02.06.2021

A freelancers contract

I remember when I started freelancing, that for most projects I'd use a simple contract template, which specified work to be done and a budget. Contracts are mostly meaningless until the aren't. For the first 8 years I never revisited a contract. I delivered what I had promised and the client paid what they owed.

Two scenarios can change your perspective on contracts.

1. You realize that you're not protected against runaway scopes
2. Your client realizes that they disagree with your understanding of the contract

So in this post I'll share a few of my most worthwhile additions to my contracts.

Paid for what?

Contracts can outline a few different ways of getting paid, or combinations of these.

• Estimates
• Fixed price
• Share of revenue

Estimates

When you sell based on estimates, that means your client accepts the risk of overtime. In practice, it does not mean that you should invoice 100 hours and then another 50 on completion. But once the estimated hours are spent, you need to reengage with your client and provide a new estimate, which they must also accept.

This ensures clarity on both sides about the financials of the project. It also provides you with a route of escape: If the initial estimates are way off, you can withdraw from the project and still collect payment for the first 100 hours.

Fixed price

The key to selling on a fixed price is having the discipline to add 10 - 30% to the price you've originally concluded was correct. The percentage is based off your personal experience, your perception of the client and the overall risk of the project.

The overall risk of the project is assessed by how strictly the scope is defined. Lets say you're building a webapp. If the client approaches you with wireframes and specifications of all functions and integrations, then the risk goes down. If there are no wireframes and you can't clearly see the route from A to B, then the risk goes up.

In the same vein, you'll meet clients who change their minds several times during the first couple of meetings/calls. This is perfectly fine of course, but if its a continued thing you need to be clear on who pays for those flip-flops.

I always add a "Maximum overrun" clause to my fixed price deals, such that if the scope is increased by more than 30% the excess must be paid separately. Exceeding estimates can be both your fault because you didn't think of everything, or your fault because you didn't manage the scope correctly. The client will always try to get the most value out of the contract and thus push the scope to its limits. Its important to manage this continuously through large projects.

Share of revenue (SOR)

Sharing revenue can be very enticing and I have done a few good deals based on the concept, but I'll share a warning and a story.

Don't ever let SOR stand alone, make sure there is some minimum payment attached to some maximum of hours. If your standard hourly rate is 150€ then I'd not recommend you accept a deal that puts you below 75€ + SOR. This means in bad times you are hurting with your client, but not dying. And it good times you are making up for previous losses.

But be aware that once things really get going, they'll end up paying maybe 2000€/hour for your time, which makes you a very bad investment by comparison and they will try to find a way out of the deal. You can't fault them, I'd do the same, but you must enter into the agreement knowing that this is the inevitable outcome, so make sure you agree on an exit strategy and timeline for it.

Also, make sure that your hours are capped. If you are taking a hit with them, you can't allow that hit to affect your entire business. Accept losses, but limit them. That's the price of the high upside. Failure to protect yourself can have dire consequences and will likely ruin your relationship with the client.

Story time: We have a huge travel site here in Denmark, that I was fortunate enough to work on in its early days. They didn't get a lot of traffic and as a result weren't making money. They contracted the company I worked with to do some SEO but because of budget constraints, they wanted a No-Cure-No-Pay deal, which meant that they only paid once certain high-value keywords hit Top 3 on Google. For 13 months we slaved away making as many improvements as possible and finally we dominated the Googlespace they wanted. The invoices that had been close to zero for more than a year, suddenly became a goldmine.

The CFO reached out to our CEO and said "These prices we're paying are insane, more than triple what we can get anywhere else, we want to renegotiate". My CEO being a kind and sweet soul, agreed to find a middle-ground. (note: I personally think this renegotiation should have been pushed back 13 months so we could recover our losses). The CFO was grateful and said "Please send me a cancelation of our current agreement, and I'll send you a framework for our new deal". My CEO sent the cancellation, but never received anything in return. We were simply tricked. And 13 months of work went down the drain. The travel aggregator however, is one of the biggest - if not the biggest - in Denmark today. Lesson learned.

Measured how?

As a freelancer you often end up being paid by the hour, but what comprises an hour? If you're using a time-tracker, you'll see a lot of entries for "46 minutes" of this and "52 minutes" of that. I recommend that you add to each of your contracts a minimum interval that you register time in, like 15 minute slots. So 1 minute of work is invoiced as 15 minutes, as is 14 minutes of work. Registering by the minute makes sense only if you're guaranteed to move freely from one task to the next, but for most things there are distractions, context switches etc and somebody has to pay for that. If its always you, you're losing out.

A typical scenario is that I'm working on a project for Client A. Suddenly the phone rings, Client B has an urgent issue he needs to discuss, so I flip my task-timer to Client B while we speak. Once the call is completed, I flip back to Client A and resume work. But I'm not at 100% concentration for the first 5 minutes or so. Who pays for that? In fairness, Client B should pay but often, either you or Client A foots the bill.

I did meet a fellow a while back, who gave a handsome discount (almost 50%) for support-assistance, but in return he would register time in increments of 30 minutes. After a year he found that the average length of a call was 6 minutes so he ended up working fulltime at 300% his normal rate. The customer also liked the deal, because what was most important to them was predictability, not savings.

Managing expectations & deadline

The final 2 points are interconnected. The most important dial we can turn to raise customer satisfaction, is managing expectations. I always try to exceed my clients expectations in a very practical way: If there are clear improvements/up-sells that the client has not accepted to pay for, I will try to fit in 1 or 2 of these within the scope. Its a small thing, but over time it produces lots of smiles.

The one thing you cannot afford to be lax with, is deadlines. Some projects have multiple deadlines that stretch over several months. That's perfectly fine, but I also recommend putting in an additional field in your contract/timeline: Requirements.

Example

• Deadline 1: Create design
• Deadline 2: Implement design
• Deadline 3: Test implementation

Its clear that if the first deadline isn't met, both 2 and 3 shift accordingly. Creating the design is usually a predictable process, but getting it accepted by the client can take a while longer than expected "It looks good, but I have a few comments I'll send you tomorrow" and then 5 days passes and still no comments. Everyone needs to know up front that delays trickle down in these cases.

The worst example I can think of came just a few years ago. A customer had contracted me to build a fairly complicated e-commerce site/marketplace. It was due to launch in November and they had a deadline to deliver content and product categories no later than mid-october. I received the content mid-february and by late-february I had the customer screaming on the phone that he was about to contact his lawyer since the project was now 4 months delayed. It was delayed of course, but it was his own fault. In his mind however, he had figured that everything was ready just to plug and play, and my calendar was completely free since I was just waiting on him. Neither were true. Had I managed expectations better initially and shifted the entire schedule for every day he was delayed, I doubt he'd had been shocked over a 3 week delay. Lesson learned.

A final note on deadlines: Add buffers. If its a small thing, add 1 day if there risk is higher add a few more days. There is never any punishment for delivering ahead of time and on budget and as freelancers a sports injury, bout with the flu, family situation etc will impact you and you alone.

When are we happy?

This final point relates to deadlines in that you need to clearly define what constitutes a delivery. Think on our previous example "Create design". Is it created when you say so? Or when the customer says so? If the customer does not approve your first design, how many iterations do you allow?

When I've sold projects with creative elements, I've opened the negotiations with "1 round of corrections", meaning that if the client has objections/comments they must compile them in a single email. I will then handle every item within the original scope, but if they're still not satisfied we need to agree on some overtime compensation. About half of my clients over the years push back on this and demand "2 rounds of corrections" which can also be fine. But no upper-limit is never good idea as a 100k design can be iterated on a thousand times ending up as a 1 million dollar design. Of course if that's what they want, they'll get it but they'll also pay for it.

Happy freelancing!