Over 90% of businesses in the US (closer to and over 95% in most states) are considered small businesses. Design, creative, and professional art firms and individuals strike out on their own as a small business at a rate of about 30% (compared to typical 10% for all other industries) of all businesses in the creative scope are small businesses with 5 or fewer employees.
If you own or work in a creative agency, chances are that you went to school and took art and design classes, not small business law or tax classes. This poses a huge challenge to setting up your own small business and making it successful. Luckily, there are plenty of other folks that have blazed this trail.
Whether you are looking to pick up work on the freelance side of things, helping a friend, or laying the groundwork for your own consulting billing is a massive part of your business. There are a two main ways to bill your clients:
- Time and materials
- Fixed fee
Both have their own set of pros and cons, but you will have to decide which works best for you AND your clients.
Time and Materials (T&M)
This is basically hourly billing where you also charge clients for any tools, travel, or other things that you use in order to complete their work. There is software out there to help make this a bit easier while allowing clients to see where your time is going. This method also allows for a great amount of granularity (you can choose to bill down to one minute at a time, if you really want to). You can also expand on a project if inevitable changes occur, thus allowing you to make a bit more money when a client changes their mind or adds a project on top of what you are doing.
The downside to this is keeping track for all of your hours in a way that makes sense to your clients and yourself. With one client, this isn’t that hard, but as soon as you add more than one client, tracking all of those hours can get tricky. Also – as lawyers have come to find out – most clients are pretty resistant to paying for hourly work, especially when/if you bill for phone calls or emails. Clients can also be resistant to paying or helping to pay for software or other tools you use.
Fixed fee billing allows you to set your own rate or estimate out a project cost, which you and your client agree to. This requires a detailed proposal (so does T&M work, but fixed fee is more stringent) that can only be changed with other signed proposals and contracts. The best part about this type of billing is that when you finish your work under time, you still make all of the money you agreed to with your client – like a bonus.
The problem is that when you take more time to complete a project, you have to eat that time and your income is reduced. The lack of flexibility can also be an issue, but it also sets up strict guidelines that both your and your client agree to. When a client wants to add to a project, you would draft a new proposal for them to either accept or not. Things under fixed fee billing are relatively cut and dry.