Since inception, creative businesses in all their forms, whether advertising or illustration have based their revenue models using one of two approaches, either time and materials or fixed price. What is the right approach for your business? Let’s take a look at the differences, and explore the pros and cons of each.
What is a fixed fee agreement?
A fixed fee agreement is simply an arrangement whereby the company agrees to provide a pre-defined list of deliverables for a set fee, typically also within a set timeframe.
The key to success for this approach is agreement on the deliverables from the outset. Both the client and agency need to be 100% clear on what they are creating, any misunderstandings around this are where things can start to unravel. Always make sure the client agreement covers in detail the set of deliverables, the deadline and of course the fee. It is also worth making clear the number of amendments this includes (we typically allow for three rounds of amendments), as this can also be a potential point of future conflict.
- A clear set of the final deliverables, everyone then knows what the final output will be.
- Agreement from the outset on the timeframe, both parties have a clear deadline to work towards.
- Budget control, this is fixed, so you know exactly what your total spend will be.
- From an agency standpoint, it is much easier to get “buy-in” from the client.
- If there is not a clear objective/set of deliverables, the fixed fee approach will just not provide the flexibility that both parties require to provide a successful outcome.
What are time and materials?
With creative work, in particular, it is very difficult to arrive at a fixed fee. With time and materials this is really not an issue, simply put, the time and resources you use to determine what the client pays.
Unlike fixed fee, this approach allows for much more flexibility, if the client has not yet defined their vision, or as yet is not 100% clear on their specific requirements, time and materials are the perfect fit. Whether you charge by the hour or by the day, the choice is really up to you, and will largely be dependant on the specific service you are offering and the size of the project.
- Flexibility, whether adding additional resources if the deadline is looming or an unclear set of initial requirements to work with. The ability to adjust throughout the project’s lifetime can be a real advantage.
- Ultimately the client will not know exactly what they will be paying for the project. Whilst it is possible to give an indication, the nature of time and materials means this will never be totally clear.
- From a new business standpoint, it is definitely a tougher sell, for the reason outlined above.
At Cojo, we have found that a blend of the two works well for us, whilst also giving our clients the most value. As a small team, the people resource we have available is limited and initially, we found it challenging jumping between projects on any given day. We now work on a model that allows clients to book the team exclusively for a period of time, typically in one-week blocks. This allows us to focus on a specific client and their project for the duration of that week, without distraction (great on UX heavy projects). The client knows exactly how long they have us, and importantly how much they will pay for this block of time.