Structuring Payments to Align Stakeholders

One of the most common questions freelancers have (behind “How much should I charge”) is “How should I break down the payments for a project?”

Many developers charge 50% down and 50% on completion. Some even charge 100% down. Before you decide on your payment structure, it’s important to consider how it will affect the motivations of each party. You should pick a structure that aligns everyone’s interests towards a common goal – launching a well tested, successful website in a timely fashion.

For almost all projects I require 25% down, and then 75% due one week after the website is ready for review. So if I schedule the site for two weeks initial development, the final payment is due three weeks after the project begins. This structure has a few benefits:

  1. The down payment is due before the project is scheduled. This ensures you’re only booking clients that are fully motivated. In the past when I didn’t require a payment to get on the schedule I had a much higher delay/cancellation rate.
  2. The down payment is less than some other developers charge (50-100%). This decreases the client’s perceived risk of hiring you. While your contact might have done his due diligence to confirm you’re knowledgeable, trustworthy and can complete the project, it’s easier for him to get buy-in from the rest of his company to hire you with a lower initial down payment.
  3. The final payment isn’t due until after they’ve had a chance to see the completed website. Again, this decreases the perceived risk that you might not deliver. Before they write the final check, they’ve seen and used the website.
  4. The client is motivated to quickly and thoroughly test the website and input any remaining content, since they’ve already paid for it in full (one week after review).
  5. I’m able to provide my clients an unlimited time period for change requests. This ensures the best possible website is built. While most clients might only need one or two rounds of changes, others might need more. Having a fixed time period for changes (ex: 3 weeks) will allow you to define the schedule clearer, but might result in issues being missed.

The Modification and Content Entry stage is almost completely dependent upon the client – they set the timeline based on how quickly they can review and respond. If you tied payment to completion of this stage, you’re effectively giving the client the ability to decide when you get paid.

If payment is tied to project completion you can dis-incentivize the client to approve the website. It might have been a few months since the project started. The client has been busy, it’s one of the many items on their to-do list. When they look at their list of tasks to do, they know that if they review the website and finally approve it, they’ll owe you a large payment for 75% of the project’s cost. On the other hand, once it has already been paid it gets moved to the top of the list since they have a fully paid business asset that isn’t being utilized.

On larger projects I might break the final payment into multiple payments, tied to specific milestones within my control (delivery of different features, or specific dates).

If you absolutely have to tie a payment to project completion, add a time conditional. Discuss with the client when they expect the project to launch, add a week or two, and then include that in the payment structure. Ex: “75% payment will be due on approval of the website by the client, or by September 15th, whichever occurs earlier”. This way you’re not penalized if the client delays.

I don’t believe everyone should use my payment structure, but I think it’s important to realize how your payment structure can affect the project and be able to defend your choice. People with different types of projects or services will obviously need different payment structures, so find one that works well for you and your client.

Bill Erickson

Bill Erickson is the co-founder and lead developer at CultivateWP, a WordPress agency focusing on high performance sites for web publishers.

About Me
Ready to upgrade your website?

I build custom WordPress websites that look great and are easy to manage.

Let's Talk

Reader Interactions

Comments are closed. Continue the conversation with me on Twitter: @billerickson

Comments

  1. Dale says

    This is a better payment structure than most.
    I give a range. If I think the price should be $2,000 (for arguments sake) I will quote between $2,000 – $2,300 and state the low and high end is based on how many tweaks I make beyond the draft.

    At draft, you will notice the client being more direct and specific to the real things they want to change because they are essentially spending their own money and the client feels in control at that point.

    This only works if you have a pretty clear contract which you should have anyway.

  2. Easy Mark says

    Thank you for this very practical post, Bill.

    If I may ask a related question (and I apologize if this has been answered elsewhere and I just didn’t find it):

    How do you ensure that all the work you do to get the site ready for review is not wasted?

    In other words, suppose the client does NOT provide you with a PSD file from which to base the design?

    I guess what I am asking is, “How do you eliminate the guesswork of knowing what the client wants when there is a good chance they DON’T know what they want?”

    Does that 25% charge up front help to get them “focused” on what they want?

    I ask because I have been in the situation where I am constantly updating the client (twice a day or more) to changes in the layout / site structure, and the client responds that they like where it is headed, only to say at the end of the first week, “I think we need to change this, that, and this other thing around,” which basically renders everything I did prior as useless and a waste of time.

    Thanks in advance for any insight and again, I apologize if you have already addressed this and I just didn’t find it.

    • Bill Erickson says

      I require finalized design files (PSDs) before starting any project. Sometimes clients come to me with designs already, but most of the time I refer them to designers who work with them on mocking up the website before development begins.

      Trying to build a site without an approved designs makes it impossible to have a defined scope. The “scope” of my projects is two items: the design provides the visual scope, and a scope of work document detailing the site’s functionality defines the feature scope (things not evident in the design).

      More information on my process here: https://www.billerickson.net/wordpress-consulting/full-service-design/

      • Easy Mark says

        Thanks for the explanation and for the link. I will read through it.

        I guess since my clients are, um… “cost-averse,” they are less likely than your clients to work with a designer ahead of time (or budget for one).

        Don’t know if that is a bomb – or a boon – for me since I am pretty familiar with photoshop.

        • Bill Erickson says

          Making the shift to requiring a designer definitely outpriced me from some of my past clients. It basically 2x’d the project cost. But in the long run it really helped. Whether you do both in house or have them as separate people, I encourage you to try quoting design and development separately. The design lets you define the scope of the project, so you don’t have massive scope creep when you reach development.

          • Easy Mark says

            Thank you again. I have to admit I hadn’t even THOUGHT of separating the discovery, design, and development processes, so this is something of an eye-opener for me.

  3. Richard Buff says

    So how do you handle enforcement of the “75% due one week after the website is ready for review”? Specifically:
    * Is a late fee tacked on every additional week they are late?
    
* I’m assuming you do no change requests until its paid?
    * At some point do you disable the dev site until payment is made?
    * How often do clients fail to pay in that week window?
    * For the clients that say “we do Net 30”, I guess you just say before taking them on, “nope, Bill Erickson don’t play that”? 🙂

    Typo: “If you tied payment completion of this stage”. Think you meant “to this stage”.

    • Bill Erickson says

      There’s a 10% late fee for late invoices, regardless of how late they are. The late fee doesn’t grow – I’m pretty sure this goes against usury laws.

      When an outstanding invoice is overdue, no more changes are made to the site until it is paid.

      If the client just completely disappears, I’ll archive the site after a few months. But I can’t think of a time that this has happened.

      I don’t really have a problem with clients not paying on time. 95% of the time it’s accidental. I tell them the payment terms in our contract, remind them the day the project starts (“You just received an invoice for $X, and it is due X”), remind them when the site is ready for review, and remind them a day before it’s overdue.

      In some instance I have to modify my payment terms. Large universities or businesses just take a long time to process stuff (especially the first payment).

      But when someone just says “As a rule we only pay Net 30” I say “As a rule I only accept payment Net 15 (or 20, or 25, whatever is applicable to the project’s timeline). So if you want to work with me you’ll need to modify your rule.”

      • Richard Buff says

        Ah, you’re sending the 75% invoice the day the project starts, not the day you send it for review… makes sense. One more: is that “remind them a day before it’s overdue” reminder automated or manual?

        • Bill Erickson says

          It’s manual. My projects range in initial development time from 2-4 weeks, and Freshbooks doesn’t let you set payment terms for specific invoices, so if I used their automated tools it would be wrong for some projects.

          Jared has an interesting approach I haven’t tried. He backdates his invoices so they can technically all have the same payment terms and correct due date. So if you set it for all invoices to be due in 4 weeks and needed one due in 3 weeks, you would set the “sent” date as one week before you actually send it.

          I haven’t tried this though. I just log in on Thursdays, look at outstanding invoices, and remind clients that have one due on Friday.

      • Victor Marsala says

        I never even thought about late fees. It’s because of the first time Bill mentioned the 25/75 in an interview that I first adopted a time-based system. I was getting hosed because people wanted to do all kinds of work up front, and then stall forever while they shifted their money around and spent it on other things, since to me it’s my livelihood but to them it’s just another bill (or, more reasonably, some accident/misfortune befell them).

        I don’t have the breadth or depth of a customer face to survive on a cash flow of 25 up front, so I do 50/50 or 50/35/15 or occasionally 33/33/33 (to start and then 10 days after review, or to start, day OF review, 10 days after, etc.)

        But people would still buff off. It would absolutely be DUE then, but in all practical ways it’s unenforceable. It’s not like their money is in some sort of escrow, and when they go on vacation they didn’t tell me about they clearly don’t care -as- much about a timely finish…

        …and I always felt weird about stopping work or disabling things. I own it, I’m hosting it. It’s not a threat for them to just not see it/access it; they already don’t have protection because it’s on my hosting and not theirs. What’s more, anything that’s built from scratch, I have a clause that says they don’t own it outright until all the payments are in.

        So basically I say, you don’t have to pay the final bit to make it go live. It’ll go live when it’s done. I’ve been fortunate to not be taken advantage of THAT way…but it still burned my butt when they disappear right when things were getting good.

        To be honest, there’s a kind of residual stress and work anxiety that comes along with hanging threads, unfinished business and such. I wanna tie off the wound and move forward giving all my attention to the other projects coming down the pipe. So having one or two big strong active projects and then three or four 95% complete things because people don’t pay up? Drives me batty.

        Late fee is great. 10% is reasonable, and seems like a good way to cover potential losses. I don’t know the legal basis but it sounds like you do and it would feel awkward to make it compound anyway. I’m trying to not be a detached impersonal collections-agent type person. They’re not my friends but they are -relationships-. People say clients not customers but it’s true and not just something that sounds pretentious. Almost ALL of my work is repeat business and referrals sometimes four levels deep. So I don’t wanna pee on that or create bad blood, but I still get firm and assertive when needed so I don’t get taken advantage of. It helps that I’m always in the right. I stop short of shaming them but just do light things like pointing it out and just never stopping, once a week, followups in other contact methods that are natural (my e-mail for my business address is through bounces sometimes, which is true, so I’m double-checking via text…….or, “Hope your trip back from vacation went well, lemme know if you have any questions about returning to the project, etc.”)

        Obviously you have to use your judgment and play it by ear. Each individual person/couple/business you’ll be sensitive to in a different way. But I think starts and stops and time periods are a great mix. The late fee just makes it better. I actually added the “or whatever comes earlier” of my own accord on my last contract because I felt burned by the people who didn’t give a hoot enough to follow the review instructions, because it was too easy to be misinterpreted about which time was the final one =P

        Thanks Bill for your openness and your continued contributed insights.

  4. alex vasquez says

    I’ve learned over the last year that 50% or more down is a tough sell and can create friction. So I’m totally on board with this post! I’ve been asking for 3 or 4 payments on a project, if it’s big enough. Typically, projects breakdown into three payments. A deposit, then when the site is put up on staging for review and modifications/fixes and then final payment.

    Some clients appreciate the fluidity multiple payments allow them and will appreciate the consideration. I’ve had a much easier time negotiating payments using this method. The agreement I have is flexible enough to handle differing payment terms easily enough.

  5. ArifinTech says

    I charge 50% down and 50% on completion and I think it works just fine. Some clients ask if they can pay 100% up front even. But I’m interested in trying your 25% down, and then 75% on review payment structure and see how it works compared to my regular 50% down and 50% on completion system.