SXSW 2011 – Breaking Taboos: Pros Get Real About Money Matters
Session by: Whitney Hess and Marc Hemeon
On a personal note, what a pleasure to finally have a chance to meet Whitney Hess in person! I’ve been a big fan of her writing (and Tweeting) for quite a while, and it was a real pleasure to have the opportunity to finally introduce myself in person, and get a chance to hear her dynamic presentation style.
Anyway, I’m interested in money, aren’t you? So when Whitney Hess comes to town to give the lowdown on money and what to do with it (or how to get it AND keep it) then I’m all ears. We’ve got a small ballroom that’s packed with about 50 or so folks, standing room only. The room setup is chairs spread around three sides of the room, all facing an open space in the center, ala theater in the round, so that’s different. Makes for a fun venue!
And now, into money matters…
To a packed room in the Marriott across the street and past the Starbucks from the Austin Convention Center, Whitney Hess and Marc Hemeon will hold forth on matters of money.
They begin, asking the audience who is present what sort of work they do, by a show of hands. The audience responds with lots of raised hands for designers, developers, and then a few other mixed types such as agency owners. There are introductions about who Whitney Hess and Marc Hemeon are, where they came from, what they’re doing. Marc’s into designing things like logos and such, Whitney does usability testing (oops, that’s so old-school, I mean “UX testing”) and related behavioral research.
Whitney: What are some of your questions (asked of the audience)? Various responses including answer about too much or not enough hourly charge, retainer vs. time and material, endless changes (been there, done that). More suggestions from the audience about some clients not being profitable, and some that are very, and how to balance the two. Questions about Spec work, to which when asked to give a gladiatorial “thumbs up or thumbs down” the entire audience gave thumbs down. More requests, is pitching a waste of time? What about intellectual property? When is it ok to take out a loan, when to start billing?
Mark and Whitney realize, with a bit of a “deer in the headlights look” I think, that this audience has LOTS of questions about money matters, probably way more than can fit into a day-long presentation, much less an hour. And so, they begin.
Whitney: She’s been independent since 2008, when she went indie, she decided to not charge by the hour. She says, value of work should not be valued by number of hours. She feels it’s not appropriate for her to double charge her clients if it takes twice as long to get to a strategy. She says, I negotiate a rate in advance, I don’t tell my hourly rate, I just work from the client’s budget. What’s the amount of my brain they can occupy? Whitney says, if they ask, “how much do you cost?” I answer with how much is your budget? I keep pushing for a number, start with $100k and they start talking. Here’s my tip she says, whoever mentions a monetary amount first, is the loser in the negotiation. She continues, I give a discount to any client willing to pay up front in full. Otherwise I get 50% up front and 50% at end of project. Whitney says her reason to not charge hours is she can’t always figure out how many hours it’ll actually take to do the project.
When asked, many people in the room said they ate money by going way over on hours when they quoted a flat-rate for a project (ouch, been there and done that too).
Marc: I do things different from Whitney, I bill for anything and everything I do on the client’s behalf. I send invoices every 2 weeks. He says, if you call me, you get a bill. Marc said, a time and materials contract is how I bill. This is because sometimes I get there faster, sometimes it takes longer to get there. He added, Freshbooks.com is what I use, it’s great. It’s where I enter and track my time. Marc gives us a story about a guy who was a friend of his that did 50 hours of work for a prospective client, but his wasn’t used. His friend didn’t send an invoice. Marc said to his friend, “send them an invoice! You did work for them, whether they used it or not, you need to be paid for your time!” His friend did, and they paid his friend. (I like stories with happy endings!)
Marc added, he publishes his rate on his website, he lets his prospective clients know what it costs to hire him to do their work.
Whitney: I let my clients know in advance what they are going to be charged. You must set expectations, and not be afraid to talk to clients about it. She adds, do you value your work, is your work good?
When asked by an audience member who was concerned about charging enough vs. other competitors, Whitney says, “Am I charging enough or not enough vs. other people? I don’t worry about other people. I project confidence because I know I’m good, even though I’ve not been doing this a long time vs. some of my peers.”
Marc: It’s important to remember who you’re dealing with, big companies probably have set budgets they can’t increase. For example, when I was at Oakley, a budget of $10k was a budget of $10k, and that couldn’t be changed. Big companies are like that.
Whitney: If a prospect says they don’t know a budget, I don’t work with them because I need to work for a company that’s going to succeed, any company not willing to commit to a budget is probably not a good company in the long run, and thus not a good client. Whitney adds, you need to succeed by having confidence and projecting that confidence. I was in a bad job, wasn’t very ambitious, realized I was not going anywhere, I decided I was going to be the product. I doubled my rate, which created the image of being worth something.
Marc: Turns to the audience and reminds them, “But your work better not suck if you’re charging $500 per hour!”
Whitney: I don’t bring up budget first. Instead, I am asking the client about their background, I get a lot of referrals so I ask about that too. I then later on, after understanding the goals and needs of the client, ask for budget as matter of fact. I establish my credibility first.
An audience member asks; “How do I know I’m great? How do I get there?”
Whitney: You must know you’re the s-h-i-(you know what). Do you do good work? Yes? Then you’re the s-h-i- . You have to believe you’re good, after all, you’re here learning, right? But she cautions, it’s the Prada vs. the Gap – some people value Prada, some are all about Gap, you clients are either Prada or Gap too.
An audience member asks about Startups; What’s the percentage of time/equity/pay?
Marc: First, I say partner with someone who does something, creates something, not just talks. Second, stick up for yourself and negotiate hard, you don’t know how long you’ll be working with them. Cash and equity, or all equity? No, I never have. Marc adds, remember that equity is actually zero money going in, equity at the start anyway is worthless.
Whitney: Let’s switch to talking about contracts, because none of this matters without a contract in place. You need a contract. You must design the scope before you start, to get a contract. For me, I know my schedule, activity, when I’m presenting findings, using a phase by phase schedule (it’s not day by day). I stick to the deadlines, I break it out as phases, but don’t break pricing by activity. That all goes into the contract.
Marc: I don’t have a big contract, just 2 pages. That’s because I need flexibility, because I charge time and materials.
Whitney: The more structure I have the better for me, because I need that structure to work, but Mark needs the ability to have creativity.
Marc: I did logos for $20k even though $1k was proposed, because people want to keep making changes and want control. I send an invoice every two weeks. You get a bill from me that says $500, which doesn’t seem big, but get 30 of those invoices and wow!
Whitney: Contracts should always include termination clause. I had a lawyer help me craft this. I take start and end date, divide by 2, if you terminate me prior to this date I get 50%, if after the date, you owe me the 2nd 50%. You can’t just book me then let me go, that’s an opportunity lost for me where I could have booked another client. Flip side is if I leave first, contract says (for some clients) I will pro-rate, and pay them back or only be entitled to remainder. If only 3 weeks left, I pay them the 3 weeks (if they paid up front).
Marc: My contract is only 2 pages. But if you want to see a much bigger contract, go to the AIGA.com contract. They have a big contract that is a good one to consider.
Whitney: Having a lawyer is crucial. This is your business, the web is not going to give you the answer. The lawyer needs to feel your pain if something goes wrong with your contract. Whitney adds, What about an LLC? Yes, you HAVE to do an LLC. That’s because they can only sue your business, not you personally, if you are using an LLC for your business.
An audience member asks about scope creep, Whitney responds: With scope creep, you have to pull the contract out and remind people what the project is. Check yourself against what you’ve said in the contract you’re doing.
Marc shakes his head, probably due to the fact that with Time and Materials scope creep, although unpleasant, is not financially an issue as he simply keeps billing for the added time spent on the project.
And with that, our hour has quickly gone and it’s time for us to leave. I’ve enjoyed having a chance to blog about this, and of course meet Marc and Whitney. And more sessions here I come!
