There are two final alternative to charging hourly rates–performance pay and retainers. Like the name implies, performance pay means a good chunk of your income is based on the results you achieve–whether it’s called a commission, royalty or some other name.
In theory, it’s a great idea—the more the client benefits from your work, the more you make. But it’s much more complex than project fees or package pricing.
Pros of the Performance Pay Approach
- Earning far more than you would have made with a flat fee if your work hits a home run for the client
- Signing on clients who may not otherwise be able to afford you
- Definitely getting results you can use for future testimonials (since it can be so hard to get them otherwise)
Cons
- Possibly doing a lot of work for very little money if the project bombs
- Others killing your results because they’re not doing what they’re supposed to do (unless you have full control of the project)
- Relying on the client to compensate you accurately unless you have direct access to the results
- Getting a smaller upfront payment than with a flat fee arrangement
- Estimating is exponentially more difficult, since you’re trying to predict earning potential
In my opinion, the cons of the performance pay approach far outweigh the pros unless you’re working with someone who has a proven track record (although no one is failure-proof) and who you’d trust with your first born. Of course, it’s still smart to “trust, but verify” as they say.
Retainers are arrangements where a client pays you a set amount every month for specific services.
Pros of the Retainer Approach:
- Receiving steady income throughout the year
- Getting paid whether or not the client uses you
- Becoming more of an advisor to the client, instead of “just” a writer/designer/coach or whatnot
- Having little to no learning curve with the projects each month, so they should take less time than the same project with a new client
- No surprises at invoice time since both of you know how much they’ll be paying from the start
- No estimating, once the initial contract terms are set
Cons:
- Clients who feel entitled to all of your time and/or expect you to jump the moment they need you
- Some clients will demand detailed records of your time spent
- Having to “eat” the extra hours if you underestimate the time it’ll take for all included projects
- Needing to sharpen your skills at defining the scope of the project so it’s crystal clear what is and isn’t included and you avoid the sting of “scope creep”
- Renegotiating the contract terms ( and your compensation) every year
- Being “locked in” to working with that client may be a problem if you suddenly need extended time off or decide to move your business in a different direction
Personally, I’ve always felt the cons outweigh the benefits of the retainer approach because you’re essentially at the client’s beck and call…making it hard to plan your time and putting you at risk of doing more work than you originally expected.
However, it can work in a situation where you’re doing the same exact projects month after month…and you’re good about drawing the boundaries when necessary.
Finally, we’ll look at whether hourly rates are ever a good idea.
