Fixed Budgets

Our name goes back to a time where we worked for fixed budgets. We’ve always put more time into projects than we got paid, and feared to kill our company with an überdosis (overdose) of unpaid work.

Luckily we improved things before that happened. I want to share a few of our experiences with you.

Why fixed budgets can be dangerous

Let’s talk about a few reasons why a fixed budget can hurt you or your company.

1) You don’t know how much time you’ll need.

There is no way to know how much time creativity needs. If you think you do, you’re probably repeating the same steps over and over or doing some off the shelf work. If that’s the case, you can probably skip the whole post and stick to what works for you.

But if your clients ask to make something different from their competitors, something special for them, something unique, there is no way to know how long “unique” will take exactly in advance.

2) You can’t schedule your projects.

Without knowing how much time you’ll need to meet a massive set of requirements before an unrealistic deadline, there is no way to schedule your time. You’ll work as fast as you can, or do longer days than you’d probably want, or wait until you know it’s too late, or all together. That’s the best way to kick the life out of your work-life balance, disappoint all other clients, and probably everyone around you.

3) The quality of the project suffers.

For us, it always felt the same. We were motivated to start a project, but there was less budget left with every hour we tracked. It all falls apart when you’ve already worked the estimated time, and probably even more, and you realize that there is still a lot of work to do.

Then you’re going to be tempted to let the quality suffer or to put in the needed time and harm you or your company in the long run. Often, we’ve chosen the second, very unsustainable option.

4) You’re going to burn out.

You work more, deliver less, and earn less. That is a great way to feel uncomfortable. And from my personal experience, it’s the best way to burn out.

After giving 110 % to deliver quality in time with fixed budgets, I just didn’t have much energy left at some point. Thankfully, we’re a team, and I had the chance to work less without worrying too much. An option that single freelancers often don’t have.

5) You’re going to hate your client.

Let’s face it: If you profit when you are fast, but the client profits if they can squeeze you more, that’s going to be a bad relationship. You’re working against each other, but that’s probably not what you want. To achieve great things you need to work together.

A few alternatives

We’ve tested a few alternatives over the last years, and the following three options are what we offer people that want to work with us, depending on the kind of company and what we think would work best for them and for us.

Time-based billing

Our default is to bill the exact hours we’ve worked on the project. We still think that’s pretty fair for both sides.

Most projects here require a project manager, designer, frontend developer, and a backend developer. And we know how much time they’ll approximately need to build something good. That’s enough to offer a contract with an expected amount of money for a fixed number of months.

All those contracts allow us to work more than that (after warning the client), or bill less (if we did less) or to extend it from month to month, but never promise a fixed scope of features we get done in that time. We promise to deliver the best we can, and people have to trust us with that.

Define a value-based pricing

I’ve heard many good things about pricing projects based on the value that it has for clients. Let’s say we’re building a web application that helps a company make a few million a year. Developing that app would probably be worth a six-figure sum to them.

We think that’s fair too, but struggle to estimate our work’s value in advance. Most of our projects are a) new or b) don’t make money directly, so it’s not that easy to figure out.

I like that approach because it forces you to get rid of thinking in technical terms and start to think about business values. That’s a new perspective for product-focused people like us.

Following that approach would also enable us to get rid of time tracking entirely, but that’s a whole different story.

Keep the scope flexible

We still have a fair number of clients with a fixed budget for their project and want us to work for that limited budget. Big companies act that way, and we don’t expect them to change because of us.

We do those projects too, but still: We don’t promise a fixed scope of features then. There’s probably a rough concept (one or two pages) in the contract, that’s all.

Clients are mostly okay with that. There are still companies that don’t like it, sure. But we think that you can’t expect creative work to be a fixed sum, and maybe, that belief is a sign of mismatching expectations anyway.

What works for you

We had good and bad experiences with all the mentioned approaches to billing. We strive for respectful partnerships, and you can have that with all methods.

Thanks for reading! I’m writing a new blog post every day. So if you have any questions, let me know on Twitter. I’m happy to answer them in one of the next posts.