updated: September 23rd, 2009 / Ross Johnson / 15 Comments

Why you should bill for everything….

While I have a minor in business, most of the lessons that I have learned about how to run a company were through making mistakes and figuring out ways to avoid them next time around. Sometimes I made mistakes many times before I realized it. In this case I still struggle with this mistake from time to time despite knowing better.

You should not do work for free, and you should bill for absolutely everything you do

When I first started out I constantly was giving away “bits” of work for free. Sometimes this can sound like a great idea, you are giving the client a little “bonus” of a better product with out paying a premium for it. However I have come to realize that this practice is bad for you or the client.

Why is this a problem?

When you first start giving away work, you may not have a fully booked schedule. You might not mind taking the extra time to deliver some extra value. It might make sense, after all… what else are you going to be doing (apparently not going out and looking for more clients).

There are really a few core reasons that this is bad for you and your client:

  1. As a long term strategy, the best way you are going to develop a long term working relationship is providing a win/win value. Of course you should do everything you can to provide great service to your clients, but ultimately if you are not getting value in return you will reach the point where you simply have to drop the client.
  2. It sets a precedent that your work is not valuable. After all you don’t deem it worth charging for. Ultimately the client will listen to you when you say “I am not worth your money,” and start treating you that way. Your quality will slip, resentment will build on both sides.
  3. Eventually you will try and burn through the free work as fast as possible. Less detail means more mistakes, this will frustrate a lot of clients and in turn frustrate you. “Why are they being so difficult? I am doing this for free!”

The alternative

While it may be hard, it is important to confront your client when scope creeps or you are asked to do a “quick favor.” Be understanding but also explain why it is important to charge, if for no better reason that it allows you to make sure you can service them in a quick and detailed manor vs trying to juggle a dozen freebies.

What you will find is that you will start doing a better job and your clients will be happier. Your clients will also understand, value and respect the time, effort and expertise that you are putting into their work. The clients who are unwilling to work in this manor are not worth your time and would just cause you more pain and suffering in the long run.

Bill for the hidden costs

You may not realize it but there are also a lot of hidden costs that you should also bill for. Project management is a large part of any project, sometimes the corrispondence with clients, delegation and planning can take just as much time as the labor itself.

Your business spends a lot of time and expenses finding new work. Track and monitor how much time and money is spent marketing for every project that you get. Your pricing absolutely positively should include that time and effort so that you can cover your costs. How you integrate it is up to you (setup fee, higher hourly rates, etc).

Also consider that you spend time and effort in getting better at your craft. Seminars, events, reading, researching, practicing, etc… These are all activities that not only cost your business money (even if just in time lost), but also makes you a more valuable service to potential clients. This is another hidden costs that a lot of companies simply ignore or forget to cover while pricing.

It is an ongoing process

Some of this concept is simply being strong enough to communicate with clients regarding what they are paying for (your hours and expertise) and how more work means more money. The other aspect of billing for everything is tracking and monitoring all of the hard/soft costs that your business has incurs daily. Once you figure out how to bill properly you will find happier clients, do better work and increase your profits.

15 thoughts Why you should bill for everything….

  1. I agree, and actually i was just thinking the same thing this morning.

  2. Thanks for this Ross, it’s helped elucidate the issue a bit and convince me that it’s just bad practice full stop.

    I know it does absolute horrors to your self-esteem – and even worse, to the client’s estimation of you – but this nails the coffin: You slip into all sorts of bad practice and everybody gets off worse.

    Cheers.

  3. One of the times I think this doesn’t apply is when after you’ve sent the client the deliverables and you both move on a glitch is found on the site. I recently ran into this where a bug in the programming was causing unexpected results. The error was very simple and just a missed line, so I fixed it for free. It was, after all, my mistake that should not have happened. Where I see this getting sticky is if the client has signed off on the deliverables and paid for the work, effectively saying, “Everything is just how I want it.”

  4. @Malte – yeah it is one of those “ah ha!” moments isn’t it?

    @Barney – I agree completely. Sooner or later you start to feel like your work isn’t valuable and your clients agree. If you offer value your clients should have no problem paying for it.

    @Philip – You are correct, the client should have to pay for your mistakes. On some level sign off should mean “I have looked it over, it is as I want” and even if there are some things that slip through some of the responsibility is shared.

    However if I made a mistake I would do it for free as well.

    Ross Johnson
  5. Thanks for the post. It’s a good read, but I must admit that I disagree. I definitely acknowledge that there are times when you need to bill, but there are most certainly reasons not to bill for every little change.

    Most importantly, it will build customer goodwill and increase the likelihood of a referral, which will lead to much more than that $100/hr you charged to change a minute detail.

    I wrote a blog post a few months back taking the opposite point of view than this article, about how design firms shouldn’t shrink from customer service and why we don’t bill for every small change: http://www.newmediacampaigns.com/page/when-companies-dont-fear-customer-support-everybody-wins

  6. Thanks for your feedback Clay, I love getting different opinions.

    I used to think exactly the same way, “it doesn’t make sense to bill for small changes, the customer will love me for doing free work.”

    However even my best most understanding clients became to expect work to be either free or cheap. So when they did want a change that really was going to take some time they felt put off that the price was high.

    When I explained the situation they said “Wow, I was taking advantage of you and I didn’t even know it.”

    The truth is that if you are providing good value and that value is generating results, then the price of your customer support will be heavily outweighed by the value they are getting in return.

    Additionally you will be able to provide BETTER customer support as the income will justify staff solely dedicated to support needs.

    Like I said, once you get a client roster big enough the freebies could take up all day every day and all of a sudden you are working 40 hours and generating no income. I must say that doing “freebies” is never a great idea from a business standpoint. Either it will prevent your company from growing or you will have to offset your cost (because non-billable time is actually an expense) by charging more upfront.

    It is important to realize that it is not about avoiding or fearing customer support, rather doing what you need to do so you can provide the best customer support.

    People will not complain about paying more if you exceed their expectations, however they will complain even if they paid less if you fall short.

    Ross Johnson
  7. This post is invaluable. I have learned this lesson the hard way, and completely agree with your points. A clearly defined proposal upfront also helps mitigate this problem. Thanks

    Laura Jaffrey
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  10. I totally agree, I sometimes am too nice to bill people.. I should really stop.

    Anyways, great post!

  11. Great post Ross. Agency owners often neglect to “give themselves a commission”. Remember if you are doing the selling and biz dev you deserve it. Work the commission into the bid price.

  12. OMG, wow, I have found this to be soo true.
    I am swamped right now with 3 flat fee projects that are killing me.
    Piling on so much work and changes and I blame myself for my loose verbal agreements.
    I am changing everything, my contracts and my pricing and no more freebies, ever.
    I am so mad at myself

    Linda
  13. I read this post a few months ago when I was struggling with giving away so many little “extras” for free. After several times of getting burned, I realized if I don’t place value on what I do and charge for it, why should they? I charge for everything now and I have no problems now asking for it either. What a relief. I have actually been able to pay my bills the last few months.

  14. This is a real eye opener. There have been a few occasions when I’ve done things for free and this leaves the client undervaluing you plus if it’s a significant piece of work you feel like you’ve spent good time working for nothing.

    Also I’ve found that clients will see a higher price and place more value on a service, which works in your favour, as long as the quality of your works lives up to the price you charge.

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