Question

Topic: Career/Training

How Do I Pull Out Of A Time/materials Nosedive?

Posted by Anonymous on 2/28/2010 at 3:55 AM ET 250 Points
I'm a designer/illustrator who works from a home office. Aside from a few smaller clients, I've got one major out-of-town client (medium size company with millions in annual sales revenues) that I've kept happy for over 10 years, all remotely. I used to have a business partner that handled all the negotiations and contracts, but I took everything over several years ago when he got headhunted for an executive position.

I know this is a huge mistake, but I've continued using the time/materials fee model that my former partner used. I've raised my rates twice over the years, but right after my last rate hike, the recession panic swept the nation last year and I cut my rate 30% for them in exchange for the security of a yearly retainer that paid a set amount monthly for a set number of hours. Our contract stipulates that if they don't use the hours, they lose them at year end.

I did this out of fear because they were hastily assembling a small art dept. in-house, as they retained an efficiency consultant that also recommended I start bidding approx. hours to be approved before jobs, (suggesting other design agencies would be invited as well) when common practice was to simply assign work to me as needed.

However, even with my all-you-can-eat retainer plan, they haven't utilized me as much this year (perhaps because of the in-house staff), and the hours I've worked are 37% below the baseline we set (based on the previous years' hours). I'm sure that when we go over the figure this years' retainer contract will be, they're going to look at the tally of hours and say, "we'll now pay you a lower amount based on (number of hours worked this year) x (my reduced recession fee)". This will cut what I earned this year to a little over half for next year's retainer.

I've really, really painted myself in a corner.

In my favor is the fact that they really like my work and find good value in it, and it's recognized favorably by the very wealthy owner. I've been producing digitally painted illustrations which they absolutely love, and they rely on me to produce their flagship print collateral every year. I also lavish the top executives with large gourmet goodie baskets and a custom art gift every holiday. I know… too much. I've always felt pressure because they're constantly courted by other design firms, yet they stick with me because I'm good, versatile, always there and relatively cheap.

Lately though, instead of utilizing my design expertise for the ads that my paintings are used in, they laid out the ads in-house and the design is very sub-par.

This is tough to get around, because it's a political Catch-22… one of the top managers that directly approves my contract feels his art direction is top notch, when I could point out its basic flaws. If I stand up and (and even gently) call this out to demonstrate my (currently under-utilized) value as a defender of their market brand image, I shame and threaten the one guy with the power to squash my contract. I'm fairly the owner would back him over me, based on anecdotal evidence.

So please, please… before you lecture me for using an outdated, unethical time/materials based fee scale and tell me that I've screwed myself beyond repair… I know. I'm a better artist than a businessman, but I can't lose this client or I've financially sunk my family. I'll take the cut if it's the only way, but I'm searching for alternatives. Accepting deeper and deeper cuts undermines any cred I have left with them.

My question is, what recommendations do you have to pull myself out of the nosedive I'm in and gracefully leverage my value to not drop below my current baseline retainer figure?
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RESPONSES

  • Posted by kpalmer on 2/28/2010 at 4:11 AM Member
    More clients...less all in one basket. Fixes lots of issues. Easier "said" than done. You've documented 80% of the cases out there - and everyone that is shy on clients has the same issue.

    You may wish to remember - there's one person out there that is your best sales person - you. The position you are in is valuable and a strong position; you have insight, experience and are able to creatively move them in the direction you choose - if you present things properly.

    Stop the defence - start the offence. Use your experience to out-perform nicely suggesting new / creative ideas that you may be able to create...that truly only you can do.

    Now, if only I could follow my own advice once in a while...hahahaha...Take care, KP
  • Posted by thecynicalmarketer on 2/28/2010 at 12:01 PM Member
    The recession has changed everything.

    As frustrated as you may be, the client is also wincing in pain. No one likes to run poor creative or have to cut where they know they need to spend. When the CEO of CFO demands a 30% cut, they have to deliver.

    Get in front of the client, review all the good work you have done, and most importantly - let them know that you understand that internal budget challenges and that you are committed to a long term relationship. There has been a lot of belt tightening going on. Work with the client to address their challenges (not yours) and keep the relationship productive and valuable. Business partners that take this approach will retain business and received their reward when the economy improves.

    Best of luck, JohnnyB
  • Posted by Frank Hurtte on 2/28/2010 at 3:38 PM Member
    First, you are considering that your client is actually carefully monitoring your contract. To you its the most important thing in the world. To them they may look at it as a retainer -without sweating the hours used thing.

    i know this is easier said than done, but I really would like to hear what you are doing to find more customers. As long as one or two customers dominate our income stream, we as consultants are always in the pressure mode during negotiations.
  • Posted by mgoodman on 2/28/2010 at 6:23 PM Moderator
    JohnnyB has the right idea. You need to get past the importance to you and let the client know that you are in this for the long haul, that you're proud of the work you've done for them, and that you'll do whatever it takes to remain involved.

    And right after that, you need to start looking for other clients so you don't have all your eggs in a single basket.

    It's a painful lesson ... I've been there ... but it's not the end of the world, and your talent is not any less today than it was a year ago.

    Good luck!
  • Posted on 3/1/2010 at 1:41 AM Author
    Thank you all for your thoughtful and kind answers, but I'm new here and I'd like to see what advice comes in on Monday before closing this and assigning points.

    I have a related point to ask anyone who's familiar with Alan Weiss' "Value-Based Fees", though:

    If I risk suggesting to this client that they transition to a more value-based fee model (keeping the current retainer figure for this year in exchange for more sustained and interactive access to me) so that we can "stop the meter" and focus on outcomes, I know that their accounting dept is going to cry foul (and scuttle the notion) if I try to stop sending in a detailed, hour-per-project listing on the retainer invoice every month (they won't pay without an invoice). Should I offer to still keep track of those hours on the invoice while asking them to (now figuratively) "stop the meter"? Is that counter-productive? Can I satisfy Accountings needs without having the company still judge me on that tally every year when we negotiate the retainer contract?

    Any advice on how to approach or word that would be great...

    Thanks!
  • Posted by HireHeather on 3/1/2010 at 2:26 PM Member
    Let me start by saying, we've all been in untenable situations of some sort with clients (even if it's not the client's fault). It's never fun feeling like your fate is in someone else's hands. You've been there, I've been there... certainly sounds like KP's been there.

    I'd start by taking KP's advice. It's the same advice your stockbroker would give you - because it's good advice. Diversify, diversify, diversify.

    Second, I'd reconsider taking your concerns to the 'art director.' There's a way to appeal to everyone without offending them, you just have to find out what it is. For instance, "I noticed you're doing a good job with the art direction, but if you have some time, I'd like to talk about how WE can strengthen your message." (Easier said than done, I know. And if you land that meeting, you have to be prepared to make suggestions you can prove you're better qualified to implement.) At the end of the day, you're the design professional and it's not just your job to give them good work, it's your job to advise them on the best way to do things. Also, if they aren't paying you to do it, they're paying him... and he may have bigger fish to fry in terms of his own job - and if he realizes that himself, it's another thing you can use to your advantage (and where was their efficiency expert on that one - why is a top manager doing art direction instead of managing?).

    Not only should you address it with him, but make a list of the reasons using you is better than not. Start now in case you need it. Then use those reasons to write a white paper. What issues do they have and why are you best qualified to solve them? Consult with your own efficiency expert if you need to. This isn't just important for this client, it's something you can put on your website for all your current and potential clients to read. (Feel free to email me if you need any professional writing help.)

    (Warning: It's not going to be fun to hear this one.) Third, and most importantly, become a businessman because that's what you are. This one's too important to sugar-coat, so I won't. If you can find another (trustworthy) partner who can handle the business, by all means, do so. But if you're freelancing or are an individual consultant, you wear multiple hats. And one of them is, necessarily, "businessperson." Take classes anywhere you can find them. Ask for advice, subscribe to blogs. Whatever you need to do to make it happen. But freelance creatives simply can't hide behind the "I'm an artist" mask... unless we want "starving artist" written on our professional tombstone.

    Let us know how this works out. I really feel for you.

    Heather

  • Posted by mgoodman on 3/2/2010 at 11:20 AM Accepted
    Regarding the new invoicing approach: Do NOT continue to show hours. In fact, don't even keep track of the hours you spend. You need to stop thinking about selling your time and start selling the benefit of the end result. Tracking your hours is just a subtle way of undermining the thinking you need to have.

    The accounting department will understand very well that the deal has changed, and that you're now billing a fixed amount each month for an agreed deliverable. And that deliverable is not measured in hours or days or weeks. The fact that you're being paid monthly is just for their convenience.

    Once this kind of thinking is embedded in YOUR brain, it won't be difficult to explain it to your clients. And if your client doesn't get it, it's because they like the idea of having total control over your time, thinking and earnings.
  • Posted on 3/2/2010 at 3:10 PM Author
    Mgoodman,

    I agree, if I continue to track hours on these projects, it's still going to be a point of contention. It's going to be tough to break through their entrenched accounting mentality unless I offer a great incentive, so I'm writing a proposal to them to begin a transition to value based fees.

    In the letter, after I discuss the successes we've seen of switching from the old pay-as-you-go to a retainer model, I outline the flaw in it being that it's still based on time/materials, causing them to under-utilize me because they're still tallying hours; like a baseball team hiring a great hitter then benching him because of a quirk in his contract that counts swings.

    Instead of continuing to tally hours and reduce my figure this year (which means I then have to migrate that blocked out time to other clients and income producing tasks, reducing my effectiveness to them), I'm going to suggest a transition as this:

    "I'll agree to work under the same retainer figure this year in exchange for unlimited access to me, (subject to mutually beneficial scheduling and a few basic points, of course), and next year we'll discuss fees that are more in line with this access. I'm sure that if we work closer without the barriers, that value measured in increased production, more creative options and a stronger, more unified brand across the board will be evident."

    What do you think?

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