Running a remote agency or service-based business, and wondering what pricing model to use? Retainer pricing enables you to move beyond selling your time for money. It provides a monthly recurring revenue stream to grow your business, based on access to your expertise.
Retainer pricing allows clients to secure a block of time or set of recurring services every month. As an alternative to project-based or charging by the hour, a monthly retainer makes agency revenue predictable and secure.
But there are some things to know before you decide to use this pricing model — and some strategies to make it successful.
This article covers all the benefits of a retainer pricing model, as well as some potential drawbacks. It also covers some tips on how to sell a retainer pricing model to clients and successfully implement it in your business.
What is a Monthly Retainer?
A monthly retainer is a model for recurring revenue. Agencies charge clients a retainer fee in exchange for either a set number of hours or a general allocation of tasks. While the specifics of what a retainer secures depends on the business and client needs, retainers can streamline billing and simplify charges.
Of course, with any pricing model, there are both benefits and risks.
Benefits & Risks of Retainer Pricing
A retainer agreement may not be the first way an agency charges clients. However, as your agency grows, you’ll need a reliable monthly revenue stream.
When you are starting out, the actual value of work and the time it takes to complete work may be unclear. You may get your first clients by offering smaller, project-based services.
If you’ve worked as a freelancer or consultant, you know it can feel like a feast-or-famine cycle. Retainer pricing can smooth out your cash flow, so you can invest in growing your team and getting more clients to scale your business.
However, it might not work for every type of business or every client. There are pros and cons to charging a monthly retainer, and here are a few to consider before you make the switch.
Pros of Retainer Pricing
Retainer pricing packages are attractive for a few reasons. This kind of billing sets a precedent both for the cost of labor and services provided and subsequently, for the income an agency makes.
Because agencies may have unique staffing arrangements and an array of work, retainers can level set the system. Here are some of the benefits of retainer pricing, starting with the most obvious — regular monthly cash flow.
Consistent Flow of Cash
First, agencies and employees benefit when cash flow is predictable. Especially if your agency provides ongoing or recurring work, you already know how much those things are worth and how much time they take.
Ideally, you will know exactly how much it costs you to provide the work, and how much profit you’ll make from it.
Billing a retainer fee will ensure that someone is booked to do the job each month, whether that’s you, an employee, or a freelance contractor. You can hire staff and know you’ll have the cash flow to pay them.
This consistency is enormously helpful when establishing budgets and growing your team. If you can set up clients for automatic recurring payments, you’ll also eliminate the hassle of unpaid invoices.
Easier Budgeting
Agency budgets may have to be flexible, especially if you provide consulting or other short-term services. But the simpler, the better.
Retainer pricing is one of the easiest ways to quantify work and ensure you meet payroll every month. With a recurring pricing model, you also get rid of the frustration of ongoing negotiations for tasks or projects.
Builds an Ongoing Relationship
Paying out a retainer can create a higher level of loyalty for clients and ensure long-term work for agencies.
Often, retainer pricing is set with a duration agreement. In other words, an agency will set a standard monthly retainer price, with a minimum commitment. The contract may be for several months or up to a year, depending on the nature of your services.
Working with clients over a longer period of time, vs. going project to project, establishes an ongoing relationship. If you’re wondering how to build a client base that sticks with you long-term (and refers their friends), retainers give you more opportunities to build that kind of client relationship.
Not Based on Hours Worked on a Project
When a company hires an agency or consultant, it’s typically because they don’t have the expertise or resources internally to get the work done. They want a certain outcome, but they don’t know exactly what’s involved in achieving it.
Pricing structures per task or per hour may be hard to sell to a client who doesn’t understand the day-to-day operations of your industry. Instead, retainer pricing ensures that the value of an hour isn’t what you have to sell to a client. Instead, you sell based on value.
With a monthly retainer, it doesn’t matter whether a project took 30 minutes or 3 hours. As long as the retainer is representative of the value of work delivered, the time spent doesn’t have to be monitored or qualified in any way.
Not only is this value-based pricing easier to sell, but it means you can charge prices that reflect the value of your expertise and experience, not just your time.
Allows Scalability
Retainers are easy to initially negotiate and then renegotiate over time. Many agencies have retainer options for clients, which give them the ability to quickly scale based on growing needs.
As an agency grows, individual employees may be contracted for a set unit of availability and be able to make more money as their retainers increase.
Cons of Retainer Pricing
Of course, as with any pricing model, retainers are imperfect. If a client is just warming up to the idea of using an agency, sticking them with a hefty retainer as the only option may cut the sale short.
Here are a few of the cons to pricing this way:
Tough to Sell to New Clients
If your agency’s work is unproven and untested, it may be very hard to get a client to sign up for a retainer. Because of the unique relationship between an agency and a client, trust has to be earned through repeated, quality performance.
If your connection with a client is new, it may be worthwhile to do a few flat-fee projects or hourly tasks before you propose a retainer. Because retainers work with value-based pricing, and it takes time to prove value, know that this doesn’t have to be your first and only way to charge.
Requires Long-Term Commitment From Both Parties
The goal of retainers is to secure long-term commitments with clients. While this can be a good goal, if the client is a good one, it can backfire if the client is difficult or a poor fit.
Retainers are a mutually binding agreement that can be hard to get out of when you want to.
What’s more, not all clients need long-term work. It may be useful to consider alternative options and pricing if a project is clearly short-term or has a fixed date of completion.
Can be Difficult to Negotiate an Agreeable Price
Some industries have standard prices, or at least a range of what clients expect to pay. However, for many situations where retainer pricing makes sense, clients are paying for expert advice or unique talents.
Negotiating rates can be difficult. For many types of agencies, pricing is less standardized and sometimes not standardized at all. This makes it difficult to create a pricing model that is universally understood and agreed upon.
It may be useful to have some examples ready to let potential retainer clients know how you’ve decided on the pricing. It may be especially important to illustrate that your pricing is legitimate and competitive.
Can Miscalculate Scope of Project
The worst thing that can happen in a retainer agreement is to take on way more work than you are being paid for. This is not always easy to foresee, especially with new clients.
For instance, if your agency edits podcasts, some clients may take what you create and post it without comment. Others may want in-depth, repeated, painstaking edits that completely erode your margin and consume your time.
Both the unexpected and the unknown can hurt you with a retainer agreement. Smart agency owners use experiences like these to write more detailed scope of work agreements and more restrictions on the lifecycle of a project, including how much input a client can have toward a finished product.
How to Implement a Retainer Pricing Model at Your Agency
Although it doesn’t work for everyone, retainer pricing models are widely used by many types of agencies, consultants, and freelancers. The stability of recurring monthly revenue can make running your business much less stressful, giving you the ability to plan ahead and scale at your own pace.
To get the most benefits out of retainer pricing, you need to set up your agreements carefully. Here’s how to start getting retainers for your agency:
Establish Retainer Pricing Packages
First and foremost: do your due diligence.
Even if you never expect a client to question your pricing, it’s important that you begin at the beginning. This will start with market research. What do other agencies in your industry charge for retainers?
Then, you need to know what it costs you in terms of subcontractor or employee hours, your own time, and any other expenses involved in doing the work each month. Consider whether you want to offer packages with different service levels, and what each one costs you.
It’s tempting to start low, but that could also be a mistake. Retainers, by nature, come with some degree of flexibility, so you need to price in a way that will always allow you to pay the people who are doing the work.
Create a Retainer Agreement
While the contract you give each client will be unique, you should have a boilerplate agreement for every kind of retainer you offer.
Drafting a retainer agreement is essentially the same as writing a business proposal. The difference is that you will need to include some additional legal clauses to make sure both sides are protected.
Make sure your retainer agreement includes these points:
- Retainer fee
- Monthly billing schedule
- Payment agreement (and payment time/date agreement & late fee penalties)
- Either hours or scope of work included in the retainer agreement
- Whether or not a client will be offered additional time if they wish to exceed the retainer
- Duration of the retainer agreement in whole
- What date a client is eligible to resume or upgrade their retainer
- How and when a client can communicate
- Whether or not a retainer can be cancelled/cancellation fees or penalties
Of course, depending on the nature of your agency, a standard contract may also include things like intellectual property agreements, NDAs, and more matters of housekeeping.
It’s important that you draft a contract that legitimately works for your agency, protecting both parties while showing clients that you are thorough and professional.
Communicate About the Retainer
If your agency is brand new, this may be something you naturally do as part of gaining new clients. It’s important that you and your sales team set a standard in place for how to discuss or offer retainers, whether or not every client gets offered a retainer, and which clients are eligible for re-upping or upgrading their retainers.
At some point, after you have used retainer pricing models for a while, you will also want to increase the price of your retainer to cover staff raises and increased overhead.
How to Assess and Manage Retainer Pricing at Your Age
Once it’s priced, sold, and in motion, it’s important to manage and assess the retainer model to make sure it’s profitable. This means checking on how it’s working and applying changes if needed.
Consider the following points as you put retainer pricing into place at your agency:
Focus on Client Value Instead of Specific Hours or Tasks
Many people think of retainers in terms of a client reserving a block of time. While this may be a good option for agencies who were already charging on a per-hour basis, selling retainers works best when you focus on value.
If a client knows they are reserving 10 hours of time per week, they can compare that to hiring on Fiverr or Upwork for the same number of hours. As an agency, you’re offering more than a single person’s time.
You are offering a breadth of experience and possibly a team of professionals. This is fundamentally worth more than “10 hours” and should be communicated as such to the client.
It’s important that they realize their retainer gives them access to the full firepower of your expertise and specialty, not just a few hours of time from a single employee each week or month.
Set Realistic Expectations for Each Month
Some clients will take advantage of retainers and some employees will too. As an agency owner, it’s your responsibility to manage both sides of that situation.
First, you must set expectations for what the client can ask for and get exclusively within the parameters of their retainer. Make a project plan with deliverables for each month, rather than plowing through too much work up front.
Second, you must set expectations for how much work an employee should be doing for each client. A retainer doesn’t mean “on standby.” Employees should be actively involved and provide results for clients, but with limits on how much time they spend and what tasks are in the scope of a client retainer.
That productivity will ensure a long-term client relationship.
Plan Ahead
The fact that a retainer pricing model is frequently a long-term arrangement is a good thing. But it does require forecasting. In many cases, an agency client will not be organized enough to have discrete, exactly-timed tasks ready to dole out each month.
Instead, it’s likely that you have projects that bleed from month to month and have to be managed proactively by your agency and employees. This is part of what you offer and should be part of how you manage retainers.
Start Tracking Time and Resources
Because retainer pricing does hinge somewhat on the value of an hour, it may be important to track time. Some employees will slack when they are retained and others will overcompensate or overwork.
If a client has bought a 10-hour retainer, an employee regularly working 15 hours is a loss. It will also lead to burnout. Monitoring that closely can provide important insight and help you keep your employees happier.
Monitor and Report
The objective of retainer pricing is to provide predictable revenue, but clients need to feel like they are getting their money’s worth.
Everything about a retainer should be monitored and reported on. This keeps everyone safe and ensures that everyone’s time is compensated.
Have a monthly process to report to clients what’s been done, progress on longer-term goals, and updates on ongoing priorities. This will make sure clients see what they are getting each month — even when the work is sometimes done behind the scenes.
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