Taking Your Web Development Business to a Full Time Income
7 January, 2009 - General Business, Web Design - 20 Comments
Photo by Stuck In Customs
As somebody who has been in the Web development industry for seven years, self employed for five of those, I’ve seen many Web development companies succeed and fail. For those companies that succeed, there are two glaring things they do different from those that fail.
- They outsource 85% of the work they receive
- 50% of their profit comes from monthly, subscription based payments
I’ve previously spoken about outsourcing so I won’t do that again. Today, I want to talk about recurring payments that are highly profitable, useful for both you and the customer, and can, if you let them, ‘make’ your business.
First, I want to identify three types of recurring payments your Web development business could be bringing in each month.
Web Site Maintenance
This is the obvious starting point. Customers always need changes to their Web site. They always need pages adding, news and events changing or photos adding. Sure, there comes a point where a full content management system is needed so customers can make changes themselves, but until they get to that point you’re going to be their frontline man.
In my previous company, monthly payments from maintenance contracts were vital to our operation. We had a 50% conversion, so for every 10 customers we brought in, five would signup to a maintenance contract.
How Do Maintenance Contracts Work?
There are any number of ways you can design the contract. The best way I found was to have several maintenance packages, all giving a specific amount of work hours per month and all with a discounted hourly rate for work that goes over the allocated amount of hours.
Your packages may range from a basic two hours work per month and a $10 reduction in your hourly rate on everything over the two hours to 10 hours work and a $20 reduction in hourly rate.
How Do You Sell Maintenance Contracts?
The difference between Web sites and traditional media is Web sites don’t stand still. They’re mobile and constantly evolving and changing. At least they should be in order to take full advantage of your human audience and search engine rankings. Sell your clients on the importance of regular updates and maintenance. Maybe within your contracts you’ll include a monthly ‘Link Audit’ to check for broken links.
Sell the benefits of a Web site that is updated and maintained on a regular basis.
Web Hosting
The next obvious monthly contract is Web hosting. Reseller Web hosting accounts are dirt cheap these days, even with a reputable company. Get a reseller and sell Web hosting to your Web development clients.
As somebody who, for four years, managed a separate Web hosting company with multiple dedicated servers that was open to everyone and anyone (Not just Web development clients), I strongly advise you don’t mix the two any further than a basic reseller for your Web development clients. Web hosting is incredibly time intensive with very little return, compared to Web development. While Web hosting for the general public is a good place to be if that’s the only place you are, I strongly advise staying away if you’re also running a Web development company.
If You Say Stay Away, Why Offer Web Hosting to Your Development Clients?
- Your Web development clients will require far less support than the general public.
- You won’t have the hassle of having to deal with dedicated servers.
- Assuming your customers are within 50 miles of you, you won’t have to provide 24 hour support like you would if serving the general public
- It’s one more Internet service your customer is giving you. The more services they have with you, the longer that client will stay
- You can charge your development customers more for Web hosting than you can the general public. Whereas much of the Web hosting market cares little about quality and a lot about price, your local Web development customers are more in touch with reality and care more about quality and control as opposed to price.
By serving Web hosting to your Web development clients only, hosting becomes a very profitable, low-maintenance, low-support task.
How Do You Sell Web Hosting?
I’ve secured Web hosting contracts from my development clients for several reasons. Sometimes I tell them they have the option of launching their Web site within the next five minutes after I setup their hosting account in our system, or they can wait 48 hours and endure the hassle of ordering Web hosting for themselves via a 3rd party company. Unless they have some sort of personal attachment to the 3rd party, they’ll almost always choose the “Launch in five minutes” option.
Of course, the other sell point is the fact it’s so much easier to maintain and setup their site when it’s hosted and developed by the same company. Some Web sites require certain technology on the server. You can guarantee your server will have everything needed to get the Web site launched. And should there ever be a problem, you’ll be just a short drive down the road if the client wants face to face support.
Analytics Report
This is my own little baby. An idea I came up with at the back end of 2008, and as yet, one I’m still to test. However, judging by the requests from past customers, it should sell like wild fire.
Give your customers the option to pay a small monthly fee to have you send them a monthly report of their Web site stats.
Over the last six years I’ve seen lots of my customers ask about stats. Sometimes they’re asking if they can see their stats. Sometimes they’re confused about what certain features in the stats program are saying. And other times they’re complaining that it’s so time consuming and complicated to see how many visitors they’re getting and what those visitors are doing.
So late last month I came up with the idea of a basic report that would be emailed to customers monthly as a PDF. Probably ten pages in length outlining the previous months visitors, page views, most popular pages, most popular exit pages, search engine rankings etc. The report itself is based on a pre-written template that is setup to allow the customers figures to be easily dropped in via a database or spreadsheet.
How Do You Sell Analytics Reports?
You sell the reports on the basis of making your customers life easier and how valuable your expert opinion is. You’ve had six or seven years experience reading these reports. You know what every little detail means and you can spot the bad, the good and the ugly. But best of all, your experience allows you to make informed suggestions about ways to improve their Web site during next months maintenance contract. They *do* have a maintenance period, right? 
It’s as much about making your customers lives easier as it is about giving you a regular monthly income and extra business.
How Much Money Can I Make?
I ran the math on all this last week. Here is what I found.
Let’s assume you get two new customers each month. Or 24 each year. At the absolute bare minimum, you’re going to be bringing in $1,000 from each of these projects. You’ll likely bring in much more, but let’s start small. So that’s a turnover of $2,000 per month, or $24,000 per year from basic projects.
Now, let’s set some rough prices for each of the monthly contracts.
Maintenance - Although you’ll have several different packages, we can reckon on an average of $100 per month per contract
Web Hosting - Again, you’ll have many packages, but let’s say an average of $50 per month per contract
Analytics Report - I reckon most customers will happily pay $50 per month for this
Let’s determine how many customers will use a monthly service. After all, not all customers will use all services. Here are some rough but very achievable figures.
Maintenance - 10 per year out of 24 customers
Web Hosting - You’ll probably have a high conversion with Web hosting, so let’s say 18 out of 24
Analytics Report - I’m yet to take this to the market, but I think it will have a conversion between maintenance and Web hosting. Let’s say 13 out of 24.
Assuming we get those numbers, that means after 12 months we’ll be bringing in $2,550 per month from monthly contracts alone. Add your two monthly projects and you’re looking at a monthly turnover of $4,550 after 12 months.
Let’s try and figure out how much that will equate to after one year of offering the monthly contracts. Of course, as the months go on you’ll make more money each month as more customers signup. For the sake of these calculations, let’s assume we get all the monthly contracts as early in the year as possible.
I won’t go through the math because it was long and boring, but in an ideal world where you got all the contracts as early in the year as possible, in theory you could make $23,200 in the first 12 months just from monthly contracts. Add your $24,000 in typical project fees and you come out with a turnover of $47,200! Not bad for a freelancer’s initial 12 months.
If you’re not making use of monthly contracts and not treating them as an integral part of your business, you need to start doing so today! They’re a goldmine waiting to be tapped, and best of all, just as useful for your clients as they are for you.
Do you make use of monthly contracts such as the ones mentioned here? How much of your profit comes from these contracts? Let us know in the comments!
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Posted on 7 January, 2009 by Jamie Harrop
Filed Under General Business, Web Design |
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Fantastic idea.
I’m not sure if it is the way I currently approach my clients, or what they expect but I’m not sure I would get conversion rates as high as what you mention.
A lot of my clients also only need static brochure web sites that rarely need updating, but then I suppose it is up to me to sell why they need a maintenance contract and a $50 per month hosting plan!
Sure - if I could do this it would transform my income. you’ve got me thinking Jamie, thanks.
I reckon the problem you have is the type of clients you attract, Tjobbe.
I know only too well the problem of attracting clients who just want the basics.
But maybe it’s time to step up and find some larger clients. Of course, they don’t have to be large. Restaurants, bars and pubs are a great source as they require constant updating as they add their new events and photos. The same goes for almost every other type of customer in the entertainment industry.
I’m glad it got you thinking.
Jamie
Jamie
as usual man - great post, i ALWAYS take something useful away from your blog, literally everytime i visit.
I have not yet launched my big consolidation venture, but it really is coming soon… at which point I will certainly put into effect your re-occuring revenue model… right now we’re simply too busy… lol, we’re bidding for a large entertainment social network and i’m honestly scared we may get it
Cheers
-Nick
Hey Nick,
It’s fantastic to hear from you again.
I’m glad you found the post useful.
Regarding the social networking, it sounds like you’re having an “OS!M”. (An “Oh Shit! Moment”). They usually happen when you’re about to do something so awesome that it’s scary. I hope you win the bid!
I can’t wait to see your new venture, Nick. Please do let me know once it’s started.
Jamie
Perfect timing with this post Jamie.
This is a topic my business associate and I were discussing just yesterday. We have differing opinions on maintenance agreements.
To be honest, I’ve always shied away from maintenance agreements as a) I prefer to be spending as much time on higher value new projects as possible and 2) Similarly to other commentary here, I’m not so sure my clients would go for a $100 a month maintenance plan.
But, I’ll be reconsidering the whole approach.
Thanks again for anoher inspired post!
Morning mate!
Here’s the thing with maintenance agreements:
1. They’re a guaranteed source of income each month. A big problem a lot of freelancers have is not knowing how much they’re going to get paid next month so they find it hard to get comfortable. By using maintenance and other monthly agreements, it almost acts as your guaranteed monthly wage.
2. They’re recurring. Give it ten months and one maintenance contract will be worth the same as one normal development contract. Plus any work that has gone above the specified amount of hours in the maintenance package. Plus any extra major projects that the client has given to you because the maintenance package kept them using your services as opposed to somebody else’s. Plus the 10 other customers on maintenance agreements.
3. Some months, customers won’t want any work doing. So you get your maintenance fee and do no work. Cool!
They’re a long term service. And they benefit you in the long term, and can (and should), be a good proportion of your annual turnover.
In terms of cost. I honestly think, as freelancers or small business owners, we far underestimate the turnover our clients are seeing. Really, what’s £50 a month to any half-decent business? It’s nothing. Most businesses will make a profit on that £50 from just one customer. So if their Web site brings in just one customer a month, they’re making a profit.
Hope that helps!
Jamie
Hi J,
Thanks for the response.
I do get and understand all your points.
But actually your point 3 hits on the exact reason I feel uncomfortable about maintenance agreements. Taking money for nothing. And the fact that a client will spot this potential upfront and think your trying to pull one over on him.
I suppose offering a process whereby the designer contacts his client each month to say “What do you need this month Mr Client?”, or “Here’s my idea for changes to your site this month Mr Client” would help.
Or do most designers hide away from the client hoping for the money for nothing scenario? Is that the preferred option?
Seamus
I’m with you on that point Seamus, and what I have been contemplating is having a maintenance package that if there is any spare time left at the end of a paid for month then I would utilise that time and do some search engine optimisation for the client. This would involve looking at their stats, seeing how their keywords perform and making some tweaks and adding content in their allowed time frame.
I suppose what I would say to the client when I’m selling them the package is that I will give them two hours of updates per month at £60 (or $100) and in that two hours I will happily add content, images and make any changes requested by the client (within reason). If they have a quiet month then I use the time and spend it doing SEO on their site.
You’re such a business guy. What you should market to small companies is blog hosting. Some sites could use some blog’s to stay up to date even though they use a static page.
You have a good approach and a business-like mind.
Hey Rowell,
Thanks for the compliment. I like to think I occasionally know something about what I’m writing.
If I was going to go back in to the Web hosting industry, I’d do so as a host for bloggers. There’s a huge market there and a lot of bloggers who are unhappy with their current host. I just can’t bring it upon myself to go in to the market right now. I left the hosting scene for a number of reasons of which I haven’t forgotten (yet). Once I forget why I left, I’ll probably go back in.
Thanks Rowell!
Jamie
Wow, great post Jamie.
I did this with one small sport gears shop. Since I am doing internet marketing, then I offered them my services. I made their small and non-converting website into a money fountain. Their website is making more than they sell their stuff physically. And yet, they pay me to maintain their website, give them tips, and I analyze the stats for them. I just did this while walking by the shop, and I entered it and I offered my service.
And Geo - Targeted search marketing is really easy, but really valuable. Try to get in the 1st spot on google with “sport gears” keyword. But if you use such as “Sport Gears + London”, then it’s another story and I was able to get that guy’s website in the 1st post on google in couple of days. This is how internet marketers can also make their money offline.
All the best,
The Moneyac
Hey Chris,
It’s a fantastic feeling when you help boost sales for a business, isn’t it?
Do that for ten more customers and you’ll be loving the monthly turnover.
Thanks for the comment, Chris!
Jamie
Excellent article Jamie.
In today’s climate regular income is going to allow you to survive!
I’m starting to do some freelance work at the moment, and I’ve been debating how to position the maintenance contract. I was thinking for projects that include an external web app (i.e. Wordpress or Moodle) to offer an upgrade service for a fixed fee or for a fixed yearly fee include X number of upgrades throughout the year. I’ll definitely re-evaluate after reading this.
I agree with you about the hosting, been down that road of running a hosting business. Definitely not worth it!
Jon
The Analytics report is a winner for sure. I’ve been running my “real” business for eight years and it’s very dependent on contacts driven to it by the website. Until I got into blogging, I had no idea about the level of detail you can get on your web traffic via, say, Google Analytics. I was gobsmacked when I saw what you could do with it! I would have been very happy to pay €50 a month to get a report explaining the information to me, with a series of recommendations based on the report.
Of course, now I’m a web pro, I can do that all myself!!
Some very good idea’s there, another option is to recommend them useful services which you will gain a residual affiliate commission from, such as Aweber.
[...] Jamie Harrop had a post a few days ago about charging clients a fixed monthly fee for the web / design / maintenance work he does for them. You can read his post here. [...]
Like all your comments and definitely found them interesting. One thing i am confused about it if we get Google Analytics’s which is free how do I charge the customer? Because although i will integrate Google Analytic s but at the end of the day i have not made the actual software.
Hey Sarah,
You’re not selling the Google Analytics integration. What you’re selling is a custom monthly report that you can send to your customers.
Many customers struggle to understand Google Analytics’ interface, so if you take the basic numbers in Google Analytics and put them in to a standard Microsoft Word report, your customers will find it much easier to interpret and understand how well their site is performing. It’s this process of taking the numbers and compiling the report that you’re charging for.
Hope that helps!
Jamie
Hi Jamie, Sarah,
As I stated previously, I always was wary of selling maintenance agreements that were difficult to justify. So I decided to make sure they were justifiable.
I offer a guaranteed fixed amount of time to work on a clients site per month. But what really swings it with the client is my offer to provide recommendations for improvement each month.
And one of the ways to help you suggest improvements is through providing a concise, lay-man’s interpretation of Google Analytics.
“Here you are Mr Smyth, your nice and easy to understand report for this month show that the most popular search term for finding your site was “Training Shoes”. Now, Mr Smyth, as an electrical engineering company who doesn’t sell shoes, I think you should be doing this, this and this.”
And to implement this, this and this normally takes more than the fixed hour and so generated more income!
Hope that adds to the conversation some.
Seamus
Excellent comment mate!
You put it far better than I ever could. The maintenance contracts combined with the stats report provide the perfect way to provide even more of an up sell to a customer.
Jamie