I always divide the project up into clearly defined milestones.
- Exploration budget & payment plan
Research & Viability of customer's idea
(identify compliance and regulatory issues)
- Ballpark costing of whole project and timeline and repeat from #1
- Acceptance & rework to #2
- Element tests of subsystems
- POC components required for customer approval & understanding
- Collaborate on Product Spec & then Initial design expectations
-- Getting this far lets you see how much the customer is committed and understands
-- You may walk away now...!
**1. ** FUNCTIONAL prototype budget & payment plan
2. FUNCTIONAL prototype development
3. Acceptance & rework to #2
4. PRODUCTION prototype budget
5. PRODUCTION prototype development
6. Acceptance & rework to #5
(engage compliance and regulatory testing protocol)
-- The proposal and exploration budget / milestone payments only get this far
-- Customer may walk away now !
- Review and marketing analysis
PRODUCTION budget & payment plan
*3. * Away you go...
Steps can be combined - but payment schedule just gets compressed - may get slightly higher if timelines are also compressed.
Also let the customer know up front - in writing - that unwritten variation orders don't exist.
Written variation orders will probably cost extra in time and/or money.
Also let them know of limitations up front that are keeping the budget under control...e.g. limited memory, performance goals, specific suppliers etc
If I'm not sure of the customer's position or the budget is more than I can risk...
Payment per stage is 60% up front, 30% on delivery, and balance of 10% on first beneficial use.
All these terms and milestones are clearly repeated with each offer document.