Should your client be paying a retainer?

April 19, 2014

Should your client be paying a retainer?

There are various key remuneration methods that agencies use to charge their clients. These methods include:

  • Retainer fee
  • Project fee
  • Variable (hourly) fee (based on time spent)
  • Scale fee and bonus
  • Consultancy and concept fees
  • Licensing fee
  • Output ("off the shelf") rate fee
  • Commission fee
  • Payment by results (PBR) and value-based remuneration


What is a 'retainer fee'?

Retainer fees work differently at different agencies.
Here are some examples:
  • A fixed fee, payable by the client for as many hours of agency time that they wish per month. If a client uses more hours than expected during a particular month, the client pays the agreed fee and no more.
  • The agency charges their client a retainer only, and never charges by individual project. 
  • The retainer is a minimum monthly fee that includes a certain number of hours. The retainer invoice will show the retainer fee, overages for the past month, and any other agreed expenses. 
  • If the agency is paid via retainer, all commission for media buying (e.g. TV, radio, digital) is given to the client.
  • A retainer is a 'deposit' that the agency then spends down. When the client is charged for services or media buying, the agency subtracts from the retainer paid, which is replenished monthly or quarterly.
  • The retainer covers a pre-determined number of labour hours per month. All additional services and outsourcing (including media buying, photography, printing, etc) are paid in addition to the retainer fee.
  • The client pays a retainer simply for the privilege of being a client of the agency. The agency delivers nothing in exchange for the retainer except to be available to provide their fee-charging services if the client wants them. 
  • Unused time is ‘lost’, but if the agency over-delivers there is not normally an additional fee unless the over-delivery is significant.
  • If the time is not used, it is rolled over into the next period, and the following month’s retainer invoice is adjusted.
What most retainer models have in common is that the agency is expected to be on hand to deliver on-demand, high-value services to their client for a certain amount of time, often at short or no notice. What those services are, the number of hours and the parameters around the retainer seem to differ wildly per agency.

 

What is included in the retainer fee?

Services and tasks that could become part of the retainer fee:

  • Account management
  • Strategy
  • Analytics
  • Creative direction
  • Art direction
  • Graphic design
  • SEO
  • Training
  • Support
  • Website updates and management
  • Social media monitoring or maintenance
  • Content marketing
  • Internal agency meetings
  • Conversations


Is a retainer a good idea?

Well, that depends on who you are asking! You'll need to weigh up the pros and cons once you have an understanding of the types of projects you'll be working on, the number of hours required, resources required and whether a retainer will be beneficial for both parties. 

The retainer remuneration model tends to suit only a small number of clients - usually those clients with a steady stream of projects per month.

Agency: Pros
  • Ability to plan the number of labour hours to set aside per month for your client.
  • Guaranteed recurring revenue stream per month for the term of the agreement.
  • Predictable profits.
  • Avoids monthly quibbling over time spent or bounced invoices.
  • Client stability and security; long-term engagement.
  • Deep account knowledge.
  • Less time spent on business development.
  • Flexible service delivery.
Agency: Cons
  • If retainer time is being exceeded, an agency can quickly and painfully lose money.
  • Certain time may be allocated to the retainer when it should be invoiced separately, and the agency loses potential revenue.
  • Setting a retainer involves guesswork, and the guess is not always correct.
  • The start-up curve for learning your client's business is higher than the ongoing level of work, and may last 3 or 4 months. This time is non-recoverable.
  • Agencies will crack under the financial and time pressure of unfairly-low retainers.
Client: Pros
  • Predictable expense; makes budgeting easier with few surprises.
  • Can save money compared to paying an hourly rate for individual projects.
  • Guaranteed access to a set amount of agency time per month.
  • Loyalty and partnership of the agency is assured.
  • Accountability and sense of ownership.
  • Transparency.
  • Agency will have high level of understanding of the business.
  • Access to creativity, objectivity, planning, management and insights not always available on a per-project payment basis.
Client: Cons
  • On the months where you are not putting as much work through the agency, you may still have to pay the fixed retainer amount.
  • Feeling of being locked in to an agreement.
  • A retainer may seem like a giveaway payment they have to make in order to keep their agency.

 

Things to keep in mind

A retainer proposal needs to be carefully planned out, and your agency needs to be able to defend the proposition with sound rationale. 

Every part of your agency (that is included in the retainer) needs to be accurately tracking their time, to determine whether you are going over or under the allotted hours per month. 

The worst thing that can happen to a monthly retainer is repeated overages. This could indicate your client is taking advantage of your agency, or that you understimated the amount of time that would be required. It's best to review the retainer figure at 6 monthly intervals to ensure the agreement is fair and beneficial to both parties.

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