3 Common Mistakes Creative Agencies Make When Managing Retainers
Read time: 6 minutes
Retainers tend to be an attractive option for both creative agencies and clients. With a retainer, the client knows their monthly expense will be consistent, and the agency knows that they will have a steady stream of revenue coming in. The majority of agencies will use retainers at one point or another, so it’s important to get them right, as they can be dangerous to the agency if they aren’t managed correctly. Here are three common mistakes that we see all too often.
Mistake #1: Not Charging a Consistent Monthly Rate
Here’s a common scenario: A creative agency has a monthly “retainer” with a client, say for $10,000, which equates to 100 hours worth of work per month.
However, at the end of the month, if the agency spends less than 100 hours, the client demands that they adjust the bill based on a number of hours actually worked—and the agency agrees to this demand. Now, if they only work 80 hours, they only charge $8000. The opposite isn’t true when work exceeds the number of hours though. When they go over, that’s just part of the retainer.
In this scenario the agency sees all of the downside and none of the benefits of a retainer. There is a natural ebb and flow to client work. Some months there are projects galore while others are more leisurely. That doesn’t mean the amount charged should be altered. The monthly rate is the average number of hours spent each month at the end of the year. If in January only 50 hours were spent on client work, that’s okay because June saw 150 hours of work being done.
To avoid a situation where clients ask for reduced rates when hours are down, we recommend a 6-month trial period at the beginning of the retainer. In your agreement, state that during that period, if the client overuses the retainer by 15% or less, you will let it slide. If they overuse the retainer by more than 15%, you will charge them based on your blended rate for each hour above the 15% overuse. If they underuse the retainer during the trial period, offer to repay them via hours credit of 20% of the unused hours per month for 5 months.
This trial period will allow you to better understand your client’s needs while helping to avoid being caught in a pattern of an overused retainer. The key to this being successful is accurate tracking, reporting, and transparency, which leads us to our next common mistake.
Mistake #2: Inaccurate Time Tracking
Every single hour needs to be meticulously tracked when it comes to a retainer. Writing it down and entering it into your project management software later is not going to cut it. You absolutely must be tracking all of your time.
The client is going to want to see a detailed report every month of exactly what they got for their monthly retainer. You can’t be scrambling at the end of the month to enter all of your time. It doesn’t matter how well you’ve organized those cocktail napkins, your time tracking is not going to be accurate. Track everything in your project management software on a daily basis and send a detailed report to your client of all time spent during the month along with the retainer invoice.
Remember that retainers are billed in advance. The time report is for all work done in the previous month while the invoice is for the next month.
Mistake #3: Not telling the client about over and under servicing
You can’t be afraid of telling clients the true cost of their retainer. If you’re consistently going way over budget and intend on eating that cost, you at least need to make them aware of it. The same is true in the opposite direction. Clients should be made aware that they’re being underserviced.
A client that is not taking full advantage of their retainer with you can be more dangerous than a client that demands more than what they pay for. If you’re consistently coming in under budget, it’s only a matter of time before your client decides that their retainer isn’t worth it.
Help them to take full advantage of your awesomeness (to an extent) and make sure that they are fully aware of how hard you work for them.
Retainers have pros and cons. The consistency is great but the potential for mistreatment is high. Furthermore, as many agencies discovered, retainers are often the first thing that is cut in a downturn.
While it may be sensible and valuable to the client, it tends to quickly catch the eye of whoever is in charge of making some cuts. Having a retainer as the only type of work that you do for a client is risky for your ad agency. Especially if that retainer happens to be a large one that makes up a hefty portion of your agency’s revenue.
As we saw in this year’s industry report, agencies prefer a mixed approach of billing methods. Some, but not all of their work, comes from retainers. This allows them to stay flexible depending on the project. It’s common for retainer clients to also come to you for one off projects that they are willing to pay for separately.
Try to have a predefined set of guidelines for what will and will not be included in the retainer. If you can supplement the retainer with other pieces of work charged at a fixed rate or better yet, time/materials, for the same client, this will lower your risk. This will also allow you to compare the profitability of retainer work to other types of work for the same client. You may be surprised by what you find.
Remember, when working with retainers:
- Make sure you have a solid agreement that protects you from mistreatment
- Keep meticulous records of your time and report it in a transparent way
Make sure that the retainer isn’t the only work that you do for that client
How Function Point Helps
Project management software like Function Point is a great way of keeping on top of your time tracking, as well as all of your tasks and client work. To learn more, be sure to check out our blog on 3 reasons and 3 tips for creative agency time tracking. Want to see what Function Point can do for you? Get in touch today.