So what is the key to encouraging someone to recommend your business to others? How do you reward or incentivize people to refer new clients?

Showing Your Appreciation
You could just thank people for sending business your way. You could show your appreciation through a small gift or gesture. Or you could reward them with a discount or other offer tied to your business or service? So which to choose?

The question is really about social norms (doing things to help someone out or feel good about yourself, asking for a favor) vs. market norms (being financially rewarded for something, paying for a certain action, creating financial incentives to provoke actions). Either can play a role in what someone chooses to do.

The Science Behind Our Behavior
In his book, Predictably Irrational, behavioral economist Dan Ariely illustrates the effects that social and market norms can have on our behavior and how fragile social norms can be.

He shares the following story about a day care center in Israel:

An excerpt from Dan Ariely’s Book Predictably Irrational

My good friends Uri Gneezy (a professor at the University of California at San Diego) and Aldo Rustichini (a professor at the University of Minnesota) provided a very clever test of the long-term effects of a switch from social to market norms. A few years ago, they studied a day care center in Israel to determine whether imposing a fine on parents who arrived late to pick up their children was a useful deterrent. Uri and Aldo concluded that the fine didn’t work well, and in fact it had long-term negative effects. Why? Before the fine was introduced, the teachers and parents had a social contract, with social norms about being late. Thus, if parents were late — as they occasionally were — they felt guilty about it — and their guilt compelled them to be more prompt in picking up their kids in the future. (In Israel, guilt seems to be an effective way to get compliance.) But once the fine was imposed, the day care center had inadvertently replaced the social norms with market norms. Now that the parents were paying for their tardiness, they interpreted the situation in terms of market norms. In other words, since they were being fined, they could decide for themselves whether to be late or not, and they frequently chose to be late. Needless to say, this was not what the day care center intended.

But the real story only started here. The most interesting part occurred a few weeks later, when the day care center removed the fine. Now the center was back to the social norm. Would the parents also return to the social norm? Would their guilt return as well? Not at all. Once the fine was removed, the behavior of the parents didn’t change. They continued to pick up their kids late. In fact, when the fine was removed, there was a slight increase in the number of tardy pickups (after all, both the social norms and the fine had been removed).

This experiment illustrates an unfortunate fact: when a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to reestablish. Once the bloom is off the rose — once a social norm is trumped by a market norm — it will rarely return.

The fact that we live in both the social world and the market world has many implications for our personal lives. From time to time, we all need someone to help us move something, or to watch our kids for a few hours, or to take in our mail when we’re out of town. What’s the best way to motivate our friends and neighbors to help us? Would cash do it — a gift, perhaps? How much? Or nothing at all? This social dance, as I’m sure you know, isn’t easy to figure out — especially when there’s a risk of pushing a relationship into the realm of a market exchange.

More Than Just Money
Which brings us back to your clients. Clearly there is some market relationship between you, as there is a financial exchange for the service you provide. But the best client relationships also share a social bond. Besides enjoying your work, your customers should like you as a person (we all want to do business with people we like). And when you are liked, your clients will want to help you. They will also want to help the person they are referring you too, as they feel the service you provide would be of value to them.

The Importance of Giving
This social bond should also be a two-way street. I encourage my clients to reach out to me with questions, even if I don’t charge them for it. And I occasionally sprinkle in a little work here and there that I don’t charge for. Some people would call this working for free. I consider it doing someone a favor. And it’s been my experience that people are always excited to be able to return a favor (like through a referral). I usually only do this for clients who I feel are friends as well as customers. And it’s usually that same group that sends me new business.

Plus, a referral is much more powerful when it’s delivered due to social norms. When there is a financial reward involved, it dilutes the value of the recommendation. It creates the perception that someone may be recommending you not because they value your service or want to help you, but because there is “something in it for them.”

This isn’t to say a reward can’t be offered at all. A nice bottle of wine or tickets to an event can always help you express your gratitude for their support. But keeping any rewards seperate from whatever service you provide can help establish and protect the social bond.

Keeping The Balance
Balancing the social and market aspects of your client relationships can be tricky at times. But keeping the right mix of both is crucial to success. Otherwise, you run this risk of becoming just another vendor.

]]> http://www.websterism.com/2010/07/should-you-offer-rewards-for-referrals/feed/ 0 http://www.websterism.com/2010/07/freelancing-advice-a-unique-approach-to-billing-clients/ http://www.websterism.com/2010/07/freelancing-advice-a-unique-approach-to-billing-clients/#comments Thu, 08 Jul 2010 23:22:05 +0000 Mark C. Webster http://www.websterism.com/?p=1436 Freelancing is an odd thing. You decide that you have some skill or talent that people would be willing to pay for, so you make the choice to go into business for yourself (either full-time or part-time). But you quickly realize that to be successful, your one skill isn’t enough. You also need to focus on marketing, client relations, accounts receivable, project management and a whole slew of other areas in order to grow your business.

One of the first lessons I learned when starting out was to read everything you can find about freelancing. While there is definitely some questionable advice out there, it’s a good idea to consume as much information on the topic as possible. Recently I picked up a copy of The Wealthy Freelancer by Steve Slaunwhite, Pete Savage, and Ed Gandia. I’m working on a full review of the book, but they had a great suggestion I wanted to share now.

How to Bill Clients For Your Work
Deciding how and when to bill clients for your work is an important part of freelancing. You need to find a balance between being reasonable and protecting yourself from bad clients. The book outlines the following steps to striking this balance.

Step 1: Collecting a Deposit Before You Start
In the book, the authors talk about the importance of collecting a deposit before starting a new project. While some freelancers just starting out may feel awkward collecting money before they’ve done anything, this is a crucial step in making sure you aren’t left working for free. Also, when a client pays a deposit upfront, they are showing that they take the project seriously. Any hesitance regarding paying a deposit is a huge red flag and should make you think twice about working with someone. The authors suggest 50% to start. Personally, I sometimes collect a slightly lower amount depending on the job, but there isn’t any science behind this decision. It really just depends on what the freelancer is comfortable with.

Step 2: Collecting the Balance Upon INITIAL Delivery
Now this is where the book gets interesting. Instead of collecting the remaining balance upon final delivery of your work, the authors suggest billing the client for the outstanding amount upon INITIAL delivery of your work and giving them some set time period (30-45 days) to pay the invoice. This helps to ensure that they deliver any feedback or changes promptly and prevents projects from dragging on and on (something I like to call Final Approval Hell). This is definitely a novel approach and I have never met a freelancer who does it. But I might try it on several projects moving forward to see how it goes.

The Importance of Getting Paid
When you decide to freelance, you give up the predictability of a paycheck, so it’s important to create as much structure as possible around how you bill for your time and work. By setting these types of formal payment arrangements, you’ll not only provide yourself some much needed security, you’ll also encourage your clients to be on their best behavior.

“ I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description ["hard-core pornography"]; and perhaps I could never succeed in intelligibly doing so.

But I know it when I see it, and the motion picture involved in this case is not that. ”

In other words, he couldn’t define obscenity in words but he could decide whether or not something was obscene by actually seeing an example. This concept became the basis for the common expression “I know it when I see it.”

“I know it when I see it.”
While it’s admittedly an odd parallel, I’m a big believer that most people know good websites when they see them. And they’re able to spot a bad one a mile away. And by “most people” I’m referring to web designers, developers, users and yes, even clients.

But it’s a rare skill to be able to describe what makes a website good. Putting things into words is much more difficult than reacting to what we can see, use and interact with. And it’s even harder to be able to visualize what things will look like based on just reading text.

So why does every web project start with words? Clients write a Request For Proposal, vendors respond with a written proposal, and everyone decides on critical issues such as cost and time lines all before anyone has seen anything. This is why there are so many mediocre websites out there. And why so many clients and vendors get frustrated during the process. We all assume everyone can put what they want into words and that’s not the case.

Don’t Just Say It. Show It.
Wireframes and prototypes can serve as a great starting point to capture ideas early on in a project. It allows everyone to actually see what is being discussed, allows good ideas to be demonstrated, and often leads to bad ideas being killed early. I’ve used this process on multiple projects and it always produces better results in the end.

Starting out a project with something visual, something people can interact with and react to, is definitely unconventional. Few people do it. Which is why you might want to try it.

Too much of our business focuses on the end result. Maybe it’s time to reevaluate the process that produces those results.

This year’s figure, diligently compiled by outplacement firm Challenger Gray Christmas, puts the total assault on productivity at $1.8 billion. And that’s down from a record high of $3.8 billion in 2006.

So how can we tolerate such a loss each and every year? And what has changed to slash this financial havoc by more than half?

Calculating the “Damage”
First, a quick look at where this $1.8 billion number comes from. Challenger Gray Christmas first looked at an MSN survey from 2009 says 45% of Americans planned to enter at least one college basketball pool last year. Well then, according to them, that must apply to every single worker included in payroll employment (129,526,000) which means that 58.3 million workers will be participating in office pools.

Already this starts to fall apart. Almost half of the American workforce will participate in March Madness? Really? But let’s keep going.

So, take that 58.3 million people, and assume that each worker makes an average of $18.70/hour (according to the Bureau of Labor Statistics). That’s more than $6 bucks every 20 minutes. So if each worker (stay with me here) spends 20 minutes every workday of the first week of March Madness (5 days) on non-work related activity, then ta-da, $1.8 billion in damages.

Because, you know, every single minute you’re at the office, you’re working.

This assumes that March Madness will take away from actual work, as opposed to just reallocating some of the slack-off time already built into each workday. Or that the morale and team-boosting effects of participating in an office pool doesn’t have any sort of positive productivity result.

The Truth Behind the Decline
So why the huge decline from previous years? In 2006, Challenger Gray Christmas counted all 16 days of the tournament in their estimate. They used to assume each day was of equal weight. After getting called on it over the years by multiple keen observers, Challenger Gray Christmas now only counts the first week of the tournament, assuming that’s when people are most interested in researching teams and are following the early rounds, which consist of multiple day games. After the end of the first round, many casual observers lose interest (after sadly watching their bracket crumble). Plus, the majority of games are during non-work hours in later rounds.

Overall, these figures have huge, unrealistic assumptions built into them. About half of the workforce participates. Every one of those workers spends 20 minutes everyday for an entire week following the games instead of working. That every minute of every workday you are actually working. That there are no positive effects that come from co-workers being involved in a group exercise like this. And so on.

Good PR. Bad Math.
You have to hand it to them. Every year, Challenger Gray Christmas gets their name in media all over the globe with these stats. But as soon as you dive into their methodology, it doesn’t hold up.

So if you’re a sports fan, don’t feel guilty spending a bit of your workday following the action. It’s not going to create billions in damages.

Hopefully you’re not reading this blog post while you’re at work, otherwise you are hurting the already distressed American economy. Maybe I should issue an annual press release titled “Websterism Costs American Employers About $36 in Lost Wages Each Year.” The newspapers would eat it up, year after year, and I would continually get my name in print.

Actually, I might be onto something.

Visiting other countries can make you realize how much negotiating and haggling are ingrained in some cultures. And my favorite place to visit, Jamaica, is no exception.

Few things in Jamaica are purchased without a bit of haggling first (or higgling as it’s referred to there). And with taxi cabs being the primary form of transportation on the island, a trip anywhere will usually begin with a negotiation over the price of the ride. Jamaican cab drivers have distilled this process down to an art form, and have developed strategies that would help in any type of price negotiation.

Never Make the First Offer
When asked how much it would cost to get somewhere, taxi drivers will respond with “What ya wanna pay?” This allows the driver to size up the passenger. If an amount is offered in US Dollars, chances are the person is new to the country and doesn’t know what the ride should cost. If the quote is in Jamaican Dollars but too low, the driver might respond with a friendly laugh, almost to say “good one!” and reply with a casual “just give me X” (X, of course, being higher than the first offer). From there, a little back and forth is involved before a price is agreed upon.

Lesson: When you let someone make the first offer, you will find out a wealth of information about them (have they done their homework, do they know what they’re doing, etc.). Always let the other party set the starting price for the negotiation.

Learn to Use Awkward Silence
If during the process of haggling the driver is unhappy with what is being offered, they will often clam up and say nothing, just staring at the other party, leaving them to make the next move. This tends to make the other person uncomfortable, who will then make a higher offer just to break the silence.

Lesson: Disrupting the back and forth nature of negotiating can work to your advantage. Silence can influence the other party to step in with a better offer just to end the awkwardness.

Keep Things Light and Friendly
Keeping things friendly goes a long way to ensuring everyone is happy with the end result. In Jamaica, there is always another cab waiting to pick up a passenger. If a driver is too stubborn or gets heated, people will just opt to take another cab. It’s a fine line between getting the best price possible and making the other party feel like they’re getting cheated.

Lesson: Whenever possible, keep negotiations friendly. Getting emotional or being too stubborn can backfire, leading the other party to do the same, or worse, walk away.

Negotiating is an important skill to learn. Whether you are trying to lower prices or raise your salary, understanding what works can have a significant impact on your business or career. Use these tips well to make sure you’re always getting the best deal (or lowest fare!) possible.

On reddit today, a user by the name of mustardstache (which is a terrific name by the way) posted all of the excuses he had received from a freelance web developer over the last two and a half years (at which point the website had still not been launched). Frustrated and begging his boss to fire the bum and hand the project over to him, mustardstache compiled the list as evidence of the freelancer’s frequent delays.

More Than Two Years Later, Still No Website
Now, whether or not these excuses actually happened is beside the point. After all, over a span of more than 2 years, a lot can happen. But it’s unacceptable to hold a client hostage like this guilty party clearly did. Some of these excuses may at first seem sad, but when viewed together, it shows an irresponsible freelancer who just can’t seem to balance life and work. It also shows someone who shares way too much personal information and has trouble maintaining professional boundaries. I share them here as an example of bad behavior to be avoided at all costs.

So presented here, in their entirety, are the reasons that mustardstache’s project still hadn’t launched 2.5 years later.

“This weekend I had an unexpected death in the family.. the funeral was yesterday. I will get on it Shortly”

“It’s been hectic, my uncle past away in my grandma’s house Sunday with a massive heart attack in his chair…”

“My laptop processer decided to Burn out on me last week, so I had to go thru the trouble of getting another laptop Configuring everything from scratch and moving all my data over- so that why I didn’t get a chance To work on the site..”

“I would have been done, but Monday and Tuesday I was real sick and sun burnt On top of slicing my hand open chucking wood upstate NY on Sunday then having to get a tetanus shot in the emergency room, which sucked bad-”

“I was mad sick this weekend, but I made some progress today on the admin..”

“Besides my jaw killing me, due to 3 dental implants I got put in Friday….”

“I have been very busy building out a hosting platform for a company and this is why I was booked this week. I was hoping to get these items done during the weekend and I am well aware of the list and a few other things, but thank you for the reminder….”

“I will get moving on your stuff shortly, I have had a hectic week”

“Today’s my B-Day, so I’m trying to kick back and forget about the world as much As I can…. I will be spending time with fam and friends tonight, so I can’t promise you Any work tonight .. but I will call you this afternoon and well get stuff sorted Out”

“Sorry, I didn’t get time to work on the site tonight, I forgot I was invited to my good friends birthday party. I will have something for you Tomorrow as far as the homepage.”

“I had to put my 14 yr old dog to sleep on wed so I’ve been kind of miserable.. I needed a day to chill.. I’ll send you a log with the current stuff. Talk Monday.”

“This is the last day I have to run around like a gravy covered cat in a dog pound!”

“I have to cancel our meeting today and wait till Monday- One of my servers went down and I have to fix this”

“This is Rich, I just got back from vacation and got your message. I will give you a yell tomorrow as I’m am still getting settled in”

“Sorry to drag this on longer than expected, I had in plain English A screwed up week. I got into an accident last week so I had to have my car fixed.. So I had no car, then me and my girl got in a huge Fight to breakup- so I didn’t have her car, then I finally got my car back Yesterday from the body shop but I had to take my cousin to a doctor in Brooklyn, cause he had another apses, the doctor recommended we take him to Coney island hospital and we didn’t get out Till 5AM in the morning last night, 11 hrs of waiting- horrible”

“I will work on the issues as of tonight, I’ve had a busy schedule and I planed the work for this evening. Sorry for the wait, I will look into the category issue 1st thing. Ok”

“I have had a family emergency this week and it’s been a little hard on my schedule. I plan to start the next steps, this weekend or early next week, call me if you have questions.”

“Today is bad for me, I have to do a lot of running around, I have a weeding rehearsal I have to go to tonight, so I gotta Pick up the tux, haircut etc… My good friend is getting married this weekend. Ill contact you first thing Monday..”

Source: reddit.com: 2.5 years later, why isn’t the website finished? a list of excuses from a freelance developer.

But this raises an important question – what exactly is the client paying for? The process of creating that product or the end product itself? And where does the responsibility lie for deciding how that time is best spent?

“I thought of a better way to do this.”
When it comes to coding, there are endless ways to accomplish a specific task. Anyone who has ever written more than one line of code has had the experience of spending hours working on a solution, only to wake up the next morning with a “better” answer to the problem. It’s not uncommon to throw away huge chunks of code when a new idea comes along.

Designers can experience the same thing. Hours can be spent on a design, only to decide to scrap it for an entirely different approach. These decisions are often subjective, driven only by an individual’s own desire to produce something they consider “better” than what they had previously done. Even if a problem is already solved, or a design already completed, the drive to improve on it can add countless hours to a project.

To bill or not to bill?
In these cases, should the client be responsible for paying for work that may be thrown away? Or should the consultant not bill for the work, chalking it up to learning and consider it a cost of doing business? After all, many times when the choice is made to discard work, it is simply a matter of opinion.

Now, as a consultant myself, I may be biased, but I consider any work done on a project to be justifiably billable. If it weren’t for that client, your time could have been spent working on something else. So that time can be charged for.

From there, it is at the consultant’s discretion to decide what to charge for. Ideally, this should be taken into account before making the decision whether to redo something. There have been several times when I decided to start something over and not bill the client. But these decisions were made on a case-by-case basis.

While you can bill for any and all time you have spent working on a project, it is your duty to respect the client’s budget and make sure it is being spent responsibly.

Paying For the Product AND the Process
Exploring different solutions and occasionally having to revisit and revise past work is part of the process of creation. No one churns out perfect work the first time, every time.

A client may sometimes feel that this can be a waste of money, but a consultant who just plows through a project, without reevaluating the best way to do things, will end up costing you much more in the long run.

The ability to negotiate.

Many of us feel uncomfortable negotiating. The mere thought of the confrontation inherent in all negotiations is enough to make people avoid it altogether. But from dealing with your clients, to lowering your advertising rates, to making sure you aren’t overpaying for your office space, the benefits that effective negotiating can bring to your business are worth the initial discomfort.

Here are a few tips to make sure you are always getting the best deal.

1. Know What You Want in Advance
Have an idea of how you would like a negotiation to proceed ahead of time. Going in with a rough plan of what you need to accomplish before you talk to someone can help make sure you get it.

2. Be Prepared
Related to the first tip, it is important to learn as much as you can and gather as much information as possible beforehand. Understanding the situation from various viewpoints will allow you to address the other party’s concerns appropriately and reach an eventual agreement.

3. Don’t Think in Terms of “Winning” and “Losing”
Both parties are entering this negotiation with set goals in mind. Try to find ways to accommodate each other as much as possible. Being too emotional and concentrating just on “winning” can lead to bad behavior like yelling or being unreasonable. This will leave the other person frustrated and bitter and can create problems down the road.

4. Don’t Act Desperate
This is where a bit of acting can come into play. Whatever the real situation is, always give the impression you are willing to walk away. When somebody knows you NEED to do a deal, they won’t be willing to give up as much.

5. Assume Everything is Open for Negotiation
An entrepreneur should believe that everything is open for discussion. When someone quotes a price, that should be considered an opening bid. Even when you can’t lower a hard cost, there are often other benefits you can get thrown in if you ask.

Go Haggle Your Heart Out (But Be Nice)
A successful negotiation will leave everyone feeling that they benefited. Since you will often negotiate with the same people repeatedly (such as your clients), it is important to not breed resentment.

This post is just the tip of the iceberg and there are many great books written on the subject. But hopefully these tips are enough to get you started and make the process a little easier. Good luck!

I’m happy to report that my consulting business continues to grow, and I have been taking on new clients and expanding my relationships with existing clients. The downside of this has been the avalanche of work that has followed. And I am ashamed to admit I have let it get the best of me.

Instead of carefully planning and scheduling tasks to best utilize my time, I have been falling back to a pure triage system, attending to things as they come in based solely on severity. While it hasn’t impacted any of my clients, other areas, such as this blog, billing and administrative tasks, etc, have all been affected.

So, here are 3 questions I have been asking myself lately. I share them so we can all better manage our workload.

1. Is This Really an Emergency?
When a patient comes into an Emergency Room, they believe they have the most pressing problem. But in reality, someone’s sprained ankle will have to wait while a patient having a heart attack is tended to. In an emergency care situation, harassing a nurse or complaining won’t get you very far. The same should apply to your clients and customers.

It is important to rationally evaluate each issue as it comes in and decide which is the most pressing. Is one client losing money each minute their site is down? Is another client about to pitch an investor with a product that isn’t working correctly? Sometimes a client is the loudest because their problem is the biggest, but often times, this isn’t the case. It’s crucial to recognize the difference and act accordingly.

2. Are You Planning Ahead?
In any business, there will always be emergencies that come out of nowhere. But the key to handling them is to make sure that the rest of your workload is properly scheduled and managed so that chaos won’t ensue when things change. Planning ahead is key to this. When I have some downtime, I should be writing blog posts to save for the weeks when I’m crushed under work. It seems obvious that we should be taking care of future tasks when things are slow, but it is surprising how few people do this.

3. Do You Have a Process for Handling Emergencies?
When clients come to you with last-minute issues, they can be panicked and anxious about how it will be handled. Having a set process for how you handle emergencies and following a structured plan can put them at ease. For instance, you may create a separate email address that routes to your phone for your clients or customers to use when there are true emergencies. This way they will know that you are prepared and accessible. On your end, you won’t need to worry about monitoring your main email address at all times, knowing any actual emergency will come in via the alternate email address.

Also, establishing a timeline with your client right away will set expectations and prevent them from feeling they constantly need to follow-up or harass you. Letting them know when things will be done, whether it’s minutes, hours, or days, will put them at ease and make everyone’s life easier.

Prescription: Triage Only Works When Combined with Planning
Having a proper triage approach to your business will ensure that emergencies are properly dealt with. But if planning ahead isn’t also part of your process, your business will fall apart under the strain of an increased workload.

Make sure you are prepared in advance and you’ll be able to handle any emergency that comes your way, while still finishing the rest of your work (like writing this blog post).