The inscrutable subject of paying for your site

There is something wrong in the world of web design. Nobody discusses payment methods. Surely there are better approaches than those currently available.

In all the years I have been working in web design and all of the thousands of blog posts I have read, not once have I seen a post about paying for websites.

I have seen a few posts (only a handful, but they do exist) on how web designers charge for their services, but nothing on where the client finds the money to pay for it.

This strikes me as bizarre especially in the current economic climate. Are we really saying that websites are such a necessity that expenditure on it does not need to be justified? Is there no discussion to be had about how websites are paid for? I believe there is and in this post I want to raise some fundamental questions:

  • Whose budget pays for the website?
  • How much should you spend on your site?
  • How best to spend your budget?
  • How to plan your web expenditure?
  • Are there alternatives to the fixed price project approach?

Let’s begin by asking who pays for the website?

Whose budget pays for the website?

For most organisations the website is seen as a marketing expense. However, is that actually fair? Sure, the website serves a marketing function but it is often so much more.

Many websites are also a customer support tool, aid to employee recruitment and even a collaboration tool. In fact a website is capable of supporting almost every department within your average SME.

The idea of its budget coming from a single department makes little sense. Instead I believe that most websites should have their own budget separate from any individual department. This also sits nicely alongside Jeffrey Zeldman’s belief that web teams should be a stand alone division.

The question then arises; how much should this budget be?

How much should you spend on your website?

Setting the budget for web expenditure is just like setting a budget for purchasing your next home; you spend as much as you can afford.

When buying a house you tend to set your budget as high as you can. The higher the budget the more you will get for your money and the better the return when you sell.

The same is true when it comes to web design. The more you invest in your website, the more you will get and the bigger the return.

A website can be as simple as a single HTML page or as complex as a multi-billion dollar fully integrated system.

The only limit on your expenditure should be available finance and return on investment. As long as you are getting measurable returns and you have the funds available you should keep spending.

The key is getting the biggest bang for you buck.

How best to spend your budget?

When it comes to spending your budget, there are three factors that dictate your return on investment.

  • What you spend the budget on.
  • When you spend your budget.
  • Who you spend your budget with.

Unfortunately the first issue is too specific to say much about here. However, let me say a few words about the second two points.

When you should spend your budget?

‘When you spend your budget’ may seem like a strange thing to affect ROI, but it does make a huge difference. Specifically what matters is whether you spend your budget in one big lump every few years in a major redesign or whether you invest each month in your website.

Historically most organisations wouldn’t have an ongoing web budget. Instead every few years somebody in upper management would decide the website needed ‘sorting’ and the money would be borrowed from other budgets to accommodate a redesign.

Once the site was relaunched it would slowly fall into disrepair (because of a lack of investment) until people were too embarrassed of it to really make use of it. Eventually the situation would become so bad that something had to be done and the cycle would repeat.

The problem with this approach was two fold. First, every time a redesign happened the old site would be discarded and all previous investment was lost. Second, for a big part of the site’s lifecycle it was not running at optimal performance. It was out of date and neglected. As a result the period of time when the site was actively used (and generating ROI) was relatively short.

A better approach is to continually invest in the website at a much lower level. This trickle of investment is not only better from a cash-flow point of view, it also means that the website is kept at optimal performance ensuring maximum ROI. Any improvements to the site are built upon what went before so that nothing is needlessly discarded as part of a major redesign.

This evolutionary approach to your website also offers up more options in terms of who you spend your budget with.

Who to spend your budget with?

With large redesigns most organisations outsource the entire project to a web design agency like Headscape. Although I should probably not write this, I am not convinced that this is always the most sensible approach for maximising ROI.

The truth is that web design agencies are a relatively expensive option. What they provide is depth of knowledge and the strategic thinking a lot of organisations need. Also, to some extent you get what you pay for. For big redesigns you want high quality and therefore need a high quality agency.

However, you don’t need that level of skill all of the time. If you are working on ongoing incremental changes to your site, many of these ‘tweaks’ can be done by a freelancer or in-house web designer at a fraction of the cost.

That is not to say you don’t need an ongoing relationship with a agency in order to do more substantial projects and help with the sites strategy. You just don’t need them for day to day improvements.

To maximise your ROI, combine in-house designers, freelancers and agencies so that you are only paying for the skills you need. Need a new design direction? Use a team of experts. Need to do some simple A/B testing? Use a cheap freelancer. If you find yourself doing a lot of A/B testing then move that role in-house.

This is not a criticism of freelancers or in-house designers. Some of the most talented people in the industry work in those roles. It is simply stating that their rates are generally less and they cannot hope to have the range of skill sets contained in an agency.

So far our focus has been on setting and spending your budget wisely. However, there are some flaws with how the majority of websites are paid for.

Flaws in the payment model

Most website owners commission websites on a fixed price contract. In other words, they release a specification of what they want and the web designer responds with a fixed price.

Although there are exceptions this has become the default approach within the industry. However, this is not the only approach and not even necessarily the best one.

Problems with fixed price projects

Although the majority of work we undertake at Headscape is fixed price (because clients demand it) this is not necessarily the best value for money for the client.

Fixed price projects have a number of flaws:

  • Because the web designer has to cover potential problems they have to incorporate contingency into their pricing. This means the client doesn’t benefit if a project goes smoothly.
  • The web designer is responding to a set, pre-prepared specification. This means they have very little influence in shaping the project and the client doesn’t benefit from their skills in this area.
  • The approach encourages a cycle of periodic redesign rather than ongoing development. This is because of the amount of work involved in preparing a brief and responding to that brief.
  • This approach does not encourage an ongoing working relationship between client and web designer in which both parties are responsible for the long term success of the website.
  • It doesn’t support a flexible form of working where the requirements adapt as the project evolves. Everything has to be set in stone upfront.

Trust, time and materials

An alternative approach which some web design agencies adopt (including Headscape) is time and material work. This model is similar to that used by lawyers or solicitors who charge by the hour.

The problem with this approach is that it demands a great deal of trust on the part of the client. Without a fixed price the expenditure could easily escalate and there is no guarantee of a final deliverable within the clients budget.

Time and materials does have its place. Its great for clients and agencies who work in long term relationships where trust exists. It also works well for ongoing small pieces of work where there is a rolling programme of development.

However, in most cases time and materials feels too much like an open cheque book to clients.

So are there other options?

Alternative payment methods

We now find ourselves in more uncertain territory and I certainly don’t have any solid alternatives. However, it strikes me that fixed price and time and materials are not the only options.

By looking at other sectors there are obviously alternative approaches. A few that spring to mind include:

Interest free payment plans

Instead of having the upfront cost of a website redesign every few years, the price of the site could be spread over its lifetime. This would help the cash-flow of the client.

Unfortunately it does not solve the limitation of fixed price projects or encourage ongoing development. It also saddles the web designer with a considerable investment in time before they get fully recompensed.

That said, it may help companies who have previously not been able to afford to invest in their much neglected sites.

Revenue sharing

Another way of avoiding upfront costs is a revenue sharing model. Under this approach the web designer would build and manage the website for no (or reduced) outlay by the client in return for a percentage of any revenue generated from the site.

At face value this approach has a lot of positive aspects. The website would receive ongoing management (avoiding the boom/bust cycle) and benefit from the web designers experience in developing site strategy.

However, it is not without its complications, the biggest of which is how revenue is calculated. For many websites their ROI is not easily quantifiable. Even with a site as straightforward as an ecommerce site, revenue can be easily affected by alternative purchase mechanisms (e.g. brochures) and how much money is invested in advertising.

I am not suggesting such an approach is impossible as it has been done successfully by at least one agency I am aware of. However, it does need some serious clarification before being undertaken.

Website in return for equity

A common approach used by startups, this scenario provides equity in the company in return for web work.

It works well for small startups who have little to lose but can prove costly for the web designer who essentially is initially working for free.

For this approach to be beneficial for all parties it requires the web designer to carry out the same level of meticulous research that a venture capitalist would do before investing in a company.

This is beyond the skills of all but the most business savvy agencies.

Website lease

Imagine a scenario where the website owner pays a flat monthly fee for an agreed contract period. This fee would include the upfront cost of building the website and an ongoing fee for a set number of hours per month for improvements.

The web designer and client would work together to decide on an ongoing programme of development after the initial build, ensuring all hours assigned are used.

This would be similar to that of a mobile phone contract. The cost of the phone is at least partly included in the monthly payment alongside a number of minutes, text etc.

This would provide benefits to both parties:

  • The client avoids a large upfront cost.
  • The web designer gets regular predictable income.
  • The website benefits from the web designer actively managing and improving it.
  • The client and web designer get to collaborate on the sites direction rather than everything being defined upfront by the client.
  • Because there is a fixed number of hours assigned for development per month you gain the benefits of T&M without the drawbacks.

That said this approach does present some challenges:

  • It creates a cash-flow problem for the web designer who has a big upfront cost of development before he starts to see returns.
  • Unlike a mobile phone where the customer has his phone and can use it from day one, the client has to wait for some time while the initial site is built.
  • The contract ties client and designer closely together. What happens if they fall out? Can the client walk away? Who owns the website if that happens?
  • This is a big upfront risk for the client. If they pick the wrong agency they have to live with that for the length of the contract.

Conclusion

My conclusion from all of this is that I have no conclusion. There seems to be no perfect approach.

My frustration with the current model is that it discourages that ongoing working partnership between web designer and client that makes a website successful. However, each of the other options have their own drawbacks.

I think part of the problem is cultural. People are used to paying for a website and it being completed. This is in stark contrast to software where people are used to paying for version 1 and then version 2.

Perhaps things will never change until clients realise that a website is never finished and requires ongoing development.

What do you think? Am I missing something here? Is there another model that ensures websites get the ongoing investment they deserve without the drawbacks of the approaches I have outlined above. Let me know in the comments.

  • http://twitter.com/dsparks83 David Sparks

    I’ve worked on an interest free payment plan and it works well. You may have a big chunk of work to do for very little at the start but it does spread it out and certainly offers a good return when you are still getting paid well after the work is done. The only thing to be wary of is feature creep from the fact that some clients have the belief that because they are still paying you, you should still be doing work for them even if that is beyond the scope of what was originally included in the payment plan.
    You need to set clear boundaries about the cost of work beyond what is agreed – whether that’s an added extra for some maintenance hours or if it will be quoted separately. 

  • http://twitter.com/loftdigital Loft Digital

    Really interesting post Paul, and something we think about – and talk to clients about – a lot at Loft.

    Over the years, we’ve stopped working to fixed budgets, for all the reasons you mention. Instead, we usually agree a guideline budget, which inevitably includes a large contingency, but we only charge for the actual time & materials used. This allows a project to evolve during the development process. During the course of this, it’s up to us to keep the client in the loop on the financials, and let them know if there’s anything that might throw these out. We can then decide together whether to build or shelve that particular feature. It takes some trust to get going, but it also helps to build real trust and partnership between us. It’s the transparency and sense of competence on both sides that ensure it works.

    As for planning your budget – I fully agree. We encourage continual investment wherever we can. So, if a client has, say, £10k, we’ll split that into an initial capital investment to get a simple site up and running, then quarterly or monthly amounts to add and improve features. This way, features get up and running quickly, so the client can start to see the benefit of them right away, and we get to see how their customers are responding, so we can continually adjust strategy according to what’s working. This helps to avoid the horrific scenario of a client spending their whole budget on things their customers aren’t bothered about.

    We’ve found that this approach also makes it much easier for PMs and clients to manage development in bite-sized chunks, with regular updates and opportunities to tell customers about new stuff. The client has better cashflow and gets better profits, so they continue to invest more over many years. It provides us with a more regular, predictable workflow rather than lots of crazy months followed by twiddling our thumbs.

    And interestingly, we find much more natural, satisfying relationships evolve with our clients, which have a huge impact on the work and the value everyone gets out of it.

    Have you or other readers any similar/different experiences of this approach?

    Nick

  • http://twitter.com/jmcquarrie James McQuarrie

    I’ve used the website lease arrangement for a number of clients and it works really well.  I thought it may help to address each of your concerns about the agreement based on my experiences:

    - It creates a cash-flow problem for the web designer who has a big upfront cost of development before he starts to see returns. – This can be true for the first few protects, but once up and running the model works well for the designer as they have a regular monthly income from existing projects that helps cover the upfront costs of new projects (this obviously depends on the size of the projects…)

    - Unlike a mobile phone where the customer has his phone and can use it from day one, the client has to wait for some time while the initial site is built. – This can be an issue. I agree upfront each client that we will launch a site within a set period of time after getting the go ahead and agree to launch with limited features / content if that helps us hit the target. One advantage of this leasing approach is that the site doesn’t have to be launched in a one-hit big-bang and can (and should) be improved and added to over time.

    - The contract ties client and designer closely together. What happens if they fall out? Can the client walk away? Who owns the website if that happens? – This could be an issue, but I’ve (thankfully!) not had a client who wants to walk away yet. If they did our contract is written in a way that lets me recover any lost income over the remaining length of the contract and they get all the source code / artefacts and content backups / etc that allow them to walk away with everything they need to set up the site up themselves, or to give to another designer to do it for them.

    - This is a big upfront risk for the client. If they pick the wrong agency they have to live with that for the length of the contract. – This is a very real risk. Most of the work I do this way is done for small clients who I have worked with in the past so the risk is less, but I’ve worked at agencies who have tried to use this approach and who have run into this problem and not won the contracts because of it.

    I don’t work on a lease bases with all clients and I’m not sure it would work for everyone, but with the clients I do work with in this way it’s proven to be a great arrangement.

  • http://twitter.com/SubsurfNL Janko Bosch

    Very interesting article. I know Dan james works with the method of sharing revenue. Have you tried that with Headscape? If not, can you explain the objections? I find this very interesting but it seems very diffucult. Do you have ideas how this might work for a freelancer? (I know this deserved a blogpost of it’s own). Thanks.

  • http://twitter.com/toocoolwebs Too Cool Webs

    “Perhaps things will never change until clients realize that a website is never finished and requires ongoing development.”

    In my world this has been key.  Those that do realize their site is never finished have been well rewarded.  Many that do not,  although very profitable in the beginning start the rotting process immediately and one day they have the WT* is going on here response and fade away into the sunset.

  • http://twitter.com/turnuplocal TurnUp Local

    Well played sir! Great article. 

    I am about to start a project where the payment will be a hybrid fixed amount/revenue sharing model. This addresses the cash flow and maintenance issues with the site and client. Hopefully it works out, only time will tell.

  • http://twitter.com/AndrewDMilne Andrew Milne

    Good post Paul. Some interesting points in there.

    Perhaps a good solution would be to charge a certain amount of money up front in order to get a website up and running. This would be less than it would be to just build a site and let them get on with it. Then, because of that reduced rate you agree a contract with them to update their site and tweak it here and there. The benifit to them is that this would be cheaper than a full re-design in a few years time. The benifit to the web designer would be the regular income. Also, you are both winners because you stay in touch and maintain that two way conversation that is key to any working relationship so if they do require a complete redesign for what ever reason in the future, they still have that good working relationship with you.

  • Anonymous

    Great post and very interesting to see all the options available but as you say they have their pros and cons. I think as web designers we need to learn to educate our clients that websites that get that TLC touch do stay fresh and prove profitable. Our industry never stays still and we’ve all seen the rise of social media, the new HTML5 and CSS5 and the wonderful jquery effects. A few years ago this wasn’t around and a site today without these starts to look very dated especially against new competitor sites. I think we need to communicate effectively to clients why they need some kind of ongoing plan whether it’s bundled in with the site or not.

  • http://twitter.com/JakeLiddell Jake Liddell

    Great post.  Definitely something rarely discussed.

    I run a couple of companies that offer websites on the leasing model that you discuss, for all the positive reasons you highlight.  I have come to the conclusion that it’s simply the best relationship for both the customer (because they always have the ability to adapt and evolve their site) and for the supplier (because of the predictable cash flow).

    The one major risk for the customer that you highlight, we get round by not locking in the customer – we offer rolling monthly contracts, so that the risk is actually ours rather than theirs.  But if we choose our clients well, and do a good job, we don’t get burnt – it is within our own control.  And the customer’s lack of perceived risk with our model does win us business.

    With regard to who owns the website, we make it quite clear – we do.  But if the client ever wants to walk away and take the site with them, there’s a pre-agreed amount that they can pay to do just that – effectively they’re converting to one of the other more conventional models – it becomes as if we’d built them the site for a fixed price.  This is necessary because we’re on that rolling monthly contract – otherwise an unscrupulous client could just hire is for a month or two, then walk away with our site.

    Anyway, that’s how we do it.  Works for us.

    Cheers,
    Jake.

  • http://twitter.com/andykinsey Andy Kinsey

    Reminds me of the question, do you charge by the hour or standard rate if you are a freelancer?

  • http://twitter.com/nathan_roberts Nathan Roberts

    I must say this is the best article I have read all year.  For 5 years I have been looking for the perfect analogy to explain to clients how much budget they should allocate to their projects and your illustration of budgeting for a house is on point.  The rest of the article is spot on also.

  • http://www.friv3.co/ friv 3

    I was very impressed with what you wrote here. It really convincing and logical. Not easy for an article like this. Thank you for sharing it with us.

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