budgeting : 

sample spreadsheet: budget_template.zip (12K)

There is no sure way to budget a web site project. The budgeting process involves estimating, intuition, business sense, and negotiation--which leads to a budget number agreed to by the client and developer.

In the end:

• the budget will limit the scope and quality of the project
  OR
• the budget will get changed because it's inappropriate

Before any budgeting can be undertaken, the project scope must be agreed to with the client on paper. How big is the site? How much and what kind of content is there? Who creates the content? How fast must the project be completed? What is the decision making process like? When will the client make deliveries? What are the technologies required?

Fundamentally, budgeting involves estimating the labor and external costs involved in creating the web site--that is, how much time will it take the team members to design, build, and debug the site (as specified)? Plus, what are external costs such as rentals, outside contractors, services, and materials? Don't underestimate the costs for the design (pre-production) and debug (post-production) phases of the project. Review these production process notes to see the amount of work in these phases.

Think in round numbers first. When working up a budget, it's a good idea to come up with a first estimate quickly. Think about rougly how long the job will take. Then multiply that time by the number of people and their rates.

For example, a job is going to take about 6 weeks, and 3 people are going to work on it full time. The basic cost would be: 6weeks * 3people * $1000/week = $18,000.

Once you have your first estimate, see if it's in the ballpark for the project. If so, then go on to creating a formal budget using the following approach:

• make a complete breakdown of the project tasks
• define who who will work on each task
• define a rate for each person-include overhead and profit in the rate
• estimate the time each person will put into a task
• multiply the rate by the time
• estimate any external costs and add on the markup
• sub-total the costs for the task

After doing this for each task

• be sure enough time is in the budget for pre-production (design and planning) and post-production (debug, fixes, archiving)
• total all the task sub-totals
• adjust the times/tasks if the budget total doesn't work out right (it's a creative and interative process!)

The hardest part of making a budget is not losing money. First, this means including enough money in the budget to cover all the hidden overhead costs: computers, utilities, business insurance, supplies, employee benefits, lawyers, etc. Second, it means adding on enough to the budget so the organization finishes the project with some money left over after covering all the costs and overruns--i.e. making a profit. Remember, paying salaries does not equal profit!

Developers usually cover overhead and profit by adding a percentage onto their labor and external costs. This percentage is typically between 100% and 200% of your actual labor costs--i.e. you charge double or triple. The add-on rate for external costs is typically 15%-30%.

It's very important to get paid for your work as you do it. You should not be in the business of fronting production money to your client. Payment should begin with the signing of the contract, and continue throughout the project as milestones are met. This is important because you need the money to cover your costs, and because some projects go bad before they are completed.

Protect yourself so that you don't get screwed out of your profit or costs.

• Make sure the contract is violated if the client fails to meet their milestones for delivering assets or making decisions. I.e. if they don't deliver on time, the budget is open to negotiation, and your delivery dates are voided.
• Clearly define the scope of the project in the contract and don't do extra work for free.
• Clearly define procedures in the contract for getting paid for changes and additions
• Charge extra if the client is hard to work with
• Charge extra if you have to deliver under difficult circumstances
• Always make backups!

• Try to get the maintenance contract for the site
• Make the customer happy so you get return business and recommendations. This does not necessarily mean doing the most work. It means completing on time, and managing and exceeding their expectations. Promise less than you will deliver.
• Properly organize, manage, and archive all your assets so they will be available for revisions and future projects.
• Get the project to pay for you to:
  • Learn something new
  • Create a tool, procedure or software you can use on future projects
  • Buy equipment that can be used in the future

To get a good intuitive sense of budgeting, it's helpful to be able to work with budgeting numbers easily and quickly. Here are a few tricks of the trade:

• Converting between hourly, weekly, and yearly rates. A person's hourly rate can be easily converted into an equivalent yearly salary, and a yearly salary can be easily converted to the hourly equivalent.
  • hourly -> yearly: Multiply the hourly rate by 2, and add three zeros. E.g. if someone makes $20 per hour, their yearly salary would be about $40,000 ($20 * 2, with 3 extra zeros).
  • yearly -> hourly: Divide the salary by 2, and remove 3 zeros. E.g. $50,000/2 with 3 less zeros is $25 per hour.
  • hourly -> weekly: Multiply the hourly rate by 4, and add a zero. So $20/hr * 4 with an extra zero is $800/week.
• Billing rates are (idealy) 2-3 times actual. While you and your staff may be paid a particular salary, you should bill out to your clients at a much higher rate to cover your overhead and make a profit. Typically, companies multiply their actual rates by 2 or 3. So if a person's rate is $25/hr, they would be billed out at $50/hr-$75/hr. If you are freelancing, you may not be able to charge this much, but try to add as much as possible to cover your overhead costs. Overhead includes the following (and of course you want to make a profit as well!):
  • Office rent and related costs
  • Business insurance
  • Benefits (health insurance, retirement, etc.)
  • Equipment (computers, etc.)

all materials on this web site © copyright 2005, Philip van Allen