10 Tips for Setting Up Agency Retainer Billing

In service-based industries, retainers are becoming a popular way to build long-term relationships with your best clients, provide a higher level of service and ensure cash flow.

Creative agencies and freelancers understand the benefits of providing their clients with retainer-based services, but it can be difficult to know how to get started if you’re new to this form of billing. Here are 10 tips for setting up billing and invoices for your first retainer-based clients.

1. Focus on existing clients

With existing clients, your agency already understands their needs and goals and what they need to do to grow. This will position your agency as a long-term partner in their business success.

Using your expertise in their industry, create a long-term plan for how your agency can position them for growth using data and reports. Now is the ideal time to wow them with what you’ll be capable of providing them with long-term.

2. Define the scope of work and expectations

Before initiating retainer billing, always create clear guidelines for your client’s scope of work (SOW). A clear and well-defined SOW helps you determine the required time and resources to complete the project within a consented timeframe. It also provides both parties a thorough understanding of what is included in the retainer and what is not, preventing misunderstandings or scope creep. To do this, transparent communication with clients is crucial. 

Additionally, pay attention to how the client interprets your results. Make sure your team is fully aware of the client’s goals and what KPIs are used to measure your deliverables. You can discuss with clients to agree on a reasonable scope of work, set expectations for response times and turnaround times, and develop a process for communication and collaboration.

3. Determine your hours

With a solid understanding of your scope of work, determine the number of hours your team will allocate to your client. Understandably, some months are busier than others, and you’ll need to build a slight buffer to accommodate this because retainer hours don’t carry over.

Just because your agency provides a retainer doesn’t mean you’ll have any freedom to slack on time-tracking. A common mistake agencies make is setting up a retainer invoicing and then loosely estimating hours—which can lead to months of accidentally under-charging for your time. Function Point’s simple time-tracking allows creatives to easily track as they work rather than trying to estimate where their time was spent at the end of the day.

4. Set your rates

When you’re determining retainer-based pricing, you should anticipate that most clients will expect to be paying a slightly lower hourly rate. Here’s a loose rundown of how to calculate retainer fees:

First, think about your financial goals. How much do you want to earn annually? Allocate that income across clients and retainers to determine your ideal client load. To avoid overworking yourself, determine your maximum capacity for servicing clients at once. 

Then, determine the factors impacting your profitability, such as the cost of providing your services, including personnel expenses, overheads, and other indirect costs. 

Now, how to calculate a retainer fee? Take your full-time employees’ total costs (salary, taxes, health benefits, etc). For each retainer, loosely estimate the percentage of time that the client will take up your employees. For simplicity’s sake, we’ll say that you’re providing a staff of 5, all spending 25% of their time on Client X. Add up 25% of each of their total employee costs, multiply by 2% (to include the average overhead cost per employee), and then add a 20% profit margin.

Remember that your rates should be based on the scope of work and the value you can offer the client. It’s essential to set a reasonable retainer amount that is not too high or too low. A low retainer may result in your agency not being able to deliver the desired outcome, while a high retainer may make it difficult to win new clients.

If it is your first retainer agreement, you can consider offering a reduced rate for a certain period to gain experience and establish a rapport with the client. Nevertheless, ensure the client understands that the discounted rate is temporary and not a long-term arrangement.

5. Decide on your terms

Depending on the scope of work and the size of your agency, determine the length of contract you feel is the best fit for you and your client. Having a shorter-term contract gives both parties the opportunity to feel the situation and make adjustments as necessary or decide if it isn’t working.

Organize the contract in a manner that includes suitable clauses for unforeseen circumstances that may occur in the future. For example, how should you proceed if your client assigns you tasks that surpass the time limit specified in the agreement? In this case, you should clearly define the base fee and add a clause in the contract that stipulates the calculation of additional time and the rate applied for extra work.

To prevent misunderstandings, describe all terms and references used in the contract in detail. If the customer demands tasks that lie beyond the agreement’s boundaries, outline the procedure and discuss the additional fees with them.

On the other hand, in case the number of hours is underutilized, specify a provision on whether the unused time can be carried to the next month or it will be lost.

What else should you consider? Set a 30-day notice requirement for cancelling a retainer, and apply it to both parties. Ensure you’ve included written agreements on when invoices and payments are due. Make sure your client is aware that hours do not roll over—this isn’t to earn your agency free money but to ensure your client is using the retainer and your talent to their fullest potential. These rules provide security and protection for both parties!

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6. Establish billing periods and payments terms

Based on the nature of the work and the client’s preferences, you can decide on the billing periods for the retainer invoice, such as monthly, quarterly, or annually. Make sure both parties are well aware of the payment due to ensure timely payment and avoid delays.

A good piece of advice is to invoice the client upfront for the billing period. This helps your agency maintain a healthy cash flow and ensures you can deliver the work without financial stress.  

7. Avoid client bullying

Hopefully, when you’ve set a retainer with a client, it’s because you enjoy working with them and see mutual benefit in your long-term partnership. A retainer is not a monthly payment for all-access creative support!

You’ll know the difference between providing extra value for your client and being steamrolled into going over budget to retain a client who is becoming a bully. Customers may ask for slight modifications or revisions; however, to prevent being exploited, you should define the limit of adjustments you can allow without extra costs in the retainer agreement. As mentioned above, establish the charge for any modifications beyond the defined scope.

In addition, strong account management and bulletproof time tracking can help negate bullying situations when they arise.

You can use a project management system to track the time and expenses incurred for the retainer. Therefore, you can show the client how their money is being spent and guarantee that you are not over or undercharging for your services. Tracking time and expenses also gives you insights into your performance, which is valuable to help you optimize workflow and improve profitability.

8. Provide regular updates

It’s important to keep the client updated on your work progress under the retainer. You should provide regular reports on the work completed and what is still to be done, whether weekly or monthly. Be transparent about how the retainer is being used and how it generates value for the client. This helps increase the client’s satisfaction with the work being done. You should be open and honest about any challenges or issues that arise and work together with the client to find solutions. 

9. Review and adjust as necessary

As the retainer progresses, it’s important to consistently review the agreement with the client to ensure it’s mutually beneficial for both parties. Keep an eye on the scope of work to ensure that it does not exceed the contracted retainer sum. If additional work is required, discuss it with the client and revise the retainer correspondingly. This ensures that both parties agree and that the project can be accomplished within the predetermined timeline and financial plan.

Since retainer contracts are not set in stone, regularly reviewing and adjusting your client’s retainer contract is crucial for a successful working relationship. If your client has been with you for several months and has been using a higher tier of services, you may suggest amendments to the contract that reflect the increased workload and fee.

To ensure open communication with your client, schedule meetings at regular intervals (such as quarterly basis) to gather valuable input from your client and offer your advice. This will help you and your client stay on the same page and make any necessary adjustments to the retainer contract.

Show Value

Creatives and marketers frequently lament the snail’s pace at which true ROI can be proven. Retainers give agencies a chance to really show their true worth and let their clients experience the kind of growth that only comes with long-term partnerships. Function Point’s analytics and collaboration tools allow you and your clients to track the project process on the go and make your monthly reporting more effortless than ever.

Beyond improving cash flow, the main benefit of having client retainers is the ability to significantly improve your work, flex your creativity and provide accurate results for clients.

By following the tips outlined in this article, agencies can ensure that their retainer agreements are fair, transparent, and effective while also providing their clients with the predictability and consistency they need to succeed. 

Wondering if a retainer pricing model is right for your agency? Check out our guide, Agency Retainers: What You Need to Know

Function Point alleviates the chaotic nature of operating creative agencies, internal marketing teams, and professional service firms. Used by over 9000 customers across the world, the all-in-one agency management solution helps teams connect each stage of project management. Our goal is to make productivity more personable; to warm it up and give it a heartbeat.

FP does more than just time tracking. Learn more by visiting our Product page or booking a demo with us.

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