One of the issues surrounding any web design and development contract negotiation is the issue of what payments should be processed at what time. Traditionally, agencies and clients have agreed to invoice and settle payments around agreed-to milestones. However, this practice has negative consequences for both the agency and the customer.
Milestones linked to payments are negative in the web design and development industry for an important reason. During almost all projects, the phases of production often can occur concurrently. Therefore, placing a requirement for payment to be paid at completion of a certain phase can discourage the agency from the larger goal and instead have them focused on the short-term goal, with the interest of getting paid.
That may sound as if the agency is selfish or just concerned about money. This isn’t usually the case. Remember, the triumph of an agency is to deploy a site and have it living in a real world environment. Most agencies are motivated to continue working on a project at the quickest pace acceptable to the client, as opposed to having some project drag on for long periods of time.
So how do these delays occur?
An example would be helpful: a typical waterfall web development project may include the following phases: discovery, design, front-end development, back-end development, and deployment. A client may see these as logical positions for payments. Perhaps a deposit, a payment at the end of design, another at end of back-end development and another prior to deployment.
But what if the design phase is stalled over one or two templates? Many times, projects can have twenty or more designs that constitute the “design phase”. In the case that 18 are approved and ready for development, what happens then? With milestone payments, the onus is on the agency to complete those designs prior to payment.
Which in turn means the agency’s best way to cover the upcoming development cost is to achieve the milestone but not move further. In this way, a page or feature that is less than 5% of your project can cause it to be significantly delayed, which is oftentimes how an entire project can become derailed.
This is commonly an issue during the design phase, more so than development. Custom web design projects require a continuous feedback loop from a client to the agency. If that loop slows, the entire project can stall. By the time development begins, clients have already approved all designs, which allows the agency to develop the front-end and back-end at a faster, uninterrupted pace.
What are better alternatives?
At NP Group, we have three scenarios we recommend for web design contract milestones and payments. First, there exists a possibility to use a date-based milestone agreement. In this agreement, the client and agency agree to dates for all payments.
This is beneficial for the agency as they can plan cash flow and resources. And it’s great for the client because it becomes an accountability factor to encourage internal personnel and project managers to get feedback and approvals quicker. Also, the client can benefit from the proper planning of cash flow as well – date based payments can be spread out to be smaller than milestone payments and are predictable for budgeting and forecasting.
A second way to handle this in a contract is to work in percentages. Instead of stating that milestone #2 is “completion of design phase”, you can indicate that milestone #2 is billable at “completion of x% of required designs” or “completion of a significant portion of required designs”. This allows leeway in processing the next payment and allows the agency to continue with the design and development project.
The third scenario, which typically is the most beneficial to the client and the agency, is to simply “pay as you go”. This arrangement works best in an agile environment, where the client leases team members as opposed to a fixed bid and fixed specification. In an arrangement like this, clients will have dedicated resources allotted for X amount of time.
With daily updates and communication, the client is an active part of the project from day one. Progress is shown quickly and there is never a need for a change order because the spec is being constantly refined. Many agencies are working primarily with this model. However, clients are slow to come around with this arrangement because there is no safety net in terms of a fixed price and schedule.
With many different options to choose from, it’s understandable why design and development projects end up the way that they do. Hopefully, these three scenarios have offered some insight into helping you realize there is a better way to arrange the payment of your Web project. We have seen how these different scenarios play out which is why we’re offering our expertise. Please consider your options carefully before diving into your next project, so that you can get the maximum benefit at the best budget for you needs.
