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Myth of the Flat Fee

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Re: Myth of the Flat Fee

#11

Post by bena »

wccrawford wrote: post #2

This issue is why I'm not a contractor. I can't deal with estimates because they are always wrong. People claim to understand that, then fly off the handle when it comes up wrong. Overestimating on purpose isn't the right way either, and not just for ethical reasons. Finishing early makes the client think you cheated them, and actually working the whole time makes you think you cheated yourself. Especially if you end…

An estimate should always be a range. And it should always cover the "cone of uncertainty".

If you don't know, reflect it in your estimate. Get the client prepared for falling within the range. And comfortable with the cost on the far end. Because while you hope it doesn't happen, it very well could.

Re: Myth of the Flat Fee

#12

Post by roytomeij »

mgkimsal wrote: post #6

I've got myself stuck in a "fixed price" contract, and while the number of features the client's asked for haven't really increased all that much, the depth of interrelation between those features was not at all apparent up front. Throw in agreeing to migrate existing data in to a new data structure without really understanding the nature and complexity of the existing data, and you've got a recipe for a long-overdue…

I've been there and I know how that sucks. In those cases I figured it was best to take my loss and get it done and over with as soon as possible (I'm sure that's what you're doing).

In my experience there's one thing you need to watch out for, and that's being a nice guy. You might start feeling sorry for your client because stuff is taking longer than planned, which makes it harder to say no to just minor changes to the scope. They will only take you 5 minutes each, and it keeps the client of your back. Those are the things that really get to you when it comes to staying motivated I think.

Re: Myth of the Flat Fee

#13

Post by amosson »

A few large consulting companies in the 90's, Cambridge Technology Partners and Viant, for example, were very successful with this model. They were selling against the $100-200/hr Big 6 type consulting firm so there was plenty of room budget for the "risk" associated with going over the time estimate. The other key to their success was getting the client to agree to pay for an upfront 'spec'ing' phase before bidding on the development work. If you do the spec'ing phase correctly you can give a fairly good bid on development and truly assess what is in scope and what is a change order.

Re: Myth of the Flat Fee

#14

Post by dasil003 »

Of course this is a good message to send to big clients with big projects who merely "don't get it". On the other hand, there are a lot of small businesses and other clients with very limited means who have maybe $1000-$10000 for a project. Web development is new territory for them, and they have no other way to approach the problem other than to put a fixed-budget stake in the ground, and of course their requirements are going to evolve as they learn.

One of the reasons I joined a startup was because I was sick of working under those conditions, and writing an FU blog post like this is the luxury afforded to those of us who can more or less pick what we want to work on.

That's great, but there is still a pool of small clients who can be profitable, but you have to understand how to work with them:

- Learn to use off-the-shelf software to build lots of functionality quickly in a predictable fashion (WordPress, Drupal, Expression Engine).

- Charge a flat fee only for something you've done before, and make sure it has padding. It's not unethical (as suggested by another commenter) because this is how you are able to afford a flat fee. You'll be churning out hundreds of these so you need to work the law of averages. This allows you to be a bit accommodating instead of going into conflict mode every single time.

- Turn your creativity to your own systems. Face it, on a $5000 budget you are not going to do anything revolutionary for a client. You can however build your own systems that you leverage in order to serve a hundred clients better. Do it well enough and you actually build a business that scales better than top creative agencies working on 6-figure budgets.

- Be customer-service oriented. Face it, someone paying you $1000 a year is just not very important to you and it's easy to let that attitude show. The thing I've found is that small clients actually are more accommodating than big clients as long as treat them with respect. That said...

- Dump toxic clients. There are always those with unreasonable expectations and no respect for what you do. The worst is when they are sort of borderline stringing you along, but you end up losing time and money over the long haul. How you get rid of them is a matter of tact; maybe you say you are all booked, maybe you raise your rates for them to an exhorbitant level, maybe you just give it to them straight ("I am not profiting from having you as a client"). I don't have a one-size-fits-all solution, but get rid of them you must.

Re: Myth of the Flat Fee

#15

Post by kingofspain »

bena wrote: post #11
wccrawford wrote: post #2

This issue is why I'm not a contractor. I can't deal with estimates because they are always wrong. People claim to understand that, then fly off the handle when it comes up wrong. Overestimating on purpose isn't the right way either, and not just for ethical reasons. Finishing early makes the client think you cheated them, and actually working the whole time makes you think you cheated yourself. Especially if you end…

An estimate should always be a range. And it should always cover the "cone of uncertainty". If you don't know, reflect it in your estimate. Get the client prepared for falling within the range. And comfortable with the cost on the far end. Because while you hope it doesn't happen, it very well could.

In my experience a range of, say, £5000-7000 usually means £5000 to the client and it can take hours/days/weeks to budge that perception no matter how initially prepared they seem. I've also found people who, while comfortable with the upper estimate if it goes there, will then expect freebies on top as recompense for making them pay 'extra'.

Re: Myth of the Flat Fee

#16

Post by mgkimsal »

roytomeij wrote: post #12
mgkimsal wrote: post #6

I've got myself stuck in a "fixed price" contract, and while the number of features the client's asked for haven't really increased all that much, the depth of interrelation between those features was not at all apparent up front. Throw in agreeing to migrate existing data in to a new data structure without really understanding the nature and complexity of the existing data, and you've got a recipe for a long-overdue…

I've been there and I know how that sucks. In those cases I figured it was best to take my loss and get it done and over with as soon as possible (I'm sure that's what you're doing). In my experience there's one thing you need to watch out for, and that's being a nice guy. You might start feeling sorry for your client because stuff is taking longer than planned, which makes it harder to say no to just minor changes t…

yes it is. I'd budgeted for 4-5 months of time, figuring it might go to 5-6. I'm in month 9, and it will be at least another month. :/ Huge lesson learned, and hopefully this will be the last time I learn it. I don't typically take on projects this large, and in the past if there was a 80% time estimation error, the impact wouldn't have been as dramatic. :/

Re: Myth of the Flat Fee

#17

Post by mgkimsal »

PaulHoule wrote: post #9
mgkimsal wrote: post #6

I've got myself stuck in a "fixed price" contract, and while the number of features the client's asked for haven't really increased all that much, the depth of interrelation between those features was not at all apparent up front. Throw in agreeing to migrate existing data in to a new data structure without really understanding the nature and complexity of the existing data, and you've got a recipe for a long-overdue…

Oh yeah, you can easily bill a month of full-time work for fixing an old app with a busted data model. After that you reach the place where you can sell a change that takes 30 minutes of work for $150 and really do it in 30 minutes, but getting there is expensive...

I'm at the point now where the time invested in the project has paid off - I understand the business problems much better now, and some of the intricate work I did months ago is paying off in spades (basically, having put together a flexible data model up front). Things that might have taken days to do before I can do and redo in minutes or hours. But it's taken way too long to get here, and ultimately this is a one-off - most of the knowledge gained isn't transferable to any other projects directly.

Re: Myth of the Flat Fee

#18

Post by raganwald »

dasil003 wrote: post #14

Of course this is a good message to send to big clients with big projects who merely "don't get it". On the other hand, there are a lot of small businesses and other clients with very limited means who have maybe $1000-$10000 for a project. Web development is new territory for them, and they have no other way to approach the problem other than to put a fixed-budget stake in the ground, and of course their requirement…

  Learn to use off-the-shelf software to build lots of
  functionality quickly in a predictable fashion 
  (WordPress, Drupal, Expression Engine)
Bravo. This is the way I look at it: if it has been done before, somebody, somewhere has productized it. If it isn't a full-blown CMS, it's a bundle of Rails plugins and all I'm doing is writing glue code.

If it hasn't been done before, because it's really specific to a client's domain and idiosyncratic processes, it's R&D and we shouldn't pretend we know how to do it with enough rigor to provide a competitive quote.

In many cases, the problem is that it has been done before, buut the client doesn't want to "colour within the lines" and run with the limitations of an existing CMS or other platform, they want a bunch of customizations that have little or no ROI.

The Big Sell in those cases is convincing them to scale back their expectations about customization and live with having the 20% of the features baked into the off-the-shelf system that deliver 80% of the ROI. Even if they want to pay by the hour, it's not a good investment to build what amounts to business chrome.

Re: Myth of the Flat Fee

#19

Post by roytomeij »

dasil003 wrote: post #14

Of course this is a good message to send to big clients with big projects who merely "don't get it". On the other hand, there are a lot of small businesses and other clients with very limited means who have maybe $1000-$10000 for a project. Web development is new territory for them, and they have no other way to approach the problem other than to put a fixed-budget stake in the ground, and of course their requirement…

All great tips, thanks for sharing. I didn't put a disclaimer in the post, but our experiences are indeed based on larger projects, typically at least in the $20,000+ range. Those are always tailor made apps, nothing off-the-shelf (apart from the framework and all the open source components we use, but nothing like Wordpress). What we do is often pretty specific.

I think your comment, as you said, has some great insights when it comes to smaller projects.

Re: Myth of the Flat Fee

#20

Post by nickburdick »

I think this statement is extremely poignant, "Because you're looking for a sense of security when you're spending your budget on a web app". I think a big problem is lack of knowledge on the part of the client. Most people just have no idea what it takes to build web apps. $1000 (or even $5000) just doesn't go very far. But without learning and experience on the customer's side, how are they able to bound the project to understand the potential costs?
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