Different business models for designers

This week I’m going to talk about building your business how YOU want it. There are many different models you can use to generate income for your business (and I’ve tried quite a few over the years!)

You can even run a couple of these at the same time – a hybrid business that generates guaranteed cash flow AND gives you design & time freedom.

Subcontractor Model

When I first started out, I connected with another designer who needed help. At first he sent small projects, but after a few months he was so pleased that he hooked me up with a large client. They then used me as a subcontractor for the next 2 years. Every month I was guaranteed 40-60 hours worth of work.

Since I was guaranteed a set number of hours per month, I lowered my rate slightly to give him a better deal (at his request). He negotiated the contracts, did all the project management and invoiced the client. All I had to do was show up and design. This was an ideal arrangement for me at the time – I was newly married and in the midst of a major house renovation – I didn’t have time to hunt around for clients nor manage large projects.

Pros:

• guaranteed income every month
• no direct interaction with client (also a con!)
• no billing, client management or administrative duties

Cons:

• I didn’t negotiate the terms of the overall contract / hourly rate
• I was expected to be on call 5 days a week 9-5 (not very different from my previous employment)
• The work could sometimes be classified as grunt work
• I couldn’t "say no" to any of the work or give feedback
• If you work with an agency and their client pays late, you may get paid late (FYI: cardinal rule of running a successful business is to pay your contractors FIRST before you pay yourself)

Flat Rate Model

This the model I typically take with my web design clients. I clearly scope out the project requirements in my proposal and contract.

Pros:

• client has clear expectations of deliverables, timelines and budget
• setting strict dates for payment + deliverables allows you to manage cash flow
• feel freedom when designing since you aren’t doing it "by the hour" (I find I design better work in this scenario)

Cons:

• sometimes hard to negotiate additional charges for revisions/modifications
• can drag on for months if the client doesn’t keep to the schedule (this happens when YOU don’t implement a system to get the client to work to YOUR schedule)
• if you don’t set clear expectations of how you communicate, difficult clients can inundate you with requests

Hourly Model

This model can be a source of quick cash if you’re doing a lot of site maintenance or design work. If you go this route, I recommend creating a set limit – you bill a minimum of 1 hour AND you use incremental billing (such as 15 or 30 minute increments – think & bill like a lawyer). I did a lot of hourly work when I started out – but found it to be a hassle to bill for small amounts.

Pros:

• client can get small tasks done
• great way to get your feet wet with a client and see if they are a good fit for you

Cons:

• may not be worth your time to chase down small invoices
• can be hard to raise your rates
• clear exchange of time for money – and you may end up with clients who feel you are "nickel-and-diming" them
• if you have a lot of clients, it may be hard to fit in the "little" work

Retainer / Agency Model

If this model is setup properly, it can guarantee you a source of income for the period of time you define. I highly recommend doing a shorter stint first with a client (2 months or less) to make sure it fits both of you. You want to clearly establish what the client gets for their investment – AND you need to make sure you are compensated appropriately.

One friend runs her boutique agency in this manner – clients sign up for 3, 6 or 12 month engagements (at a high rate). They get ANY design and revisions on any project included as well as overall project management (with other vendors).

However, the client pays extra for any implementation (like coding or development), printing, photography or any other outside costs. The rate she charges is a premium rate, so she guarantees she is compensated for the amount of work she provides. Work is not itemized by the hour – rather, it is an all-inclusive package. She does provide connections to developers, photographers, etc and manages these vendors as part of her fee.

Pros:

• guaranteed income every month
• creates a long-term relationship that gives you freedom and time to create your clients’ brand identity
• you set the terms of the agreement (3 months? 6 months? 1 year?)
• client loves the freedom to have anything designed versus project by project billing
• clients love that they are dealing with one person (rather than 10 different contractors)
• some months may be light on work, others heavy

Cons:

• client may be initially reluctant to sign up without having experienced your work
• can sometimes be hard to collect funds if not on an auto-billing system
• you can feel constrained by a long-term commitment to a difficult client
• client communication expectations may be high
• you need to make sure you’re compensated for the amount of work you’re providing

What type of business are you running?