Day 21: 25 Insights in 25 Days New Year Marathon
Underestimating A Flat Bid Happens To Everyone!
Over the years here on Mixing Light, we’ve talked a lot about various financial issues when it comes to running your own color correction business.
From initial contractual issues & providing terms, to collection strategies. Remember, you can always filter the library to find business related articles!
This week, after talking to a graphic designer friend that had a flat bid go horribly wrong, I realized even though we’ve talked about many related subjects we’ve have never directly addressed the issue of flat bid going bad.
What do I mean by going bad?
While there are many issues that can affect a job, 99.9% of the time when a flat bid goes bad it means you drastically underestimated what a project would cost the client.
The thing to keep in mind is you’re not alone – this has happened to, or will happen to anyone who works in a service industry long enough!
In this Insight, I want to discuss some strategies for handling a bad flat bid, as well as how to protect yourself and have leverage for going back to a client when the issue is not your bid, but rather the client changing scope.
As always, if you have some additional ideas or any questions, please use the comments at the end of the article.
#1 Creating a Flat(ish) Bid
Let’s start out with a way to avoid getting into a situation where you have no wiggle room with your flat bid.
When I talk to a lot of business owners and in-demand freelancers, they almost universally look down on the concept of a flat bid, instead favoring billing their services hourly.
I totally get it!
However, over the years, I’ve figured out a few things about me, and my business. The first thing is I’m terrible at tracking hours – I have a very good ‘feel’ for how long something took but no matter the system for tracking hours I’ve just never been able to consistently do it.
The second thing is that clients always want to know the bottom line, so what’s the difference between saying 6 hours at $300/hr or $1800?
You might be thinking ‘if you go hourly, you can just tack on the extra hours that you actually worked!’
While the theory of hourly billing should mean that you bill for the actual hours that you worked, it’s not like you’re ever going to get an open ended hourly allotment from a client (unless it’s like Avatar II or similar!).
Third, I’ve found that from a presentation point of view, presenting hours on an invoice tends to lead to discussion and accounting of those hours, it’s not uncommon for a client to ask something like ‘you really spent 7 hours on the conform?’
Let me get to the point – almost always I’m presenting a flat(ish) bid to a client and not one based on hours. By flat(ish) I mean that I work several things into the agreement with the client that gives me the latitude to charge more as necessary.
In business terms, ‘out of scope’ is an important concept.
If there are client originated or indirect actions (schedule for example) that affect your ability to do a project at the price quoted, then those things should be considered outside of the scope of the project.
However! You first have to accurately and in a detailed way define what the scope of the project is – without that you have no leg to stand on!
Here are some things to consider putting in your flat(ish) bid for a client:
- Clearly defined deliverables from the client – if a client doesn’t deliver to you what you need or takes a long time getting you what you need that can be an issue for a flat bid, and places it outside of scope.
- Review of deliverables – this is a big one! It can often be difficult to tell what you’re dealing with from watching a Vimeo link. All of my agreements state that flat bid price is only confirmed after receipt AND review of materials. It’s important that when you get content from a client you review in immediately and confirm that your bid is correct. Either way you at the point you should communicate with the client.
- Define the project schedule – you can only guarantee the flat bid if the agreed schedule is met. Schedule adjustments can be seen as being out of scope.
- Define deliverables – if a deliverable isn’t in the bid, it’s an extra cost.
- All the extra’s matter – Let’s say you bid $5000 on a job, but you had some extra costs – FedEx, hard drives, etc., and you bill the client $5500. Many clients with complain and say ‘I thought you said you were charging $5000!’ You need to be explicit that a flat bid is for your labor only, and additional project costs like shipping, Blu-ray discs, hard drives, etc., are all billed separately. Recently, I’ve started including a ‘menu’ of these extra costs so that clients are aware of them at the time of signing off on a bid.
- Rounds of review/changes – clients that are working with you under a flat bid will often try to take advantage of you and keep requesting changes and updates and in the worst case scenario – complete redos of a project- because they weren’t satisfied! It’s important in your agreement with a client to explicitly state the number of rounds of review/revisions that are included with the bid – if they client requests more, they are paying, as those requests are outside of the scope of the project.
- Define additional labor costs – if a project does go out of scope you need to clearly define what the additional costs will be for your services. It’s here that I define my hourly rate – ‘additional work outside of the scope of this agreement will be billed at $300 per hour’.
- Getting approval – deciding a project is outside of the original scope is not your decision to make alone. With all the above points on potential extra charges, you should include language that essentially says ‘with client approval’.
The concept with a flat(ish) bid is that you ARE presenting a flat bid to a client, but you have the contractual leeway to charge more as necessary.
Just keep in mind with all things business related, that some discretion is necessary, don’t go out of your way looking for minor violations of scope.