Retainers are popular with both agencies and clients because each view the retainer as a way of managing risk. As Warren Buffet put it; "Risk comes from not knowing what you're doing." So who takes the risk when it comes to a retainer? The answer to that will be evident in the agency's P&L for that client.
Agencies love retainers because it gives them projectable revenue which reduces staffing risk and (in theory) enables the agency to better manage client finances. Retainers give the agency's retained team the chance to really focus on the client's business, learn all the products/services, build strong relationships with the clients, etc. Retained accounts are easier to staff because prospective employees view the risk of the account leaving as lower than that of a non-retained account. And the thinking goes that when the team knows the client's business better, the strategic and creative products are stronger as a result.
Clients like retainers for many of the same reasons. Many times agencies pitch with their A team, but those are usually not the people who will work on the business. A retainer can solve that by stipulating exactly who will be retained on the business - thereby ensuring that the same quality of work they chose the agency for will continue to be the quality of work they get from the retained team. Those individuals are expected to learn the business as if it were their own, build strong relationships with their counterparts at the client and dedicate their time and interest to the needs of the client's business. Clients like the financial benefits of a retainer as well because the fixed monthly fee enables them to better budget their Marketing spend and limit their risk of overages.
So what are the risks?
There are risks to both sides. A retained agency team can become too comfortable which shows up in stale creative work, uninspired strategy, unprofessional interactions with clients in meetings and presentations and missed deadlines (not caused by the client). In the worst case, the agency team becomes no different than what the client would have experienced had they simply hired an in-house solution. In short, retainers can bring the maxim "familiarity breeds contempt" to life. Clients complain that retained teams become too much like coworkers instead of agency partners. There's Opportunity Risk for the client as well in that, if they're not on top of things, they may end up using the agency team less than planned which raises their cost well beyond what they could have paid had they just worked on a per project basis.
The opposite is of course true for the agency. If the client is on top of things, they can end up pumping far more work through the agency on a retained situation than they would have been able to normally and the per project (or hourly) rate can plummet precipitously for the agency. In truth, this doesn't hurt the agency's bottom line, because smart agencies build the retainer fee around the cost structure of the team doing the work, so they're not at risk of losing money, but there's still the Opportunity Cost to consider. After all, it's hard to consider a $1.5M retainer a good idea when you could have gotten $2.5M for the work on a piecemeal basis...
Are retainers a good idea or not?
When the agency and client are well matched, it's hard to beat the benefits a retainer offers both sides. There are significant cost reductions in just paperwork alone, not to mention the level of trust that a retainer creates between client and agency. In fact, one of the best ways of securing a retained relationship with a client is by putting that trust on display.
One example is transparency - being willing (and able) to show the client what the team is working on, where their projects are at and how long everything is taking. Using tools like the Client Portal in Advantage's agency management system allows you to share information on projects, documents and production or media schedules effortlessly through a branded, permissions-based web site that you control.
Visual-based project management tools like Kanban boards are an easy way to enable clients (and agency team members) to quickly see where their projects are at and where they're going to next.
And timekeeping tools like the RecordTime app can be used to both ensure the client that the time on their projects is being accurately captured and give the agency team the tool they need to do so.
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 engagements. Whether that holds true for your agency and client will depend on how well each of you know what you're doing and whether or not you have the tools to successfully work together.
Schedule a free online demo of Advantage's AQUA agency management system and see why it's the #1 choice for agencies of all sizes. If you've never worked with a truly integrated system that brings your Project Management, Accounting and Media together, you'll be blown away by the possibilities it opens for your agency.