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Establishing agreements and writing proposals

When you’re a web entrepreneur one of the most difficult skills to master is how to establish agreements and write proposals. I remember the first project for which I was supposed to be paid. Notice the use of the word “supposed”. Even though I had a signed agreement, I was never able to collect on the $175 that I said was due upfront, much less the rest of the contract’s payments. Since that time, I have learned a great deal about how to establish agreements and how to memorialize them. Most recently, I’ve had the great fortune of being under the tutelage of Ray Loen, who has taken many of the lessons I learned through painful experience and polished them the way only an 82 year-old business mogal can. Now, I’ll share what I’ve learned with you.

Be confident

The first thing you need before ever starting a conversation about an agreement is confidence. You have to know, not just believe, that you have skills that are worth paying. When I first started offering services I was constantly feeling like I was getting away with something. But, the reality is that businesses make money, and if the knowledge, skills, and experience you possess will help that business make more money, then you deserve to be paid for it. Web development work is a very valuable skill and you should be paid accordingly. No matter what skill level you are at, you shouldn’t charge less than $20 per hour. Good designers and programmers should charge anywhere from $50-150 per hour depending on your market and experience. Clients are always trying to save money, but they won’t take you seriously if you under charge. I can’t tell you how many times I’ve heard from web developers raising their prices has been one of the best ways to land more projects.

The #1 rule of business is “Don’t be desperate”

It’s easy to be caught up in the moment when discussing a deal with a potential client. It’s also difficult to keep your cool when you really need the money from a project. *And*, the absolute worst thing you can do is let that client smell that you “need” their business. I’m not suggesting that you hide your eagerness to work with them or your excitement for a project, but I am saying that you need to know that businesses rarely move quickly when it comes to spending money. You should know that people like to work with people that are in demand. If you really are good at what you do, then you should be busy. So, when you’re discussing when to have your first meeting, pick a date that’s a few days out. If it’s a Wednesday, don’t be afraid to say you are not available until the beginning of next week. Not looking desperate is important starts with how you carry out your initial client engagements, so let’s talk about some tips for first client meetings.

Initial engagement

All projects start with a first meeting, and the old saying is completly true that you never get a second chance to make a first impression. A common rookie mistake is not handling the first meeting correctly. Clients want to dive right into the project requirements, but it is your job to bring the conversation back one step. Before you start discussing the scope of their project, the first thing you’ll want to establish is whether or not the two of you have any business together, something that is referred to in the business world as having “a good fit”. You’ll want to know three things, 1) First and foremost do you like them and can you help them 2) What is their budget, and finally 3) What goals do they hope to accomplish from the work you’ll do together.

If you don’t like the client or can’t help them, then your first meeting should be your last. If you do like them and think you can help, then you need to know their budget.Figuring out a client’s budget can be a difficult prospect. Clients often don’t know how much web development costs, so they don’t know how to budget for it. They also tend to be afraid that if they tell you their budget then you’ll just try to figure out how to get all of it rather than give them just what they need, which may be less than their budget. If a client is resistant to telling you their budget here are some useful talking points to open them up. All businesses hire web developers for two reasons: 1) Money and 2) Altruism. If the business is hiring you to make money, then you need to know how much effort to put in going after their target. If the business is hoping to make $10 million off of your work, then you’ll need to put in a lot more effort than if they are hoping to make $10 grand. Similarly, if they aren’t going after enough money, then it may not make sense to hire you at all. As a general rule businesses should be prepared to spend up to 15% and no less than 5% of the amount they hope to gain from your work. You should let the prospective client know that you can spend endless amounts of money on any project, but you don’t want to make a proposal that doesn’t cost more than the profit they hope to make as well as isn’t too small for accomplishing their goal and then wastes their money altogether.

Many times clients don’t know what their goals are, much less how much money they will make if you are successful. I’ve heard many clients say, “I just want a website.” That’s when I say, “Ok, this is an altruistic act you want to do for your business then, so my only question is how much do you want to spend making a cool site.” Usually, that draws them into a reality check that they should be interested in making money on the money they are spending. They may still need additional help figuring out how much money they could make. One of the easiest ways to handle this equation is to ask them how much business they are doing annually versus how much capacity can they handle. If they make $10 million a year selling blue widgets, but they can produce $15 million, then they have $5 million dollars worth of possible growth. Then you can ask them if their market has room for all of their possible growth. If yes, then to be safe make a goal of going after half of their potential growth. If no, ask them how much more of their market do they think is available, then again, tell them you’re going after half of what they quote.

During the getting to know each other phase, you’ll want to be on the look out for red flags such as:

• How many web developers have they worked with previously. If it’s more than 3, start asking why they are looking for a new developer. You may discover they have unrealistic expectations or they don’t pay or something not good like that.
• They don’t want to discuss their budget even after using some of the tips I discussed above
• They want work done faster than you can deliver and they aren’t willing to hear that it’s unrealistic
• Be wary of start ups. If they are a start up make sure they have a business plan and sufficient funding.

Establishing the agreement

If you feel like you can help the client, then it’s time for you to establish the agreement. When discussing your fee it is critical that you speak confidently about money and that you have an oral agreement before putting anything in writing. You don’t want to gather notes and then get back to them later about cost. Not only will it make you look unprofessional to seasoned business people, but writing the proposal may be a waste of your precious time. Whereas if you have an oral agreement that you simply need to type up, then getting a signed contract is an easy formality. You also want to make sure that you are getting a deposit upfront before starting work and collecting that check at the time of delivering the written agreement is a natural step and easy for the client to agree to. You may be thinking, “How do I quote a price orally at my first meeting without going back to my office and figuring it out.” That will be answered in the next section, but before we get into that, here are a few tips for establishing an oral agreement:

• State your price without hesitation and with clarity. Don’t blink your eyes or fidgit. Also, state your fee and then shut-up. People tend to talk too much justifying their price when they don’t believe they deserve it and clients smell that.
• Don’t drop your price to get a job. It is ok to cut deliverables to lower a contract’s value, but don’t just lower your price. You’ll set a precedent that you can be talked down and it’s not a door you want to open.
• Always call your price your “fee”. It’s not your price. It’s not what you charge. It’s not your hourly rate. It’s your fee. It makes you look confident when asking for money because when you call it your fee you are owning the fact that it’s what you decided to charge.
• Establish who the supervising employee will be for the client. Setting a decision maker on the client side from the beginning sets a precedent that you want a single person that has final say. It’s not in your best interest or the client’s to have 3 or 5 people calling you with conflicting or overlapping requests.
• Tell the client when you will deliver the written proposal that memorializes your agreement, then do it! Have your calendar available and commit while you are at that meeting. The date you are setting is for the next in-person meeting where you will collect the signed copy of the proposal and the deposit. Email or fax them the agreement ahead of time, but whatever you do make sure you have an in-person meeting already scheduled to gather the contract and first payment. An in-person meeting gives the client a tangible deadline to have the contract signed and check ready. I’ve had many projects drag out unnecisarrily because I told them to just fax it or mail it.

The development process

Before we talk about how to write a proposal, it’s important that you understand more about the development process. I used to trap myself into contract after contract where I worked 2-3 times more than I estimated, and I didn’t get paid for the extra work because it was my fault for misquoting. Because of all of that struggle, perhaps the area I feel the greatest amount of pride has been from evolving my development process. When I first started, I began every project with design comps because it’s the first thing clients want to see. However, I learned that site design is one of the latter stages in a quality development process, and it is your job to manage your client’s expectations around this. I also figured out the only way to stop trapping myself into bad contracts was to break development into three phases. Phase 1 is your recommendation, which is the strategy you recommend based on your diagnosis. Phase 2 is project planning, which is the most critical stage for defining the project in detail. Phase 3 is production, which is when you actually build the project.

Phase 1 is like getting a bid for car repairs from a mechanic. Before they can give you a quote for repairing your car, they need to diagnose the problem. As web development is a very complex intersection of interests, you too need to charge for determing what work needs to be done. Just like a mechanic, your fee for this phase should be a set fee, not an hourly one. This is an area where you charge for your value, not your time. Aaron Wall does a great job explaining why and how he charges for this phase.

Some of you may have put together by now that you are asking clients to start work with you before you’ve agreed to a price for the next two phases. If they express concern about paying for Phase 1 before knowing what planning and production will cost, let them know that’s why you discuss the budget with them during the initial engagement meeting. You will proceed with Phase 1 and 2 knowing that your working to prescribe work that will fit into their budget. It’s also a good idea to say the cost of your Phase 1 assessment will apply to the balance of the next phase, planning.

Phase 1 is a flat fee because it will always take you a small enough amount of time that you should be able to set a standard price for it. When you are done with phase 1, then you should be able to quote phase 2. Let the client know that your strategy may call for 5 websites, or 1 small website, so you have no idea how much it will cost to develop the plans for the strategy until it’s set. Phase 2, the planning phase, is similar to hiring an architect. Your job is to deliver all of the plans necessary to develop their project. Once you have the site plans in place, then you can quote on production. It’s just like a builder can’t quote on how much it will cost to build a building without blue prints, material specs, and more. Project plans should include:

Site Map

Like a blueprint, this is the map of all the pages.

Functional Specifications

This is the most important parts of plans development. It’s the technical work order for a programmer. It is to a programmer what an electrical plan is to an electrician. Projects are made or broken depending on the quality and completeness of functional specifications.

Mesh map

This is all of the pages outside of the site we’ll develop, such as our listing in the Yahoo! Directory. It’s meant for visualization.

Offsite account list

This is the list of all site’s outside of your website that we need accounts for, it has more details than the Mesh Map, such as sign-up requirements, suggested login info, account management responsibilities, etc.

Profile Requirements

This is the functional specifications for offsite profiles that need development, such as FaceBook and MySpace.

Asset Inventory and Needs List

This is the list of all of the text, photos, videos, etc. that you have as well as a list of what you need. Very important to define what you need so you can delegate content development responsibilities.

Metrics

These are the numbers you need to pay attention to that tell you whether or not your site is reaching its goals. It includes stuff like the number of visitors to your site, how many people download educational materials, how many people used a form on your site to email you, etc. We’ll have to do some coordination to know what numbers to pay attention to and then make sure we put a tracking mechanism in place. Identifying the right metrics is the key to knowing if your investment in the site is paying off.

Writing your proposal

Ok, now it’s time to write a proposal. Quality proposals are crucial for providing web development services successfully. A great proposal will make a project a dream and a poorly written proposal will make the job a nightmare. Your only goal when writing a proposal is to clearly define the scope of work you will provide, at what price, and by when. There is a very specific structure for writing proposals, and seasoned business people will respect you for doing it right while less experienced business people will simply know that your proposal is clear, even if they don’t fully know why. The reason we covered development process first is to let you know why you’ll actually need to write three proposals for each project, one for each phase.

Each of the three phases will have the same overall structure. Because the scope of work you provide for phase 1 is the same everytime, you should have this proposal ready to go. You’ll need to customize phase 2 and 3 and they should contain the deliverables from the previous phase as an attachment. For example, you’ll include the site plans you develop in phase 2 as an appendix to the phase 3 production proposal. Proposals should have the following sections:

Proposed

This should only be one to three sentences and should be the simplest statement of the work you’ll provide.

Need

Explain what the problems are that the client is hiring you to solve. This is your chance to paint a bit of a dire picture for your clients current situation. You don’t need to over dramatize their need, but the client should clearly feel they have a problem that needs to be addressed.

Solution

Your solution section should not only be a clear definition of the work you will provide, but you should also tie it back to how it will help the client meet their needs. For phase 1, this section should say you will deliver a strategy brief. Phase 2 should have a list of the written documents you will make. Phase 3 should say that you are going to develop their project to meet the specifications outlined in the plans you wrote for phase 2.

Timeline

Your timeline section should state when the contract and deposit must be returned to you for the timeline to apply. The reason is because if they wait 3 months to sign, your availability will be different and the timeline may not be possible depending on your future work load. You’ll want your timeline to include due dates for both you and your client. Make sure you include meeting dates for presenting work and leave adequate time for the client to approve work.

Costs

Keep this section very concise. It should include your fee and the outside expenses you expect to incurr on the client’s behalf, such as the cost of a domain name, secure certificates, hosting, travel, etc. This section should also have the payment schedule. If a project is $2,500 or less, then you should be able to complete it in less than 2 months and you should charge half up front and half upon completion. If your project is larger than $2,500, but less than $10,000, I would ask 25% upfront and equal monthly payments until the day you expect to complete the project. Projects over $10K should be evaluated on a case by case basis.

Terms

The terms of your agreement are mostly legal provisions. It defines things like non-disclosure, the state and county have jurisdiction, assignment of inventions, what your late fee is for overdue bills, and juicy details like those. I can’t advise you on this part as I am not a lawyer. I am going to upload a few of my agreements to serve as examples, but you should be warned that they may not provide the legal protection you need, so it’s important that you invest in having a lawyer review your terms at least once.

Whew! That’s a lot of information on establish agreements and writing proposals. At the same time, it’s no where near the amount of information I have in my head, but I hope it provides a good starting point for newbies and some useful comparative reference for veteran developers. As I want this to be a useful resource, I would love to know what information on here isn’t clear or what else you would like to know. Please ask you questions as comments because others may have the same questions.

Good luck out there and remember, practice makes perfect!