Being a Smart Businessman

[Rick L. Allen]

Great advice from another pro forum;

10 Tips to help designers avoid being taken advantage of.

If you’re freelancing or just starting your own design company, you may be in jeopardy of being a whore. That’s right. Some seemingly sweet client may come along, wine and dine you, bend you over the back of the couch, have their way with you – then dump you like last week’s trash without paying you. You may be getting pimped right now and don’t even realize it. If you haven’t been stiffed by a client yet - just wait five minutes.

After 11 years in business I feel like I’ve learned to spot the busters and know how to avoid them. But, I’m still learning lessons every day. Here are ten quick rules for you to live by, so hopefully YOU won’t get “turned out.” After all, nobody wants to be a design whore.

1. Require a deposit. This is my “A” number-one rule for filtering out busters. People that want to rip you off don’t want to do it partially. They want to rip you off completely. Having to make a cash deposit will scare off at least 80% of the jerks that will take advantage of you. I try to get a 50% deposit on projects. But larger projects – say over $5,000 I’ll take 33% or 25%.

2. Hold their files until final payment is made. It’s a shame that we have to resort to this sort of hostage negotiation to get our payments, but we do. As long as you hold the files - you hold the power. The second you hand over your files, you’re screwed. And don’t fall for the old: “I need to get those files to the printer immediately! We have a crushing deadline!” A client that is trying to rush you is a serious red flag. Your response should be: “I also have a crushing deadline! I need your money in my bank immediately!”

3. Beware of fast-talking promoters. Most busters that are going to rip you off fall into the category of “fast talking promoters.” These guys are full of energy, talk really fast and are GREAT at getting you excited. They feed off of your emotions. They compliment you a ton. Their project (whatever it is) will surely change the world, and YOU get to be part of it. They will frequently make huge predictions, and offer you piles of cash. Of course, these piles of cash come later. Right now they just need you to start working (for free)… and everything will pan out in the end. You’ll be rich and famous. Yeah, right.

4. There are no future profits, so don’t count on them. 90% of businesses fail in the first year. In my experience it’s closer to 99%. So, keep this in mind when someone offers to pay you a portion of the profits. Odds are - there won’t be any. And even if there are some profits – what are the odds they’ll actually share them with you if they come in? I’ll tell you: slim to none.

5. Avoid projects that are TOO BIG. Huh? Avoid big projects? What do you mean? Here is the rule: beware of projects that are larger than 10% of your previous year’s total sales. So, if you sold a grand total of $100,000 worth of design services in 2008, you should be a little wary of projects over 10K. Why? Well, it’s easy to over extend yourself. If a project is too big, it may monopolize all your time. Your other regular customers may have to be put on the back burner. You may even lose them. Then what happens when the project ends? What if the client doesn’t hire you again? Of course you want to grow and land big projects. Just be sure not to get too dependent on one customer. Stay diversified. Keep your options open. Or else you’re over the barrel. Your one big client may make you his whore.

6. Don’t let the little stuff slide. One way I’ve been taken advantage of is through the rapid compiling of little changes. The client starts all nice and easy to work with. Then they ask for one little extra bit of work. They purposely avoid talking about extra pay and play down the amount of work it will take. “Oh hey – could you just throw that logo onto a t-shirt too? It will only take a second.” Of course, this is just the start of a whole series of “little” additions. Pretty soon you’re working for days on end with no pay. So, the very second they try to add some little item onto the project; stop them cold and say: “Why sure, I would love to do that for you. It will only cost you $x.xx. Would you like me to charge your Mastercard for a 50% deposit?”

7. Document everything through e-mail. When clients do make changes that deviate from the original project scope, make sure you document that very clearly in an e-mail. For instance: “Mr. Jones, as I understand it, you want me to scrap the logo you gave me and now want me to design you a new logo as part of your website design project. As we were expecting to be working with your existing logo, this additional work will cost an extra X dollars and take an extra X days to complete. We will require a deposit of X dollars to begin this additional NEW work. Please confirm with an e-mail and we will charge your credit card for this deposit. Thank you for the extra work!”
God forbid you ever end up in court – these e-mails will prove invaluable as evidence. Many companies even use a “Change Request” form. The client has to literally sign on the dotted line and fax the change order back.

8. Make sure checks clear. A check isn’t cash. So, I like to make sure that checks clears in my bank before I start work.

9. Get out-of-pocket expenses paid for 100% in advance. This is a HUGE one, particularly if a client is ordering printing and you’re handling those up-front costs. We got royally f*cked this way once. I was paid for my design services ($600) but paid $1200 up front for printing, which I got stiffed on. So, the net result was that I PAID THIS JERK $600 for the privilage of designing him a flyer. Now Go Media requires all “out-of-pocket” expenses get paid 100% in advance.

10. Define the project scope as clearly as possible before starting. Whether it’s in a proposal, e-mail or invoice; define the scope of the design project as clearly as possible. Describe exactly what you’re going to produce and in what time frame. Talk about the number of revisions and how the files are to be delivered. Discuss the payment details. Talk about how much extra work will cost. Talk about it all. The more details you can put down the better. Once you start – stick to the project scope.

[Tripp Woelfel]

Rick... Great info. You might want to call this "Entrepreneur 101" as it applies to almost any business from silk screen printing to video production and even general contracting. Great advice for anyone running a business.

[Shaun Roemich]

Ouch Rick, if I could only BEGIN to tell you how close to home you hit on some (like HALF!) of these pearls of wisdom...

PS. And I've been running my own biz now for ten tears and I STILL get bitten EVERY SO OFTEN...