your project. So the topic today that I’m going to dig into is whether or not you should work with an agency or a freelancer or another partner on a fixed-fee or a time-and-materials basis. What’s smarter for you? That’s what we’re going to dig into. So first let’s define those terms.

Sarah Durham: Time-and-materials usually means that you are being billed for every hour the creative person you’re working with spends. So this is pretty common with freelancers and individuals or solopreneurs, as they’re called these days. Most freelancers effectively are selling you hours of their time. They are tracking their time, hopefully in software. There’s lots of great tools that do this, and when they send you an invoice, you’re getting billed for every hour they spend regardless of the value of that project to you. So the good news is that if you tackle a big project with somebody on a time-and-materials basis and they work really quickly or efficiently, you might pay a lot less money for that. So let’s say, for instance, you hire somebody on a time-and-materials basis to do something like build a new website and they are able to do it in a pretty fast way.

Sarah Durham: You might spend a lot less money doing it that way, but the flip side is also true. Let’s say, for instance, you hire a freelance graphic designer to just develop a new PowerPoint presentation for you, and along the way, they go down some sort of exploratory path and they give you a bunch of options and things like that. You could end up spending thousands and thousands of dollars because you’re effectively buying their time. And that leads us into the topic of value because you might not find that even though the hour of their time is worth, whatever their hourly rate is, the value to you as an organization might be either greater or lesser than what you ended up paying. The other issue with time-and-materials projects is that it can be difficult to make sure you’re going to get to the end result. You want to get to the budget that you have to work with. There’s a kind of an unpredictability to that.

Sarah Durham: The other way of working is to work on a fixed fee or sometimes called a flat fee or a project fee basis. And the way that works is when you and the person you’re going to work with essentially negotiate a flat fee based on a predefined scope and oftentimes on a predefined budget. The topic that comes up a lot is should you share your budget with the people that you are considering hiring? Our answer to that is yeah, you should. If you trust them and they are professionals, then they should be able to map the scope that you are talking about doing whatever the end deliverable is and what it takes to get there to your budget and tell you effectively how far they’re going to get in your budget.

Sarah Durham: So let’s take a look at some kinds of projects that lend themselves better to working on a fixed fee or a flat fee basis, and what kinds of projects work better on a time-and-materials basis. So if you are working with an agency to do a big rebrand or build a new website or some other project, that’s going to be pretty big, it’s going to probably take months to do, and the total cost or budget for the project might be a lot, you know, five or six figures, let’s say. There is no clear best way to do it or only way to do it, but definitely over the years, working in Big Duck and working in Big Duck sister agency, Advomatic, one of the things I’ve observed is that the majority of projects that are brand-related or print related, meaning and reports or brochures or those kinds of things, generally, they lend themselves really well to being done on a flat fee basis, and that’s because the scope that you go through on those projects is pretty predictable. They follow a linear path.

Sarah Durham: So the first step is there’s some sort of, you know, strategy conversation, maybe a project brief gets written or a creative brief. Then there is writing and designing work that happens the design and the writing gets revised. And then it goes into production. The files get created. If it’s digital, it gets uploaded and it gets distributed. The big unpredictable part in a scope like that is the design and the writing. And that’s because the creative team that you work with might get it right, right out of the gate, they might show you, let’s say, you know, four or five or ten different logo ideas, and you might point to one and say, that’s it. And that’s great. You’ve been really efficient. But odds are also quite high that that might not go as smoothly. And that they’ll show you a whole bunch of logo ideas. And you’ll like some parts of one and other parts of another. And you’ll want to give that feedback and you’ll want them to go back to the drawing board and make revisions based on your feedback.

Sarah Durham: So the wild card of whether or not that flat fee process is going to work really depends very much on that, on the creative work, because the creative process writing and design is just not that linear. It’s not that predictable. It’s not easy to say it’s going to take three hours to get this thing, right. But still, it can be nailed down to a large extent on a fixed fee basis. And the way most agencies will do that is they will tell you what you’re going to get both in terms of original or creative ideas. And they’ll tell you how many rounds of revisions you get. So they might tell you for instance, in a visual identity or logo process, we’re going to show you, you know, five logos in round one or ten logos or three logos. And then we’re going to allow for three Rounds of revisions.

Sarah Durham: In other words, we’re going to get your feedback to those initial ideas we showed you, and we’re going to do up to three rounds of revisions to get it right. Now, the wild card for you or the unpredictable variable for you as a nonprofit communicator is what happens if they don’t get it right? And that’s something that I would encourage you to talk to the vendors that you’re talking about working with, ask them how often do they get it right? Maybe when you’re checking their references, ask how many rounds of revisions were necessary to get it right? You will find that firms that have done the types of projects you’re asking for over and over again have a pretty good sense of how many rounds of revisions it takes to get it right, and hopefully, the rounds of revisions that they have baked into their proposal will accurately reflect a kind of a pragmatic approach to what it takes to get. Right?

Sarah Durham: So if you are working with, or talking to an agency, or a freelancer about doing something on a fixed fee basis, that’s the thing to look out for? What are the creative outputs and are they going to be enough to get you to success? And the good news is that if they give you a fixed fee for that, and they get you to success, you know exactly what your budget is going to be. There should not be any surprises. There shouldn’t be any nickel and diming over invoices, and you’re in really good shape. If they end up going over, or there are changes, hopefully, they keep you abreast along the way. Hopefully, their proposal tells you what happens at Big Duck, when we write proposals like this, we put into the proposal how much it costs to do additional rounds of revisions, so that during the process if there’s a conversation about maybe doing an extra round or exploring some new ideas, our clients are able to anticipate right up front exactly what the cost will be without any surprises, and I think that’s a good way to go because what is always the worst are the surprises.

Sarah Durham: Now let’s talk about time-and-materials projects, because when you work on a time-and-materials basis, again, as I mentioned earlier, it’s less about the value. It’s harder to control the budget, but it does give you a lot of flexibility or the people you work with a lot of flexibility. And there is a place where that is very useful. And that’s when you’re working on a project that is not easy to predict or scope out. So what kinds of projects are not so easy to predict or scope out? Oftentimes they are sophisticated digital projects, and in my experience over the years, it is quite common on a project where there are some very unique technical variables, unique to your organization. That will be very, very difficult for the agency or the freelancer you hire to predict going in.

Sarah Durham: So for instance, let’s say you have a website where you use a mix of different software. Perhaps some of that software is either industry-specific like maybe an association software that not that many people have a lot of expertise working with, or maybe it’s the integration of a number of different tools where they’ve been kind of patched together with some custom code, maybe there’s proprietary code or other software systems that you use that are just not that well known. Well, odds are good, if you’re hiring a developer to help you make modifications to that website, or even build a new website, using those things, it’s going to be really, really hard for them to anticipate what it’s going to take to get that project done effectively, and you’ll have a better chance of success, a better chance that things can be scoped out if you’re getting a fee from somebody you’ve worked within the past, somebody who’s maybe maintained the site or knows your organization well knows the work in-depth because they’ll be able to say with some degree of certainty, what kind of complexity is going to be involved in this project. But even so one of the things that is often true on websites, particularly bigger or more complicated websites, often websites built in Drupal have this issue too, is that you know, you build something or you fix something over here and that creates a bug or a challenge, or maybe even break something over there, and so every new feature that gets modified or developed has to really be thoroughly tested. There has to be a lot of quality control, quality assurance, ideally in some sort of sandbox environment before that new feature goes live, it’s not just the same as, you know, you build it, you launch it. It’s good.

Sarah Durham: So that creates a lot of unpredictability because even if you can scope out what that new feature is, you’re going to build, you sometimes don’t know what the impact of that new feature is going to be on other aspects of the site. And even if your site was really stable and has been super predictable for a long time, it’s also true that all that software you’ve been using and integrating has been going through its own updates and modifications, and sometimes what worked a couple of months ago, or what is stable now doesn’t work once you change something else, it’s sort of a complicated puzzle of elements that fit together.

Sarah Durham: So when you’re working on a project that has those kinds of unpredictable variables, I think it’s really important to name them upfront. And it’s also helpful if you’re trying to control your budget to talk with your partners or your vendors about what are the aspects of this project that can be clearly and predictably scoped out and maybe executed on a fixed fee basis, and what are the aspects of the project that are really going to be hard to know in advance and might be smarter to handle on a time-and-materials basis? So on a website build, for instance, if you’re building a new website, that’s pretty straightforward, you’re doing fairly standard stuff in fairly standard software, you might be able to do the whole thing on a fixed fee basis and by fairly standard. I mean, you’re building, let’s say a WordPress website, you are able to predict upfront how big that is.

Sarah Durham: You are able to name all the software that gets integrated with that WordPress site. All the software is pretty standard. You’re hiring somebody, who’s built a lot of websites using those software tools. Odds are going to be a lot better, that they’re going to be able to give you a flat fee or a fixed fee quote, to build that website. And it’s going to hold up just like on that visual identity or logo example I used earlier, they can probably tell you with a high degree of certainty, how quickly they’re going to get things right. And you can probably check with their references that that holds up. The place that I think is more challenging though, are when things are less predictable and in a website build project, for instance, it’s quite likely that some of the phases that happen first, like the content strategy or user experience testing, or setting goals for the site, or even the design of specific pages, that stuff might be able to be done on a fixed fee basis.

Sarah Durham: But the technical stuff that happens as you start to build the site may be where a time-and-materials basis is ultimately going to be more appropriate both for you and for the partners you work in. So when Advomatic builds websites, sometimes they’re done on a fixed fee basis. Sometimes they’re done on a time-and-materials basis. Typically the parts that are done on a time-and-materials basis are the building and the testing of technical features that are going to be very unpredictable to scope out upfront, but still, there is a budget for that and materials basis and at Advomatic and in a lot of other excellent digital agencies, that budget has to be managed really, really carefully. And it gets managed to make sure that ultimately you get the key features that are most essential built first tested and launched, and that all the secondary features, all the tertiary features, things that you’d love to have, but they’re on your nice to have lists, not your musts list.

Sarah Durham: Those things get built. If you haven’t exhausted your budget building and testing the core functionality, the core things you need to make the site work effectively. So I hope this conversation has given you some things to think about if you’re issuing an RFP or you’re beginning to talk to different freelancers or partners or vendors about some new big communications projects. And I wrote an article that covers some of what I just discussed that is posted at advomatic.com on the insights page. We will link to that in this transcript for this podcast if you want to find it or just go to advomatic.com and search for the term fixed fee. All right, this is Sarah Durham signing off.