Generally I use the following method:
1. Find out what the client wants, ask them about sites they visit regularly and what they like the look of. Ask them who there biggest competitors are.
2. Design around the clients favourite elements, their industry preferences, making sure to better their competitors efforts.
3. Present a very rough spec, either scribbled on paper, or done up in 20 minutes, copying elements from other sites. We bounce ideas until we (both client, and myself) are happy with the concept we have being of quality / useful / industry sensitive, etc. If they do not take up the concept, I bill for an hours work, and an hours consulting, and we leave it at that.
4. If they agree, a deposit is taken, and a full concept is developed.
I refuse to do lenghty spec documents and concepts unless a job is really high profile or is worth a lot, even then I watermark concepts. It's important to me to have a set pattern of events, it cuts down on tyre kickers and you can tell quickly at this stage whether you should get payment upfront, or if a small deposit should suffice. Recently I let this practice slip over a small job, for a friends, and now I am having trouble - tar everyone with the same brush in future
Hope this helps.