Editor’s Note: This post was originally published in September 2013 and has been updated for accuracy and comprehensiveness.
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. However, retainers can be dangerous to the agency if they aren’t managed correctly. Here are a few common mistakes that many agencies make with retainers.
That’s Not a Retainer
Here’s something that I come across surprisingly often. A creative agency has a monthly “retainer” with a client, say for $10,000. This retainer includes 100 hours of work per month.
However, at the end of the month, if the agency spends less than the 100 hours, the client demands that they adjust the bill based on a number of hours actually worked. If they only worked 80 hours, they only charge $8000. However, if they go over well, that’s just part of the retainer.
This may sound crazy but it’s actually pretty common. This is a perfect example of an agency being bullied by their client.
Here’s How to Avoid Being Bullied By Your Client
When establishing a retainer, set a trial period of 6 months. 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. That brings me to the next mistake.
You’re Not Tracking Very Accurately, Are You?
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, in your agency management software, as you work!
Managing Time & Resources
Solve the Productivity Puzzle
As you probably already know, 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.
Project Management Software Time Tracking
You can’t be afraid of the truth here. If you’ve gone way over but you intend on ignoring the above advice and eating that cost, you better make sure that the client is aware of it. On the other hand, if you’ve gone way under, you want the client to be made aware of that as well.
Why? Having 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.
That’s Not All You’re Doing For Them, Is It?
Retainers have pros and cons. The consistency is great but the potential for mistreatment is high. Furthermore, as many agencies discovered between 2008-2010, 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.
Try to have a pre-defined 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
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.
Senior Customer Success Manager
As a Senior Customer Success Manager, Marc knows the deepest nooks and crannies of Function Point like the back of his hand. He's a happily transplanted Torontonian who claims to be able to snowboard and play hockey at the same time.