Agency Retainer vs Large Projects: How To Structure Your Agency
Apart from elements like revenue and client satisfaction, your agency structure is one of the crucial aspects of running a successful agency. It is how you decide to rely on retainers or pursue large projects to gain profit.
In this article, we’ll walk you through the benefits and costs of retainers versus large projects and what you should consider when structuring your agency. Finding the right balance between retainers and big projects will help your agency grow, obtain more business deals, and build your reputation for solving diverse client needs. From there, you can answer the question of how to structure your digital marketing agency effectively.
Understanding Agency Retainers
Agency owners know that keeping a stable income stream and nurturing long-term client relationships is crucial. This is where retainers come into play. Let’s explore the benefits and drawbacks of agency retainers:
Pros of Agency Retainers:
- Predictable Earnings: Retainers give you a steady revenue stream, which allows you to plan resources effectively. Thanks to this stability, you can make strategic decisions to expand your company while investing in talent acquisition and facility development to fit your agency’s needs.
- Strengthened Client Relationships: Retainers help build trust, familiarity, and client loyalty by continuously engaging with them. This not only bolsters the client-agency relationship but also provides plenty of opportunities for upselling. This means a higher client retention rate, which leads to long-term success and mutual growth.
- Ongoing Maintenance: With retainers, you become a reliable resource for a client’s ongoing needs, such as content updates, campaign monitoring, and necessary adjustments. This way, you can showcase your competency, demonstrate value, and position yourself as an indispensable partner. Clients will value your work and rely more on your consistent support and guidance.
- Better Work Quality: With retainer agreements, you spend less time searching for new clients and can focus more on the existing ones. Hence, you can deliver exceptional services and high-quality results for clients, boosting their satisfaction.
- Easier Billing: Retainers streamline your billing process, saving the time and effort of calculating client costs monthly. You can quickly bill clients monthly or quarterly using a fixed fee or a predetermined number of billable hours, eliminating the trouble of administrative tasks and reducing errors. You can also automate this process by using a project management software like Function Point.
Cons of Agency Retainers:
- Limited Revenue Growth Potential: While retainers offer stability, you’re also restricted by the agreed-upon fee. It’s hard to generate significant additional income beyond that.
- Less Flexibility: Retainer agreements may tie your leg into a few scope of work. This limits your ability to adapt to changing market demands, and risks straining your agency’s resources to grow.
- Difficulty in Setting Boundaries: Flat-rate retainer agreements make it difficult to accommodate changing client needs and account for variations in project scope. If not managed well, it can lead to scope creep and challenges in managing client expectations. Even worse, this issue creates unreimbursed cost and make your agency absorb the additional costs.
- Sales Friction: Depending too much on long-term retainer contracts brings a problem of sales resistance. This means your sales team may lose the motivation to onboard new clients while only sticking with the retainers.
- Depend More on One Client: Relying heavily on a single client can be risky, as changes in the client’s needs or reduced scope of work can seriously impact your agency’s finances.
Embracing Large Projects
Engaging in large projects is an excellent growth strategy to show what you can do. Large projects present opportunities to boost revenue, gain exposure to various industries, and prove your ability to handle complex projects. Here are the pros and cons to consider if you want to focus on this type of work:
Pros of Large Projects:
- Potential Revenue Growth: Large projects can substantially increase your income in a single endeavor, contributing greatly to your agency’s sales. By taking on major campaigns, branding projects, or product launches, you can tap into new areas and acquire a wider market share.
- Showcase Expertise: By successfully executing a large-scale project, you have a powerful case study to demonstrate your qualifications. It can attract new clients, convert more leads, and enhance your positioning your agency as a leader in your field. This can lead to more opportunities and partnerships.
- Charge a Higher Hourly Rate: Working on a project-by-project basis can earn you higher hourly rates compared to retainers, thus increasing revenue potential.
- Well-defined Focus: With project-based pricing, you can specialize in certain scope to create high-quality outputs. Projects with defined timelines and deliverables provide clarity and transparency. It facilitates efficient resource allocation and helps agencies optimize workflow to meet clients’ requirements.
- Diversified Portfolio: With a project-based approach, you can handle multiple projects to diversify your portfolio and expand your client base. As a result, your agency gets a broader range of experience and becomes more confident to bid on various types of jobs.
- No Need to Report Hours: Fixed pricing removes the need for hour tracking and reporting, which simplifies administrative procedures and allows your team to focus on project execution.
- Easier to Sell: By offering short-term contracts with clear deliverables, you reduce barriers for clients, making it easier to secure new business and build trust.
Cons of Large Projects:
- Uncertainty with Future Projects: Unlike retainers, revenue from large projects is unpredictable. Depending solely on large projects creates uncertainty regarding future client engagements, leading to income fluctuations. In this case, it become challenging to precisely plan for your agency’s revenue, so make sure to balance them with other sources for financial stability.
- Pressure to Find New Clients: With project-based payment, there is a constant need to acquire new projects to maintain a steady flow of work. Thus, it requires additional time and resources for lead generation and relationship-building with prospects.
- Willingness to Change: Since each project has its own onboarding process, you should foresee frequent adjustments to meet client expectations. This ongoing need for customization can be time-consuming and distract your agency from developing lasting client relationships.
How to Structure A Marketing Agency: Choosing Between Retainers and Large Projects
When it comes to structuring your agency, a critical decision that demands your attention is whether to prioritize retainers or large projects. In this section, we will explore the factors that affect this decision and give you advice on how to strike the right balance.
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Factors Influencing the Decision
To make the right choice between retainers and large projects, consider various internal and external factors. Think about your agency’s goals, client preferences, resource allocation, and revenue stability. Here’s the list of elements to study:
- Resource Allocation and Capacity Planning: Evaluate your agency’s resources, such as personnel, time, and infrastructure. Assess whether you have the available capacity to handle ongoing retainers or large projects without compromising the quality of your services. This self-assessment will leverage your strengths and help you distribute resources smartly to where yielding the most profits.
- Client Demands and Market Trends: Stay attuned to your customers’ evolving needs and market trends. Conduct careful market research to recognize new opportunities and the types of work that have high demand. In addition, you must know the preferences of your client base, and their willingness to engage in continuing retainers or project-based work. This analysis will guide your decision.
- Steady or Rapid Growth: Review your agency’s vision and growth objectives. Do you prioritize steady and consistent income, or do you aspire for immediate revenue growth and increased market share? By understanding your goals, you can align your agency structure accordingly.
- Extended Partnerships or Diversity: Do you value long-term partnerships or seek variety in your client base and project portfolio? Do you prefer working with a few clients over a long period for stability or enjoy tackling a wide range of projects for flexibility?
- Specialization or Broad Offering: Determine your core competencies and your focus: whether you prefer providing expertise in a specific area or offering a comprehensive suite of services for diverse client needs.
One recommendation is to leverage data and analytics to decide on your agency structure. Analyze your financial data, sales projections, and client retention rates to comprehend how retainers and large projects impact your performance. Use client feedback and NPS (Net Promoter Score) to refine your approach and meet their expectations.
Striking the Right Balance
Strategically combining retainers and large projects is worth a choice for your agency. Instead of choosing only one method, create a flexible agency structure that integrates both of them to leverage their benefits and minimize drawbacks.
Here’s an idea for a balanced strategy: maintain your core retainer clients for consistent revenue, while selectively seeking big one-time projects to push growth. This approach allows you to obtain the financial stability of retainers while capturing the revenue and visibility coming from large projects.
To implement this strategy, evaluate your agency’s capacities, market demands, and the need for flexibility. Establish clear guidelines for moving clients between retainers and projects to suit their needs. This technique helps optimize your agency’s operations and accomplish sustainable success.
Examples of Agency Structure
Let’s consider some case studies to illustrate the application of this hybrid approach:
Case 1: A marketing agency serving SME businesses
In this scenario, your agency focuses on providing ample marketing support to SME businesses, and can go for this marketing agency structure:
You adopt a retainer method by offering ongoing marketing services like content creation and social media management. Additionally, you can take on occasional large projects, such as website revamps and campaign launches to make the most of clients’ needs and to drive revenue growth.
Case 2: An advertising agency working for a variety of clients
For an advertising agency structure serving a diverse client base, an integration of retainers and large projects can be:
Your agency offer retainers for strategic planning and ad campaign management to clients. This creates a consistent support for clients’ advertising efforts. At the same time, you also pursue large projects such as major branding initiatives or big campaigns to demonstrate your skills and seize enormous revenue possibilities.
Case 3: A creative agency focusing on design and branding
A creative agency structure that specializes in design and branding can benefit from a mix of retainers and large projects. Here’s the way you may follow:
Your agency’s retainers can provide continuous design services and creative consultation to clients, like designing marketing collaterals, brand guidelines, and website maintenance. Simultaneously, you should try to win big projects such as product launches or rebranding projects. This is where you provide your creative and impactful solutions to clients, and build your prestige in the industry.
To Wrap Up
Choosing between retainers and large projects is a crucial decision in structuring your agency. Each approach offers unique values but also comes with challenges that should be carefully considered. Retainers provide stability and long-term client relationships, while large projects offer revenue growth opportunities and access to new markets.
Striking the right balance between these approaches is key. By utilizing retainers and selective pursuit of large projects, you can maintain financial stability, enhance client satisfaction, and optimize your agency’s revenue flow.
Remember, there is no universal structure. You should regularly evaluate your performance, reassess your strategies, and adapt accordingly to thrive in such a dynamic and competitive industry.