Should You Do Project Work on a Retainer?

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What a great question: is it worth moving clients to a retainer model for project services? A got in touch to ask me, and I thought it was probably a question worth sharing with everyone here.

This is what she said:

“We're a small graphic design studio with 3 employees. My boss wants to convince some of our clients to move to a retainer model. The thing is, most of our projects are on an ad hoc basis, without much consistency from month to month. My feeling is a retainer is not ideal in such a situation, but my boss likes the appeal of it... Money in the bank every month, how wouldn't you?! So my question is: when would you recommend a retainer, and when would you advise against it?”

What is a Retainer?

A retainer is a fixed fee that the customer pays you every month to secure a certain amount of work done. The work could be anything, as long as it’s covered by the scope of your agreement.

Sometimes hours not used are carried forward (often by a limited amount e.g. use within three months or forfeit the hours). Sometimes they are written off if the client doesn’t use them (which is the arrangement I have with a supplier at the moment).

Let’s look at the pros and cons of this payment model.

Advantages of Working on a Retainer

First, the most obvious advantage: it’s money in the bank every month! Whether you do the work or not! What manager wouldn’t want that? I totally get it.

This model works well for projects where there is an element of continuity. I know project have a start, a middle and an end, but if you have projects where there are incremental improvements planned over a year or so, you can see that having the commitment to move forward works well. Think design clients, web projects, app development, that kind of thing, although I’m sure there are other industries where this would also work.

It can improve the flow of work from the client. When they know they have committed to pay a certain amount for work done each month, you might find the work planning is easier. They should be letting you know what they need you for in advance of the next month. This can improve the consistency both of the incoming work (better for you) and the communication (better for both of you).

You should get to know them better and what they want, and that might help you advise them on how to use the retained hours each month. You are also more likely to prioritise their work above incoming fixed-fee or ad hoc projects, just because you have a relationship with them that’s different. That could be a selling point for clients.

Easier admin: both for you and the client. It’s one invoice, it’s a fixed fee, it can be largely automated as a recurring payment. It should be easier for you to maintain the relationship and manage the payment cycles (although for your own benefit and for “proof” you’ll still have to do timesheets). Fixed costs for the client could be a real plus point.

Disadvantages of Working on a Retainer

There are some disadvantages of course, for you and the client. First, you never know how much work the client might want you to do – if it’s a slow month you might be able to squeeze in extra ad hoc work from other people. It’s better to plan for all your hours to be used up so that you can definitely resource their work, but if they don’t send work your way you might have project staff waiting around.

Normally you’d charge your client less per hour on a retainer than you would for a project-driven rate – that’s the advantage to them of having a retainer.

The client might decide that if the work genuinely is ad hoc, that they don’t want this model and you’ll end up either going back to the way you worked before or potentially losing the client if you no longer offer that as an option.

Transparency becomes more of an issue. If the client doesn’t believe they are getting value for money they will vote with their feet and take their projects elsewhere. Think carefully about how you are going to do demonstrate what you have done and what value they have got from their investment each month.

So: When Does a Retainer Work Best?

I think the retainer model works well when the scope of the work is broad, ongoing or likely to evolve. In other words, where the requirement for a long term relationship seems apparent from the start. This might be through lots of micro projects such as graphic design projects, or through one larger piece of ongoing work.

It’s also an effective way of working where the breadth of the work required stretches over several teams or the capability of a whole agency/supplier. You aren’t costing hours per different type of specialist resource within your team, you’re quoting for work done on a flatter cost structure so it removes admin.

I have paid retainers before (and still do) but I am interested in hearing your thoughts on how this works in your business. Let us all know in the comments below, and thanks, A, for the thought provoking question!

Posted on: December 19, 2017 07:59 AM | Permalink

Comments (13)

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What do you do when the amount of work in a month is higher that what the retainer covers, Elizabeth?

I'd be curious to know what kind of retainer agreements ad agencies have with their clients. To the best of my knowledge most agencies do work on a retainer basis, and i guess their work can be classified as projects. Wondering if there's anyone from the advertising industry here; or if anyone has employed the services of an ad agency
/sd

I consider retainer contracts to be Time&Material: the contractor gets paid the time he is available for work to be defined by the owner. So project management responsibility lies with the owner. Sometimes used for staff augmentation, also non-project work.

Interesting variant is when T&M work is actually contracted for the project manager.

Elizabeth,

This is a very interesting question and important one. I've been dealing with those sorts of things for quite some time now and I totally agree with your point of view on when retainer agreements work best.

For a graphic design company, I tend to have it more project base than retainer but I would pay a yearly maintenance fee for them to maintain their graphics, so on and at the same time agree with them on an hourly rate to do any ad hoc tasks. This is for example what we've done with our website designer.

On the other hand, we have a company who handles our IT Support so this being long term relationship with a broad scope of work, we went through a retainer agreement and in this agreement, there is a cap for the maximum no. of hours / amount of work per month and above that, it would be an extra billed based on T & L. We get a report on monthly basis of the work being performed by them.

"the retainer model works well when the scope of the work is broad, ongoing or likely to evolve", so some Agile projects? Perhaps slow transformations.

Thanks Elizabeth for posting this. My understanding is that retainers are best for projects that involve ongoing service over a longer timeline.

@Stephane - I'd make sure that the overall contract includes information about time and materials being charged if the retainer hours are used up.

In that case, would you use a higher T&M rate, compared to the retainer rate, Elizabeth?

Personally, yes I would!

Makes sense

Thanks for posting.

Great post!!

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