Are Retainers a Double-Edged Sword?
Retainers have both benefits and risks. Agencies like retainers because it gives them projectable revenue and simplified billing. Clients like the financial benefits of a retainer because the fixed monthly fee enables them to better budget their Marketing spend.
However, agencies risk financial losses when they assume retainers will cover all expenses. For agencies to maintain the level of profitability with retainers, details of the scope of work they cover must be defined and closely followed. For example, if the retainer covers website maintenance, both the agency and client must be on the same page about what that means. Any client requests that fall outside the defined scope have the potential to decrease agency profits.
Understanding all details of client requests is critical. Be sure expectations for the budget and deadlines line up with reality. Once the scope is determined, confirm the details with the client to ensure nothing is overlooked. Then you will also know whether the project exceeds the retainer limits.
Monitoring day-to-day expenses and periodic reviews provide insights. Monitoring the time agency employees spend on clients is essential for determining if the retainer amount is enough to maintain the level of projected profits. This requires employees to keep up with their timesheets, which is a challenge for every agency. That’s why it’s important to have a user-friendly time-entry system. If timesheets are integrated with accounting, time data automatically flows into Client Profit & Loss reports.
Are retainers a good idea?
When the agency and client are well matched, it's hard to beat the benefits of a retainer. The reason retainers have been around so long is because they have the potential to be the most cost effective and efficient solution for long term agency/client relationships. It certainly helps to have the tools to successfully work together.
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