>>I am going to let some things sink in tonight, but I might just tell them tomorrow that I don’t want to work with them anymore.<<
I think you actually have a couple of options. One is just getting out, of course.
Part of having your own successful business is developing the skills you need to manage your clients EFFECTIVELY.
You could tell them something like:
“I’ve looked at what you sent me, and in my professional opinion, the design you’ve presented won’t serve the needs of your visitors. Here’s why.”
Then, explain why it’s crappy, in a professional manner, of course.
Then, say something like:
“I would be happy to submit a new design that I think will best serve your needs based on the additional criteria I see in your mock-up. The design estimate is $xxx. The implementation estimate is $xxx. Let me know if you’re interested.
If, in the end, you’re really set on using the mock-up you’ve sent me, you’ll need to find someone else to implement it. If that’s the case, please let me know, and I’ll send along the requisite login/password credentials to the areas of the site your new developer will need. I’ll also be available to do some consulting with your new person to get them up to speed, at my standard hourly rate.”
That way, you’ve set the parameters for what you’re willing to do, and what you’re not. You’ve offered to assist the new person (but not for free), so you haven’t exactly left them in the lurch. If you really don’t want to do it, set the fee quite high, which will likely scare them off. This way, it’s more of their decision, you’re not burning bridges behind you, and you’re leaving the door open to doing more work, but on your terms.