business advice | Dec 8, 2020 |
A prospective client refuses to pay my retainer upfront. Should I compromise?

Dear Sean,

When I present my contract to a potential client, I ask for an upfront retainer to start the job. The amount varies—it may be as much as 50 percent, depending on how front-loaded the work is—but I always ask for a retainer.

Recently, a prospective client asked if I would be open to holding the retainer in an escrow account (theirs, not mine), arguing that in this COVID-19 world, they could pay my retainer and I could disappear, leaving them separated forever from their deposit. I can see their point, but by the same token, I must then work for free until I show hours spent in order to be paid. Frankly, the scenario the prospective client envisions could happen just as easily on my end.

In short, I am not comfortable with this, but I understand their concern. Is there a happy medium I might present?

At a Loss

Dear At a Loss,

The fascinating part of this question is not whether or not you should have an escrow account for your fees (you never should), but what the thought says about your client’s confusion as to today’s reality.

Pre-internet, if you were less-than-scrupulous and took off with a client’s money, how would the client really be able to tell, legal authorities notwithstanding? Today, on the other hand, your act would hit social media and spread further and faster than you might possibly imagine, and you would suffer accordingly. Such is the nature of anyone’s megaphone—especially clients of a certain stature, as yours seems to be. (Else, why propose an escrow account?) Therefore, the ability to control with money is dwarfed by the risk to your reputation if you did not perform as expected. For that reason alone, your client’s escrow idea is completely wrongheaded.

Much deeper, though, is the answer to this question: What is the money for? An escrow account exists so that money remains in the account until certain conditions are met, upon which it is released, no questions asked. For instance, in a real estate transaction, a law firm or title company might hold the purchase money in escrow until the paperwork necessary to complete the transfer is finalized by all parties. Once complete, the law firm or title company has no choice but to release the funds.

The reason escrow does not work here is because your work is not rote: It is about design and then manifestation of that design in a way that the client approves. Escrow would mean that you would literally have to tick a box and then get your money. Ironically, this would prevent you from really earning your money. If your business is predicated on approval, then you can certainly put money at risk if you believe approval is imminent. If you never miss on your design presentations, you can absolutely put your money where your mouth is and take part of your retainer on approval of design.

Once approved, though, there is no going back; you will move forward to production of your design and all that that entails. An escrow arrangement is about jumping through hoops—but for you, it’s the wrong hoop.

The biggest problem I see in your situation is that there seems to be confusion (maybe just from your client, but I’m guessing for you, too) between what you cost and what it costs. What do I mean by that? The value of your services to design and execute are separate from the costs of material and labor. Many designers have linked the two with markup on items in production, but that number only represents the amount necessary to produce your design. What it costs to create your design in the first place is something else entirely. Given your question, it seems like creation, production and cost of production are a jumble.

No doubt, you have to kick the escrow idea to the curb—it is insulting, not to mention an ineffective solution given your risk of exposure. The bigger issue you (and so many designers) have to work on is spelling out what your client is actually paying for and when. Value delivery is the cornerstone of all creative business. When you are properly paid for the journey as it is undertaken, the destination becomes inevitable, not the other way around.

____________

Sean Low is the the go-to business coach for interior designers. His clients have included Nate Berkus, Sawyer Berson, Vicente Wolf, Barry Dixon, Kevin Isbell and McGrath II. Low earned his law degree from the University of Pennsylvania, and as founder-president of The Business of Being Creative, he has long consulted for design businesses. In his Business Advice column for BOH, he answers designers’ most pressing questions. Have a dilemma? Send us an email—and don’t worry, we can keep your details anonymous.

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