Hi guys,
I've used this method alot for freelance work and this is what I like to do (the people paying for the work seemed to like it just fine too.
1) It starts with them sending you an email giving you as good of a description of what they need from you they can manage.
2) You carefully and thoughtfully read the email and come up with as many useful questions as you can. By useful, I mean the answers will allow you to begin mocking up artwork AND will allow you to come up with an
estimate. NOTE: I like to make sure I understand the product as thoroughly as possible, get my head around the gameplay, plot, and most importantly, visual style before i even think of mocking up art. I often ask them to send images that they think best represent the visual style they'd like to see. They usually have an easy time suggesting other games, comic books, or other artists work that they would like you to...err...emulate. Its especially easy if its a franchise or liscence for a preexisting product.
2a) a few more emails back and forth migt be needed to make sure you AND the customer know exactly what you are expected to produce.
3) You submit an itemized estimate for all art needed. You give an hourly rate and state a realistic range of time for each required art asset... IE. This character portrait will take between 8 and 12 hours. IMPORTANT: you guarantee that you will not charge beyone the outside estimate... in this case, you promise that even if you take longer, you will not charge more than 12 hours worth. (the stipulations being A: if they suddenly require an abnormal amount of iteration, you'll have to charge them for it. and B: the first art asset will be used as a reality check to insure that you are right for the project and the project is right for you.)
4) Once they agree to your estimates, you pick a first task with them and make a clear mock-up...establishing size, format, style, color-use and so forth without taking a long time to clean it up. Good producers/designers/directors will be able to see from the mock-up if you're going in the direction they want...this will help avoid further iteration and the pain of redoing stuff that you spent countless hours polishing.
5) The first mock-up is aproved and or changes are requested, and you make the changes and clean it up... therebye presenting the first potentially finished asset.
6) they react to it.
From then on, you know how things are going to go and so do they. You'll see if they communicate well... you'll see if your estimates were within reason...if not, you immediately send an email explaining either you had underestimated the workload OR (more rarely) overestimated and adjust the future estimates and if necessary, bow out of the agreement as early as possible.
This has always worked well for me. I've never had to bow out and usually finish all the tasks with a little hourly time to spare, which I do indeed relate to the customer. You get paid fairly, they pay less then the worst case scenario of your estimate... Everyones happy.

Once or twice a customer has suddenly asked for something not agreed to or previously mentiond.. just sort of though it was "assumed" or "slipped their mind". They never had a problem paying extra because
TA DA, it wasnt on your estimate list. This is hugely important protection for your time and sanity.
I hope this was helpful...sorry for all the typo's..tired....