Should You Charge a Flat Fee or an Hourly Rate?
"I run a home organizing business.
"When I do a job for a client, my work is divided into two parts: the first part is the 'design' phase, when I look at the client's home and make recommendations -- including detailed drawings -- as to how they can improve their closets and other storage spaces.
"Once the client approves my designs, the second part is the 'implementation' phase, when I purchase the materials and install everything in the closets and storage spaces. Many of the vendors I deal with are 'to the trade only' in that they will only work through people like me.
"Earlier this year I committed to a big job. To get the work, I quoted a flat fee for the design phase of the project ($8,000), and an hourly rate for the implementation (purchase and install) phase. The client signed my contract and paid a $2,000 advance against the flat fee.
"Well, the client turned out to be the client from Hell -- they accepted my initial designs but then changed their minds, then changed their minds again when I submitted revised designs. I had to wait days for them to return phone calls and e-mails. I went through four different designs before they finally accepted one.
"Had I billed by the hour for the design phase, I would have earned $15,000, but had to settle for the $8,000 flat fee I quoted.
"It gets worse: when I submitted my invoice for the $6,000 balance for the design work, the client refused to pay and terminated my contract, wailing and moaning about what a terrible job I did and threatening to post negative reviews on Yelp.com. They have offered to pay me $1,000 to settle, which is an insult given the amount of time I put into this project.
"I have since learned that they have approached two of my competitors asking for quotes to implement the design I prepared for them, so I know they were satisfied with my work.
"I can sue them in small claims court but would be limited to a $2,500 recovery. Also, the courts are backlogged here due to the Covid-19 pandemic and it will take months before the case gets on the court calendar. What should I do differently to avoid these kinds of situation in the future?"
As you have learned the hard way, not every client you deal with is nice, honest and reputable. Sadly, there are some people in this world who will sign contracts without any intent to comply with them, calculating that they can bully you into a better deal later on. This is especially true when the amounts involved are relatively small.