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steppenwolf
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This is a new way of collaboration I have been suggested and I have no prior experience so I am kindly asking for any suggestion you may have or any idea on how to deal with it.
A client I have been collaborating (me as a freelance designer) for a series of products for over a year now (collaboration is very good from both sides and trust has been built up) and is based in a country outside mine (we are both in Europe) is asking me to have a more permanent role and get the position of the Creative Director of the company. I will not be permanently employed by his company as at the same time I am setting up my own small design studio/practice in my home country.
The question here is in what terms and conditions should this kind of collaboration be set. The options I seem to have and considering are the following :

a) Ask for royalties from product's sales
considerations : As the company is new and still has not products in the market, I have no idea of their turnover and I can not estimate %. So just royalties is a kind of "no".

b) Ask for royalties from product's sales & a monthly flat fee.
considerations : Continuing from the above, with a monthly flat fee i secure some income. However, how can i estimate the services will offer monthly? Some months may be asked to work like full time, some other may not do much. Sound a bit too vague. Also, with a monthly fee I may be expected to be dedicated to him and have not much time for my studio's business development or/and work on other projects. But as I said, there will be some money coming every month to keep the office running.
What would be the monthly fee you would ask?

c) Ask for royalties from product's sales & a hourly retainer
considerations : This may sound the most "reasonable"? I can give him a price for per hour work and ask him to pre-pay a set of hours and then renew this set of hours. How many hours would you set as a hour-retainer?

d) Ask for company stock / be a partner (+ any of the above combinations)
considerations : I do not think at this point I want to get that much engadged and more deeply legaly involved with a company in another country.

So these are the options I have thought and my considerations for each option. Do you have anything to suggest?

Thanks a lot!

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yo
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You could also ask for royalties with an "up front minimum" or "yearly minimum". This gives you lots of headroom but also gives you something to plan on. Stock can be tricky as there are a lot of factors that go into valuation of a company's worth and stock price. My advice would be to talk to a financial consultant and a lawyer. Collaborations are good until they aren't. It is good to have a document that spells out the terms in a way both party is clear about.

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rkuchinsky
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I would keep it pretty simple. Royalties can be complicated and so many other factors involved that can affect sales that you have no hand in. If you believe in the company overall, equity can be OK to add to the equation, but it's more a long term play (equity only makes you money if they sell or you sell back your shares). Equity only makes sense if there is already a valuation and investors on board that have paid in at set valuation.

It shouldn't be that hard to figure out your average hourly involvement per month and a rate that you are comfortable with. Set a monthly retainer either with open hours or a capped hourly set with overage on agreement and a flexible buffer under/over that can roll over month to month.

I've done a similar arrangement and it worked well. Just be sure to get a good deposit of several months in advance and good payment terms so you don't end up working and find there's no money coming in for time worked.

Number of hours and rate is up to you. You should be able to base it on your consulting work for over the past year in relation to what the new job expects.

Either way, be sure the job description is solid if on retainer, you don't want to be working full time burning hours doing something the intern should be doing just because they figure you are "free".

Good luck,

R
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KenoLeon
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rkuchinsky wrote:set with overage on agreement


Sorry for jumping in, ( I have something similar going on) can you elaborate on this overage clause as related to design.

Thanks for the great advice .
Eugenio (Keno) Leon
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rkuchinsky
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What I mean is that you might set your monthly retainer as $XXX for max. YY hours. Anything above YY hours is invoiced at an agreed amount payable at set terms (ie. next billing date).

R
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steppenwolf
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yo and rkuchinsky thank you very much for your input. KenoLeon, no worries, just feel free to ask more as this topic could become a good reference for future relevant inquiries.

yo, the upfront minimum i assume is something like a downpayment right? Let's say the first couple of months to be payed upfront. Will definitelly ask the lawyer I am collaborating but I wish to hear he tips and tricks from a designer's point of view and experiences working under such collaboration pattern.

rkuchinsky, lot's of good info. Equity I agree is not my most preferable way. Royalties as well, you are right, as I will not have total control I cannot predict the sales and as it is a new company I have no idea on the way they plan to sell. Retainer seems to be the most rational approach however I have some concerns.
Some more info on the background story and future collaboration with the client :
The last year I finished the design of 10 products (softgoods, not shoes :wink: ) and I estimated a price per product x 10 (similar products and similar effort). That was a flat fee. The estimation of my salary was done based on the target retail price of each product. Our ongoing collaboration will involve the design of more products but also POS systems and other brand promotion-related objects (bags, tags etc).

a) By billing/hour I will need to either “reveal” how much time I need to design a product (do not want to do so) or I will need to “lie” (let’s say for a product I need X hours but I will claim I worked 2X times in order to justify the real price I value my designs. By “design” I mean the value the product will bring to the client).
b) I understand a retainer (hourly rate) in the “background” projects such as designing POS, shopping bag etc. But I am not a big fan of hourly rate in product design work. Do you think it makes sense an agreement that “background” projects will be tied to a retainer and product-design-development to a per-project basis (as we did until now with a flat fee).

To better illustrate my concerns, if I am asked to design a man’s belt (sketches, 2d designs/renderings). Then, let’s say I will work (approx.) 3 hours research- quick hand-sketches, 0,5 hour discussion, 2 hours for 2D designs to give to client and supplier. Total 5,5 hours X 100 euros (106 dollars) = 550 euros (586 dollars) which is pretty low in terms of what I would consider. For a very similar project I charged 2000 euros (2133 dollars or 387dollars for 5.5 hours of work). Of course If I mention to him that my /hour rate will be 380 dollars and for example for an 1 hour phone call (usual duration of discussions) he will be charged 380 dollars sounds a bit too much… am I right?

Just to let you know, his products will be retailed in prices of minimum 500 euros going up to 2.000 and some products with exotic materials up to 5000 euros.

I am sure Richard has been to much more complex types of collaborations, this for me is the first on of this scale and feel a bit puzzled.

Thanks again!

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rkuchinsky
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I've never really understood the reluctance of designers to quote an hourly rate. No matter how you price yourself (flat rate, by design, etc.) eventually it comes down to how many hours do you have to work on the job, and can't do something else, hence an hourly rate. Every other profession goes by hourly rate, and when you are working salary, it is essentially an hourly rate multiple by full time job job hours.

If you are designing a bag, or doing research, either way an hour is an hour. I used to try to price meetings, research etc. differently than design, but for a single person it doesn't make sense. Why would you ever spend any time on the phone if you know that at the end of the 1 hour call you just made half of what you would make if you were designing if you had different rates? You would either not work very much, or be extremely limited in what you do.

Set a rate that is reasonable. You only have to provide a total hours/month, not hours for each project, assuming the hours per month is more than a single project, it will work out. The whole point of a retainer is that on the average, things will work out. let's say your rate is 200E/h. You might be asked for a doodle sketch that takes an hour and it's 200E in cost/time. Might sounds low for the job. You might have to spend 5 hours surfing the internet for research and you've made 1000E. Good money. You spend 1 hour on the phone and you got 200E. Pretty sweet. No different than a full time salaried position where you make X total which equals Y per hour (salary/workdays/hours/day) and you might spend your time sketching, in a meeting doing nothing, fixing the copier, etc.

Just consider it as essentially a full time position and salary, with the exception that you cap the hours, so you can develop your own studio and do other things. it's the easiest way to transition from consultant to a long term relationship and many large studios have similar agreements with brands/companies. The biggest benefit is you can just go ahead and be the go to guy to get stuff done and you don't have to negotiate or make a proposal for every small design or background job that comes up. Better to be making money than proposals.


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steppenwolf
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rkuchinsky wrote:Set a rate that is reasonable. You only have to provide a total hours/month, not hours for each project, assuming the hours per month is more than a single project, it will work out. The whole point of a retainer is that on the average, things will work out. let's say your rate is 200E/h. You might be asked for a doodle sketch that takes an hour and it's 200E in cost/time. Might sounds low for the job. You might have to spend 5 hours surfing the internet for research and you've made 1000E. Good money. You spend 1 hour on the phone and you got 200E. Pretty sweet.


Richard, thanks again for your suggestions. Perhaps I am wrong, but on the above quote lies i think the "problem". Not that much for a designer but for the client who will be asked to pay (let's say) 200E for an hour phone call (1 hour is a skype call as the client is in another country.. still cheaper than flight tickets hehehe..). At least in Europe this kind of money is kind a lot for what a client may consider "just a phone call". But from my side I totally get your point.

I am not aware if you know European price ranges but the 200/h (that actually 150-200 is the range I estimate would bring the money i charged per bag for the previous project) may sound steep. Considering a medium-sized design consultancy charges about 500E/day for a designer working on a client's project = 62.5E/h. Do you think based on that, that 150-200/hr is a high number?
I have asked a couple of fellow designers working in north Europe but they charge per project so not much reference to judge.

Also, may I ask, before starting a task under retainer agreement, I guess the designer has to estimate approximately the time will spend on the said task and inform the client that it will take home X hours. Or the designers informs the client afterwards how many hours he worked?

thanks


iab
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steppenwolf wrote: Considering a medium-sized design consultancy charges about 500E/day for a designer working on a client's project = 62.5E/h.


Since when? 1980?

A plumber bills higher. No disrespect to plumbers, but I expect an IDer to be at least par.


steppenwolf
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iab, i am more experienced with Asian context. But the number I am mentioning was given to me from a German design studio with 2 offices in 2 locations in Europe. Do you have more info regarding fees and collaboration modes?


iab
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For short-term projects, 10-200 hours

Junior, 0-3 years experience - $75-$100

Senior, 3-8 years experience - $100-$175

Director, 8+ years experience - $175-$300

ymmv

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rkuchinsky
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As I tried to explain, the equal billing for all activities is the only way that makes sense. Think of it this way - if you are on a phone call with a client for an hour, you can't be sketching for another client. If you bill 50E/hr for a call and 100E/hr for sketching, would you ever take a call? Put this way, the client should understand. Time is time. Lawyers work the same way, as does the guy coming to fix your washing machine. It's a set hourly rate, no matter if they are just talking, looking, or doing.

As for the rate, 200E/hr was just an example. I have no idea what experience level you are at or the industry/country which will make a difference in rate. 500E/day seems very low though, IMHO.

IAB's example rates seem in the right ballpark, maybe a bit high. Then again, keep in mind rate is only as relevant as how long the job takes or how quick you are at doing it. Also keep in mind how much of your available time the job make take up and/or what other work you do/might/can have. If you are freelance you bill a higher rate as you aren't working 40h/week every week, so it has to average out during the slow times to net your annual take home. You also have to pay for own overhead, equipment, insurance, etc.

R
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steppenwolf
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iab, thank you for the price ranges. Far higher than I expected but also the geographic location matters I think. I assume these are for US?
Richard, as I said, I totally understand your thinking and pricing strategy and I totally agree as client buys designer's time in the end. How do you feel about a plan combining a retainer and a percent of sales ( no equity ). Have you ever tried this combination?

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rkuchinsky
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I've never done a retainer. I don't like betting my money on things I can't control. If I was fully involved in all aspects of sales, marketing, etc. Maybe.

R
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steppenwolf
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Yeap, I get it what you mean.


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