How we charge our clients

00:00 Hello and welcome to Perspective. This is a show by founders of small indie creative agencies. We're giving our perspectives on starting and running our own companies. The aim is to provide some useful advice, inspiration to others, as well as learn from each other and others that we come to get talk on the show. This is our second episode. My name is John Dark. I'm a director of Every Interaction and with me I have Dan Gent. Hello. How are you doing? Not bad at all.

00:27 Excellent. Dan is from Lighthouse London. We are lighthouse.com. Yes. I'm never quite sure which way around to do it. Either way. Either way. Okay.

00:37 But with confidence and pizazz. And what confidence will come with time though. All right. And today's topic, after episode one, we just gave a bit of our background and history where we came from, how we got to starting our own agencies. Let's go back and listen to that if you haven't already. And today we thought we would jump into the deep end and start talking about money.

00:57 Right. So you want to talk about money straight away, episode two. The focus of which will be how do we charge our clients? So I guess when a new client comes to you, Dan, they find you via whatever way they find you.

01:11 That can be another topic unto itself. But a new client comes to Lighthouse. Who do they speak to first? Who's the guy who answers the phone or the email when they get in touch with you?

01:23 These days pretty much always me, unless I'm not in the office when the phone rings. In the past, it's been whichever one out of Tom and I got to the phone first.

01:36 Or got to the email first. But yeah, these days it's me because, yeah, I'm trying to keep Tom less busy because he's the talented one.

01:47 Yeah, I'd say it's the same with us actually. I mean, you've got to assign that responsibility to one person in the business. And in ours, that's me as well.

01:58 It's good to have one. So you start your conversations with the clients and those early conversations usually revolve around what it is that the client's looking for some help with.

02:08 And then you just determine whether that's something that you can or are willing to help with or not, whatever the case may be. At some point during these early conversations, the topic needs to turn to money. And do you wait for them to raise that? Or is it something that you introduce early on in the conversations in order to get that topic out onto the table?

02:35 Yeah, I suppose that's changed a lot as we've gone along and it's gone back and forth between how early we'll talk about money. I think at first, we probably didn't talk about money because we didn't want to scare anyone off. And then as we got kind of busier and grew, I expect we were desperate to know if this phone call was worth our time because we were so busy.

03:05 So generally, I'd talk about money before we'd even, if someone emailed, I'd talk about money before setting up the call. And these days, I think because I'm back with more time to do new business, it's almost like the money conversation is now a tactical thing. So I don't have to have it straight away. I think also because we're a bit mature, we get less people with no money. Do you find that? Or do you still get the same amount of people with no money? Oh, we definitely still get a lot of inquiries from people with no money.

03:47 It's just that I think the ratio of people with appropriate budgets and inappropriate budgets is more even these days, whereas in the past, it was always much more a higher percentage of people who really didn't have the funds to achieve what they were trying to achieve. And I think the point about maturity that you made is also a good one in that the more good work that you do for more recognized brands, the more people will look at you with different eyes and have a greater understanding of the level of work you've done in the past and perhaps have a better idea around what you might cost before they consider approaching you. So one thing we've tried to do recently on our website to try and help this is we've put a drop down onto our contact form asking for a budget range from clients. Do you? Yeah. And the minimum value that we've put in that drop down is less than 10K. And generally speaking, most inquiries that come through with that level of inquiry go into the instant reject bin. Excellent. Man, I'm always contacting you with that.

05:23 That's not how you're not replying. Well, it doesn't, not instantly. There could be some exceptions. But yeah, it's good to get an idea of how serious people are. And those go into bands that go up very quickly.

05:41 Also on each of our case study pages, we don't talk about rates specifically, but we do talk about time. And quite often on a case study page, we've got like a small statistics section and we will say this took 500 hours or this took a thousand hours and show like an approximation on the number of hours. And then people can sort of in their head think, well, these guys must be charging at least this. Yeah. Even if they're drastically underestimating it and then they see the sheer volume of time involved in getting something live. That is good.

06:19 Then they sort of do that fag packet maths and get to the point where they have an understanding of what they think we might cost a little sooner. Yeah. Okay. I think these days I actually, I'm worried if the person contacting me is talking about cost because I think I'm willing to take these days, the ones that haven't got a lot of money when you end up digging under the surface for the ones where actually I'm using price almost as like a trading card. So on a good, if it's a good lead, it's almost a reason to talk to them again. If at the end of the first conversation you think this is a great project, I'll ask if they've allocated budget. I quite like that phrase because it basically isn't saying how much money if you've got, it's saying something slightly more sophisticated and it's also good for you to know if they've done that kind of thing. Yeah. So I think these days I'll ask that. The answer to that is normally, people like to keep their cards close to their chest. And that's interesting. Don't you think that people can be a bit defensive about budgets? And I often find that is unnecessary because I guess it comes down to experience, right? If the client doesn't have experience in delivering projects, then they're not entirely sure what things should cost all the time. And especially if they're new to it, especially the startups, they're always trying to save money and get things done on a budget or for as little money as they can. Nobody wants to waste money unnecessarily.

08:17 But when you're dealing with clients who have a lot of experience, they've delivered a lot of projects, they've worked with a lot of agencies. You often find that budget conversation is a lot easier. You just outright ask them, what is your budget? And they will tell you. Yep. Because they have a very clear idea on what things actually cost and what they should be able to get for that budget. Yep. I agree with that. I think it's fairly easy to tell if someone's going to know that, I think, from the conversation often. Yes, I agree. And I suppose maybe this is a product of being more experienced is that I can now guess how much money people have got fairly accurately from how they make contacts, the sort of things they talk about. And so then that's why for me, what I'm going to give them as a ballpark or a more accurate cost is then now something I actually can use quite tactically to say, the first conversation will finish with how much is this going to cost? And it's a chance to say, if you feel they're going to have a decent budget and that you want to work with them, it's a chance to say, let me go away and come back with a relevant case study, something else, and that ballpark cost you want. So it's quite a nice way to have two interactions with them when maybe I think we used to give everything right at the beginning.

10:15 We used to say, here's what we cost, even on ones where there was budget, we'd say, here's what it might cost and there you go, you've got everything. And then there's no reason to go back. And in that client, the space, the time between the first time you talk to them, the second time, they'll have talked to other people, requirements might have started twisting a little bit. And I think you can, by going back in, you know, even a week later, it's like cost can be a tactic to talk to them again, which can be quite valuable. But I think that's only something I've started doing fairly recently, because I can, you know, like I think before that, I think definitely before that I was I was with you, which is or with what you're describing, which is, you know, you really wanted to, to like qualify the people very quickly, because there's so many. Yeah, I'm in complete agreement with you. I don't think that we try to qualify leads early either. I mean, what we're trying to do, I guess is not waste our time, or not waste too much of our time with leads that really aren't going to go anywhere, just because they don't have the money to afford us.

11:44 Right. We're really trying to do, I think is stop repeating mistakes from the past. So we've had clients come to us previously with a with a brief for what was a very large piece of work. And because of what we realized to be the scale of the piece, we put a lot of time into a proposal document for that, you know, up to a week's worth of work. It turns out they had nowhere near the budget. And you know, that can really sting, especially when you're a small agency. And it happens a few times, you've been burned, you don't want to repeat it. And to me, that's, that's the real reason we're trying to qualify leads. Not quickly, but within reasonable time, given what they're requesting. Yeah, okay. And I totally think that it's, there's a lot of value in having multiple contacts with people, as you suggest. And that becomes the beginnings of building a relationship. And that relationship is what will turn into a major benefit for the project. And hopefully, a bit more trust between you and them, which goes a long way to helping explain things like costs. Yeah, some people, I mean, a lot of people just don't know how to, you've kind of got to guide them through the process of how to work with you. And I'm, although it's been necessary to have to talk about pricing upfront, like I said, just to filter the amount of inquiries and just to make sure that we weren't wasting their time as well, you know. And I think you've got to talk every day. And again, I think if someone refuses to say, if I think someone hasn't got enough, and they're refusing to talk about it, I'll often just follow up with an email saying, here's a ballpark, next step would be, we have a meeting. And, you know, nine times out of 10, that's that. And how do you come up with that ballpark? Is that just experience, finger in the air based on past projects? I just make it like £1 to £100,000.

14:26 So it basically encompasses any projects. No, I do go wide on it, though. Yeah. Well, you have to, because it really depends on what they want. And until you get the detail of what they want, it's impossible for you to really put any kind of accuracy on it. Even then, it's still going to end up being a range. Yeah, absolutely. I'm almost, I normally say, you know, because I've asked, have you allocated a budget, I still talk about it in those terms. So I say, from what we've heard, I think you should be an allocating a budget of this to this. So I'm still not talking about what we cost. Yep. I'm just talking about what they should be, how much money they should go and get.

15:18 But how do you ever reveal your costs to them? Do you ever mention hourly rates, daily rates, weekly rates? Are these things that come into the conversation at all? Or do you keep that a bit more abstracted? No, we normally say this is based on our hourly rate, because for me, that's a way of getting rid of the you're just pricing what you know I've got. Yeah. It's, you know, it's that's their fear when they're not telling you the budget, is that you're just going to say, Oh, surprise, your budget is exactly what I charge for this piece of work. I'm not going to tell you why.

16:03 And some people must do that because I think I think I don't know if there's just loads of agencies out there kind of randomly making up figures. It feels like it might be. Oh, yeah, absolutely. I think sometimes a client will come to us as well. And we may put together a proposal for a project based on a brief. And it comes in, you know, more than what they can afford. And that's often a good starting point for another conversation to say, Well, what can you afford?

16:39 And at that point, they will hopefully usually tell us and then we can adjust our project plan accordingly, adjust the scope of the project to match the budget that they have, making some compromises in, you know, the vision that we laid out in the initial plan. I think maybe in what we do, it's different maybe because I think you can definitely set yourselves out as being you come to us because you're investing in design. Yeah. You know, whereas people are coming to us and saying, I need a website. And the amount of money you need to spend to get a website is just, you know, it's such a vast variety. Yeah, I mean, people come to us because we're experts in user experience design. And that's, that's exactly why they've, they've come knocking on our door. But with what we do, it's, it's one of those scenarios where the more time we have to put into the work we're doing, the higher the quality, the final output can be. There's no set amount of time to say it takes this amount of time to solve this problem, do this design, comes down to iteration, rounds of iteration, how many of those you can get, how much testing can be involved, and how much of a data-led approach can be used to back up the decisions you're making.

18:12 Well, I suppose there's a point at which every pound isn't having any impact anymore, isn't there? But that's quite rare that someone's going to...

18:23 It depends on your scale. So if you've got hundreds of thousands of users, then, yeah, you know, the smallest of changes can make a large impact. You know, you look at something like Amazon when they talk about shaving off microseconds off of a user journey, it saves them millions of dollars a year. You know, it depends on, it all depends on the scale. It's all relative.

18:50 So, I mean, we, we like to do our work. We're very big on iteration and doing lots of rounds of changes and progressing an idea through lots of different rounds. And to do that, we've got to be given the time to do it properly. And so we always have like a minimum number of rounds of iteration we'd like to do. And that also extends into QA because that always takes a long time.

19:15 Yep. And being able to do that properly and user testing is the other big unknown, like how much user testing can these people afford, essentially?

19:26 Yes. We're very much proponents of a user testing-based approach and validating ideas and decisions with real data and real experiences. But in order to achieve that, you need to be given time.

19:43 It's like an exponential curve, I guess. Like you can learn a large percentage of the major things you're going to learn with a small sample size and a reasonable amount of effort. But the more you put in, the more results you're going to get back out. It's just a matter of being able to justify the business case for making that investment.

20:13 I think that's right. I think it's similar for us, although I suppose the deliverable for us is being a website can fulfill its brief at lots of different points in its life. But it is the same for us. And the work that we actually get involved in is the stuff where you're investing money for us to work more on this and come back to you with something that's better than you would have got if you'd spent half as much. And I think it's judging that point of where they should invest. And it's so hard to do that until you know loads about them. I prefer to have a ballpark and then start working with someone for a little bit and then say, "Okay, here's where we're going to have the most impact." Totally. I mean, we've done that many times. We would meet a client for the first time and instead of trying to figure out how much it's going to cost to deliver everything they're asking for, we'll say, "Well, let's just focus on a couple of small problems and give us a couple of days." We'll go away. We will try and solve those very small problems. Come back to you if you like what you see. You can invest more in us and in your product. And this groundwork will also give us the fundamentals we need to go away and be able to have a much better idea about the wider requirements of the rest of your project. But even in those scenarios, it's still about understanding the value that you can bring to someone's business and really knowing the minimum amount of work you need to do in order to deliver a quality result for your client.

22:27 Yeah, you're right. It's just about saying, "Here's having that minimum amount that you think you can do good work for." Yeah. And sometimes that just means you've got to turn things down. I did it just today, actually.

22:42 We had somebody find us, contact us, and they found us because of a project we had done in the past.

22:53 They wanted to do something very similar, just in a completely different vertical. This particular project had a lot of thinking time going to it because at the time of us doing it, it was a relatively unique idea. And being early to the market meant there were a lot of problems to solve. Doing it again, it would be easier, I guess. But I was trying to open with this client, and I told them on the phone exactly how much this initial client had spent.

23:31 And yeah, they were pretty gobsmacked. After a few more conversations, they revealed to us their budget, and it was a fifth of the budget of the initial project.

23:49 And because of that, we had to think about it, and we came to the decision that we really just couldn't deliver a good quality product on that budget, even though a lot of the problems that we thought we may encounter, we had likely encountered before and knew how to solve.

24:10 Yeah, that's it. And this is one of the things we keep coming back to now, when we're trying to judge whether we take something on for the budget or not. And it's exactly that. Would we be willing to put our name to it? Can it be a portfolio piece? Because if it isn't to us, it's worthless.

24:31 The whole point of doing work is to get more work. And obviously, to be paid at the same time. But if the budget's tight, you're not going to make a lot of profit on it. You may make a loss on it even if something goes wrong, if the budget's too tight. There's always the potential of making a loss rather than a profit. If at the same time, you're hardly making any money on it at all, and you can't use it as a piece of work to get more work out of it and make more profit in the future, then it isn't worth it to us.

25:12 Yeah, it comes out in the wash, doesn't it? If you try and force something for less than you should have. If you discount or you say, "Well, just try and be extra quick." I mean, it's silly because I don't know about you, but I just have a natural urge to want to take stuff on.

25:41 And I'm developing the discipline side of saying no, but my let's do it side is highly developed.

25:53 That's been in practice for a long time. Yeah, it comes out in the wash. And when saving money is that motivation, well, aren't you better with Squarespace? If a requirement is, let's make it cheap, or let's try and do it for less. Well, there's lots of ways of doing that. That can be done, but not in a design project, and therefore not really with us. How's that changed? I mean, there must have been a time where you were... Have you ever been scared to say the number?

26:43 Yeah, absolutely. All the time. Every time, probably. We were exactly the same. We just used to take on everything that came our way pretty much in the early days. We would do stuff and we would never track it or really understand whether we were actually making any money on it or not. We're getting a lot better at that today. It's still a little tricky to track everything, but we've got a much better idea today, whether we're making money on something or not. Yeah, it's better to... If you're going to do things for ludicrously low budgets, it's better to not know. The worst bit is when you start tracking and realize, then it's horrible for a bit and then you get better. It's either cheap and ignorant or expensive and tracking. Those are the two places of happiness.

27:44 And there are exceptions as well. Quite recently, we've just done a project. I just call it Feel Good Project. It was for a charity-based business, very good cause.

27:58 They had no money. They had enough money for us to do about 10 days of work, including a field trip to Madagascar that was involved, which had to come out of the same budget.

28:16 We knew we were going to overspend, but it was a good cause. We thought we could turn it into a nice case study story. It had the Feel Good Factor, so we were willing to give them a big discount. I think in the end, we probably spent four times their budget getting it delivered.

28:35 And there are still a few bits to finish off actually still. I have heard said you should either do it at full rate or you should do it for free. I have no idea. That's a nice little soundbite.

28:52 I've certainly never done anything for free, but I do get where it's coming from, that you either go, "We should do this. They haven't got enough money, but whatever. Let's do it like a normal project.

29:09 Set its own budget and just do it." Or you should always be ruthlessly going on your full rate.

29:19 One of the points of that is a slight discount just makes it a B-list project. Well, the point I was trying to make is that the value to the business can be measured in more than monetary value, I guess, in that it's if you can make a really good portfolio piece out of it.

29:44 We've got this sort of overused analogy, but the sort of triangle thing where you've got three points that you want a project to hit and it has to hit at least two of them. So it has to earn enough money to make a profit so you can pay for everything, give everyone a salary and make sure the business stays afloat.

30:08 It needs to be an enjoyable piece of work, I think, as one of our others that we actually want to do this and I'm going to enjoy doing it. And the third one being it's going to be a good case study and be a good story that we can tell other people that will hopefully get us more work in the future.

30:27 And to us, I think a project has to hit two of those marks. So it doesn't have to bring in a lot of money. It can be a loss leader, but as long as we enjoyed doing it and it becomes a good case study, then it was worthwhile to the business because we got something out of it as people working in our jobs and everyone had a good time. And the business will get something out of it long-term because it will bring in more work because it turned out to be a good case study.

31:00 So the loss will pay for itself. So you're entirely talking about the fun, fame, fortune triangle. The fun, fame and fortune triangle. This sounds like a game show, Dan.

31:13 Have you never heard it described as that? No, I haven't. One of our clients told me about it. He runs a consultancy, basically not an agency, but a consultancy. And at one point I was asking him about how to decide whether to work with someone. And he was like, it's got to be fun, fame. I think he said fun, fame or fortune.

31:41 So clearly he only wants one out. I mean, I'm sure you'd work with me on a project for cheap if the result of that project was going to get you more work, wouldn't you?

31:54 Well, yeah, it's got to hit at least two of the three. So we don't actually have to make a big profit on the project. But if it isn't going to help us win more new work in the future, and if nobody enjoys working on it, then I think that's a no brainer. And it's something we're just going to have to turn down. Equally, it could just hit two of those things if it's going to get us a lot of new work in the future and everyone's going to really enjoy working on it.

32:25 But we're probably going to make a loss. Well, you know, there's a room for compromise there. And we may very well take on that project. I think hitting all three is really just a bonus.

32:36 That's true. So getting back to costs. How do you generally arrive at the costs in the first place? Do you do like a bit of a project plan and scope out how many hours you think it's going to take to achieve and then map on your day rate, your hourly rate to that?

32:58 Yeah, so I think as we've gone along, you slowly get a... Well, first of all, we started measuring how long everything took. So every project, I think that was the most valuable in coming up with costs for future projects. Because if you can look at a previous project and see not what you said it would cost, but how long it actually took, and we divide that up into the different tasks we'd perform on it. So I can actually look at a previous project and say, "Okay, these projects are similar in terms of design, but not development." So maybe one of them is a really... An app with a lot of functionality. The other one's just a straight out website. But I feel that both... They both have similar design problems and may need... So I normally take a previous project and I go, "Okay, that's how long that actually took. That's not how long I said it would take the time. That's how long it actually took. That's the amount of hours I should be costing on." Really, it's just building up that... Just making sure you're tracking everything, basically. Just making sure you know how long every piece of work takes. Because that's the real world. That's the best dates you can get.

34:29 Everything else is... You're so hardwired, especially... I don't know if you get this as much in design. I expect you do. But with the technology side of things, the killer words are, "That should be easy." Or, "I know how that's going to work." And you see whole reams of methodologies trying to fight that. There's things in Agile and stuff which are just actively trying to stop developers just taking companies out by saying things will take about two hours, which take four weeks. There's something natural in everyone's... People just are optimistic. They're terrible estimators. Human nature just makes you awful at that kind of thing. Yeah, I agree. You want to please, you want it to be quick. Everything is... The motivation is to say it's not going to take very long. I think having real world data from before is the only... I'm not comfortable if I haven't got that. Yeah, I agree. We do a very similar thing and track everything. And if we go into the red on a project, we've learned from that. And next time a similar thing comes along, you know what is a more realistic time as to it. Yeah. One thing I started doing more recently is using Gantt charts to plot out all of the project activities and tasks that I think we need to go through in order to successfully deliver on the brief. And that helps quite a lot in trying to figure out exactly how many hours you need to tally up. And of course, all of that is based on experience and past projects and past data as well. That tool then gives me a tally of all the hours that I plotted on the chart. Then I just apply the rates and it gives me a total... Sometimes you need to add a bit of contingency on there, depending on project variables. But it's a pretty good way of getting to an accurate estimate. Okay. Yeah. It's quite useful. Those things also go into proposals. But what I've been doing, I can put one of those together in an hour or two by using the templated approach based on past projects and similar steps and processes we know we need to go through.

37:04 And what I've been finding is previously we would spend quite a lot of time putting a proposal together to try and get to a cost. But after speaking to someone and getting the information I need to put a ballpark time plan together, a project plan, I would do that straight away, send it to them immediately and go, "Look, this is the rough plan I'd like to propose." Is that acceptable? If so, let's work together to work out some of the finer details. We can refine this plan, write it up into a contract. If not, let's see what we can do to reduce the scope that we've laid out here in order to bring it down to match a budget that you do have.

37:56 That second part usually comes later. Yeah, sure. If they say no. Yeah, sure. No, I think that's something that we've learned as well is you want it to be a discussion. And if the first time someone sees a cost is in a proposal, then you're leaning too heavily on that proposal to, "I'm sure we'll do a show on just proposals or just how we win work." But you can't lean too heavily on a proposal. You can't be like, "This is us, and this is the project, and this is everything, and it's the first time you've seen the cost, but I'm going to write loads in the proposal to explain the cost." Someone's just going to have to misunderstand one tiny bit of it and it's done. So I think exactly like having the cost as a conversation is really, really healthy. I wanted to ask you about when you're giving these costs, are you ever going, "Here's your fixed price?" Yes, sometimes. Once we've done the project plan and once we've got it to a point where we're both in agreement that it covers everything they want for a budget they're willing to do, to us, we can deliver that on a fixed cost. And that gives us a set amount of hours that we can work to based on the plan that we put in place, that we will stick to, and deliver that. Having said that, with fixed costs, you've got to be quite careful and guarded to an extent. You've really got to plan out your project in quite a lot of detail. You've got to put all of that detail in the contract and you've got to stick to the plan. You need to put in things like caveats for what happens when things go wrong. We always talk about risks to the project and the things that could delay timelines or create more work for us that would fall outside of that contract. And you have to have terms in place to cover that work that you may have to do and how you would go about doing it. And is then hours what it's about for you, because I suppose what's quite interesting with that is surely a design problem could be solved quickly. It could take longer.

40:38 So who gets the benefit of that? Is it you for solving it quickly? And therefore, it's still 100 hours to you client. Or is it great? We've now got more time for other stuff.

41:02 Now, this comes down to the problem. How complicated it is to solve based on our understanding of what it is. Obviously, there are unknowns that you can't account for and you have to plan in a bit of contingency at all times. Generally, we aim for the sort of 20% to 25% range depending on the complexity of the projects. A bit of contingency time has to be in there and we always use it. So we should probably up that to be honest.

41:33 I was just thinking as you started talking and I thought the scenario I've described just never happened. Oh, we did it. It was easy. Yeah. And this is that point I was going to earlier with rounds of iteration. We always put in enough rounds of iteration that we think we're going to require to get to a solution we think we're going to be happy with based on experience of past projects, similar problems or something in a similar ballpark. There's always something similar even if it's a revolutionary new idea that's never been done before. It has parallels.

42:11 And from experience of having done this for as long as we have, you get to know roughly how much time you think you're going to need to do it properly. And the price you give, you either, I guess it's possible you can do it quickly and make more profits and you would probably deserve that profit for doing it quickly and having the expertise and skill to do so, or you use all that contingency time and all the rounds of iteration and get to the same place just using more time.

42:49 Yes. It comes down to sometimes when you're trying to solve a problem, you can crack it first time and then you do a few tests just to make sure, explore some other ideas. But the first thing, the second thing you did, you've nailed it. Other times it could be the 20th thing you do.

43:10 Yeah. You could, the first few things you could think are great. You come back the next morning, you look at it and you just, oh man, this isn't right. I've just spotted this problem or this is going to cause this type of problem. Or sometimes you can't see it at all. Sometimes it's not until you've done some testing and you've actually watched the user try to use what you've designed and realize that it doesn't make any sense to anyone but you, which happens more often than you would think. Yeah. And no matter how experienced you are. And it's about putting in enough time to do those things. Otherwise you're not going to have the luxury to solve the problems to a standard that you're happy with. And that's what it comes down to. Agreed. And so it is a risk when you're putting a fixed price to stuff. It's always a risk, but so many of our clients need it. Yeah.

44:14 We have worked with people in the past who don't need it. Like they've got pretty deep pockets and they really like what we do and they prefer the approach of just being completely agile. And they just use as much of our time as it takes to solve a problem. Yeah. Okay. And that takes a lot of trust. You know, you've got to build a relationship with the client to get to that point, but we have a few clients who work that way and we love working that way because it means we are guaranteed to solve the problem to a standard that everyone in the team is happy with every time. Yeah. Because there's always, we can always put more time into it and solve it. And we could be on iteration three, we could be on iteration 30. But the important thing is solving the problem correctly. And that is an amazing luxury to have. And I guess that's one of the benefits you see from designers who work client side, right? People who call themselves product designers, people who work at big companies, they get to work in that way because it's a luxury of being in house. As an agency, you've got to deliver on a budget generally. Yep. And I guess it's a much rarer privilege to be given the same affordances as in-house designers. And basically it's not a blank check, but it's being given the time to do things properly. And that's a nice position to be in when you can get it. Yeah, absolutely. Yeah. Okay. And I suppose that I think, yeah, for a moment there, we did go like hourly billing, no fixed price. I think we hit a point where we were, I think just like worried about cashflow. And we just thought, what if we could just bill everyone every month for all the work we'd done? So for about three or four months, we just did that. Obviously we didn't retrospectively do it on agreements we already had, but we did it on anything new and it worked okay. But I think to do it, you've got to have, as you say, like the processes you need to have in place to communicate what's happening and to prove what you've been doing. And basically that trust, like all was well until we got to the point where we were near the amount we said it would probably be. And like, you know, at that point it was like, well, we never mentioned this yet, but it's not going to, it's not there yet.

47:04 You know, and I think I'd be interested to see if we could go back to that now that we're better at managing process, you know, clients. But as you say, a lot of the time a fixed cost is just, it's almost more convenient for us because although there's risk, you know, it is nice for us to know what it's going to be. It's a known variable, right? Yeah. You know, there's money in the bank or coming into the bank. Yeah. And there's less sort of thinking about it, you know, the process you need to do to do that monthly billing, you know, you're basically in line for having an invoiced analyzed every month and that's going to create more just, it's got the potential to create tension, I suppose, you know, and obviously fixed price can create just as much tension, but for some reason it sort of feels easy. Maybe it's just what you practiced at. Maybe we're not, maybe we're just not practiced with it. I'm sure there's people that love it. I mean freelancers do that, right? Yeah. Generally. Yeah, that's true. And I know agencies who do that as well.

48:12 They sort of completely agile. They rent out the entire agency to one client at a time and they do it in sprints. So I think it's in two week sprints and you buy X sprints of the company to achieve something and you know, at the end of it, you'll get an MVP. Yes. I like that. I'd love the whole agencies to be rented out. Yeah. I think it's a really nice model, but it does take a complete sea change in how you do all your business and you really need to be doing the development in house as well. Like you are to make this viable for us, just covering the user experience design angle. We can't deliver a finished product in house. And so for us, it's never going to be a possibility, but yeah, I think it's completely viable for you guys. No, it might be worth exploring in the future. Yep. So when you're dealing with fixed costs, how do you structure that payment? Do you require a deposit? Do you break it into several staged payments? And at what point do those come into play or do you just do it all in one lump sum? No, not only in one lump sum, about when was it? Probably sort of three or four years ago, we took a massive bollocking off a client because they were like a massive advocate of us. And it was like one of our first slightly bigger jobs. And he went at the bit where he was he was kind of like our champion in the in the company. And so he was like, I want to work with you guys. But he could obviously see we were a bit you know, green. And so he was he says, Okay, what are your payment terms? We were just like, well, you know, probably bill for it some of it now and then maybe the rest were finished. And he was like, No, he's like, you ask for you ask for 60% upfront, and you negotiate down to 40 was like, all right. Basically, he just got good. Yeah, no, this is our fingers. But he was just like, if you go in and say that to them, they're just not going to take you seriously.

50:51 That was that was that was a nice wake up call to actually be told to have harsher payment terms by a client was good. But yeah, completely. I mean, we we just normally try and structure it with with what people are comfortable with. Yeah, we need a deposit. And for us to deposit means money in the account, not an invoice. Although obviously, that's not always possible with, you know, people's kind of payment times and stuff. But you like to push it, especially if you if you're at all worried.

51:27 And then just something spaced out across the project. I think one thing we do, which is in our terms, but we're not too strict about because I think it's it could be a point of tension, is that I think it's important in your terms to not have payments and milestones together. So we have a payment schedule based on the project schedule. So ideally, the first invoice at the beginning, and the final invoice is around go live. Yep. But they're not connected, like the payment schedule is just dates. Yep. Which basically means the delays in the project that aren't to do with you, you know, go live can be affected by a lot of things that aren't you projects finishing can be affected by a lot of things that aren't you so, you know, and we'll wait sometimes. If go live is two weeks later, then we'll say, okay, fine, we'll invoice on go live. But if go live suddenly is disappearing into the future, there's no content, then we can say, well, this is invoice, this is the final invoice date, we're here. So here's your invoice. It just sort of protects you a bit.

52:48 Yep. Now we do exactly the same. Yeah. And we always we require a deposit. It really depends on the budget of the project. If it's like a super small piece of work, we'll just generally sometimes we'll just do it and just invoice them once it's done. Yeah, but that doesn't happen very often. More often when it's a larger piece of work, quite often spanning months, we will always require a deposit up front. Midsize projects, we would generally split into three or four payments.

53:21 So that first one would either be like a third or a quarter of a deposit, and then two or three stage payments after that. And exactly that we plot it to the project plan, but put dates next to it.

53:39 So that yeah, it's not affected. And I think that is a good idea. Yeah. Another thing that we learned from a partner agency recently was we only do this for projects over a certain budget. I think we need it for projects over that we would offer them in the proposal when we put the prices in there.

54:00 Here's the payment plan, break it up like this, or pay the entire thing up front and we'll give you 10% off. Right. And some people go for that. Okay. You'd be surprised. And it's quite interesting.

54:13 And it's just confidence that they have confidence in you. You get all the money in the bank up front, it removes any potential worries you have about getting paid. Yep. Then it's on you to deliver.

54:25 Wow. And it works. And yeah, you'd be surprised how often people go for that because they see the discount and think, wow, that's a good deal. I'm going to do that. Yeah. But obviously it's only worth doing projects for certain size. You can't do it for everything because you end up making, you're losing money for the benefit of the security of having the money up front.

54:47 I like that. Yeah. Try it. Try it in the next project. I will. I will. It's good. So it saves having to chase because do you ever have to chase clients or invoices?

54:59 Oh yeah. I've just been being told off about this actually, because I don't really have a more robust enough approach to it. Yeah. It's easy to let that slack a little bit, I guess.

55:14 But I think it's pretty important. We record all our hours in the timesheet system in Harvest.

55:24 And Harvest does our invoicing. And automatically, we put 30-day payment terms on all of our invoices, except the deposit invoices, which are upon receipt. Yeah. And it automatically sends reminders.

55:43 Okay. Which is really good. So the account contacts that you have registered in the system will get a reminder, which you can customize on the day or two days after, and then every X days after that until it's paid, and it will just send them, basically annoy them into paying your invoice for you. I like it. And then in that reminder that we've customized, it says, "Let us know when you've paid this so we can turn off these annoying reminders." Like it. Yeah. No, I think our system does have automated emails, but I haven't set them up properly. But yeah, I will. I promise. Shut up, John. Do it, Dan. Leave me alone.

56:36 Well, if you don't have a problem, I guess then there's no need to, right? But I guess we constantly had a problem with, because with the size of the businesses we were dealing with, they just didn't have anyone who was really had, it was someone who's dedicated to sorting this stuff out. The wrong people were put in charge of doing it and it never got done. Yeah. And that happened a lot. So we started using this feature and it's very useful. It does get things done for most people. Yeah, absolutely. And another thing we've started doing recently is retainers, which I find quite interesting. So there are clients whom we work with who have a pretty ongoing need for our services. What that means is guaranteed income for us in exchange for guaranteed resource for them and also a discount. Yeah. Okay. And we usually get to the retainer amounts first by sort of finger in the egg. Yes. And we would do it for a month. And then at the end of every month, we will sit down and assess how much time we used in that month based on what we agreed in the retainer and adjust the retainer accordingly to try and match the burn rate. And we would do that for the first three months to kind of get the burn rate steady. Okay. And thereafter, we will settle into a quarterly review of that time that's needed. And when do you book that work in? As in, from what you described, could I mess up your business by taking a retainer and then two days before the end, taking out a four day retainer and then two days before the end of the month or four days even saying, "I'm your mind for the next four days." So there's two ways of using that retainer. You can either book specific dates and say like we want the first week of every month or something, the first week of every month. If it's five days that they've...

58:50 Yep. Or if they want to be more flexible, then you just have to have a contingency to say, "It may take us a few days to be able to give you this resource." But we know it has to be available.

59:04 So we've taken that resource out of the bucket for the month. So we can usually shift things around, mix compromises. And if we have to work a little bit harder some days just to get stuff done, work a few more hours to service the clients who are on the retainer because they're giving us guaranteed income, it's worthwhile doing. Yeah. Okay. Because they get a discount. So it depends on the amount of time they're paying for in the retainer. I think our boundary... I remember, I think that we give them a 20% discount for up to nine days. Anything over nine days, so 10 days and above, 25%. Okay. So if they book us for 10 days a month on retainer, they get 25% off our rate and we get guaranteed work as a result. Yeah, of course. Yeah, we're just piloting something in that front. And we actually just chatted about it this week, where we're going to do it. But with ours, because people so often want... They want outcomes for us.

60:22 It's like this feature, that feature. Retainer for us is often more development than it is design. Although a feature will obviously have a design component, the majority of the work is probably changing code. So we're kind of thinking of doing it that you have a certain amount of hours a month and each month you have a meeting where you... Which sort of like a not miles off what you do with a sprint, right? Except over a course a month. Each month you have a meeting to plan next month's hours. It's a sprint with gaps. Yes, a very leisurely sprint, a stroll. Yeah. So yeah, and that means that because often they'll use more that we're finding and we need to have that adjustment in place as well. We're just trying out at the moment. It's going really badly.

61:09 We're just still finding our feet with it. So we've picked a couple of clients who we think are going to be flexible, are going to work with us through it to get it right. Or at least we hope so. Yeah. So I think we covered a lot there. There are lots of things we didn't touch on, I guess, but I'm sure things will surface in other episodes as we talk about other topics that are pretty closely related to this. Keeps and powder dry. Yeah, exactly. Yeah. Oh, there was one other point before we go away. Yes. I think we both have the same opinion on this and we can cover it very quickly. Yeah. Clients who come to you and instead of offering payment, they offer you equity. What do you do about that? Have you done that? What did you do it again? Delicious equity. We did once as part of a deal on some discounted work, but it was like prepaid work. So it was almost your pay up front and you'll get some money off. Was it worth it? Well, yeah, I mean, I'm rich. I thought that was evident. No, was it worth it? It was for them because they're like one of our favorite ever clients and I'm kind of happy that I sort of have a small, if not very worth very much percentage in it. But no, that was a very close relationship where that then made sense. And it was quite exciting and they were getting, it was their first bit of investment they've got. It certainly wasn't offered in exchange for money at the beginning. We built something by that point and worked with them. Yeah. I mean, I think I get why people offer it and I don't know if I'm completely, no, maybe I am. Privately, I'm just dismissive of it because it's not real money. To the client, I dismiss it with an equally valid thing, which is if that was how we operate, if that was our model, then it would be chaos because and their project would be at such high risk from another one of our many investments, like suddenly needing loads of work because if we did that work, we'd be millionaires. That's essentially what they're saying. It's like, you could work with us and if it goes right, you'll be a millionaire. Well, if I've got that agreement with several other people, one of theirs could go right and your project's getting dropped like that. All the other way around, I suddenly go, well, this isn't going to make me a millionaire. I'm not going to work on it anymore. It can't end well, can it? I don't think so. We did it in the past when we were a lot less experienced with this type of thing and I wish we had never done any of it. It was with very close relationships again and at the time it seemed like a good idea, but the founder of the company was valuing their own company, which obviously they're going to do, which is always the case in these scenarios. I'm of the opinion now, if they can afford to give their stock away, it's worthless. It doesn't have any value and they may say their business is worth a million quid, but it probably really isn't. The odds of it ever being that are probably very low. Which is a really exciting conversation to have with a potential client, isn't it? Do you know how slim the odds of you making any money are? Well, yeah, it's not all about odds. I guess it was different when we took it on. It was just the two of us and we could shoulder the risk and I'd say it was a close relationship like yours as well. Today, we wouldn't do it because we've got employees, we've got people to pay salaries for. These are people's livelihoods. They rely on us to provide them with a job and a consistent amount of work so that we can continue to pay them and don't have to make people redundant. We started doing work for stock left, right, center. We can't guarantee that income any longer. We can't take the risk. It's just too risky. Yeah. When does that equity become worth anything? It's a long, long-term game. I've done some minor investments on the side as well. Everyone goes into these things thinking, "Oh, five years it will turn around and I'll double my money or more. I'll get lucky and 10x or more." But realistically, they always, always, always take much longer to turn around unless you get super lucky and invest in an Uber at a super early stage or something. But these days, you got no chance in that? No, exactly. If this equity is going to be worth loads, you're right. You wouldn't be offering it to me. No, you wouldn't. You'd be paying me with the money you've got from investors who recognize the equity in your business because investors know what they're talking about. Yeah. So no, Jon, I won't. Yeah. I would advise everybody to take the offer of stock with a pinch of salt and think carefully about it. Which is ironic because you can't eat it and that's one of the problems. Absolutely. Well, with that, nugget of wisdom. I think we should call it a day. Yeah, absolutely. Covered a lot there. So thanks for listening, everybody. If you have any comments, suggestions, or feedback, you can find the show at perspective.fm. We are on Twitter at underscore perspective.fm. We're also on Facebook. The link is in our websites. We hope to be on iTunes soon. Still going through that process. And if we're there by the time you listen to this, please rate us there because that will do us some favors on the menu. I've been John Dark. I'm every interaction. You can find us everyinteraction.com and @everyinteract on Twitter. And where can people find you, Dan? So we are @wearelighthouse on Twitter and wearelighthouse.com. Follow us on Twitter. There's still some spaces left to follow us. So get on it. I like the strategy. Good stuff. Thanks for listening, everybody. And see you again in a fortnight's time.