Here's the thing I don't get. Did you not have some guarantee of completed work? When they quoted you the $7k, I could see building timeline flexibility into that quote, but I have a hard time imagining building so much flex into the contract in terms of budget that they can hold your work hostage to where you sign the retainer contract. It seems like you should have had some sort of legal recourse to hold them accountable to delivering the promised work in a reasonable time frame before you went the retainer route and found yourself on the hook for an extra $40k. Was there not?
Also, I was surprised by how much you let Isaac get away with. He admitted he badly mismanaged the project, and made decisions that lead to that mismanagement with out consulting you. He badly blew his estimates for you, and was pretty clear that it was his fault. I would have pushed him to eat much more of the losses than he did.
Yeah, it's more of a "highest bidder mentality". That they don't have any experience with hourly billing should have been a massive red flag as that means they need to be very conscious in how they approach the project. That they used this simply as an excuse to deprioritize the project is what caused the problems.
The agency I worked for used to offer a "special" for a brochure site. Basically it was a "website-in-a-day" deal. Customer comes to the agency in the morning, meets with designer and manager, and they agree a design (preliminary work has already been done on a logo). Customer goes for lunch, and the design is handed to two devs. Around 4PM the customer gets sight of what the devs have done, and goes home. The devs work on until say 8PM, and probably put in a couple of hours the next day.
Of course, there was then snagging; it wasn't really a one-day job. The whole deal was pretty inexpensive. We used Drupal with a custom theme.
I don't know whether we made money on these projects, but we did end up with a string of long-term customers.
Also, I was surprised by how much you let Isaac get away with. He admitted he badly mismanaged the project, and made decisions that lead to that mismanagement with out consulting you. He badly blew his estimates for you, and was pretty clear that it was his fault. I would have pushed him to eat much more of the losses than he did.