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Retainers

Our company is trying to work out a retainer with one of our clients and I was wondering what experiences others have had with this. Has it worked or not worked? What should we watch out for or expect? And, does anyone have any generic examples?

Thanks, John Keller LPK Inc.

Assuming that "retainer" means "monthly fee: If you do anything, remember this: a) In determining the retainer amount, try to gauge the amount of hours needed to service the account, and remind the client that the initial fee amount is just an educated guess. b) Communiate to the client that the retainer will be reviewed: quarterly or semi-annually to ensure that it is equitable to the agency and to the client (The agency deserves to be profitable, and the client deserves a true accounting of how those hours were spent). You can waive +/- 10% in either direction at the end of the "review period". Or, you can agree to refund or bill any overages. c) Do not put too many staff members under the retainer/fee: I would suggest just limiting the retainer to account service people only (or to a select few) When too many staff members are covered by a fee, profitability is much harder to maintain. d) Detail exactly what the fee covers. Does it include all time by certain employees..or just specific functions that they perform. e) Does the fee include expenses?

Fees provide a good cash stream, but they can kill profitability if you do not maintain/control hours that are posted to fee jobs.

Anna Parisi CFO GBL, Inc.

We've done the retainer thing in the past. It had it's pluses & minuses. Plus was having a fixed revenue target for budgeting. Minus was always having to to justify to the client what we did for the money. (It's funny how clients rarely view telephone calls and attending meetings as "billable".)

Today's economy has forced our clients to demand a deliverable for their money spent. So we don't negotiate retainers anymore. We just load the jobs up with all the time spent (knowing full well we will be over budgeted hours...) and then try to make it up in volume! So far our billing rate has enough padding in it to cover overbudget internal hours. And in many cases we are sacrificing our profit just to get cash flow. Clients know this too, and are really taking advantage of the climate.

But the tide will turn, as it always does. When the economy is rockin' again, we'd love to lock a few good clients into a retainer relationship. At that time we would probably charge $5K up to $10K retainer (that's a comfort level demonstrated by every client we had in the past), and record only account & project managers time against it. Then as each job passed through the house we would bill for design, production and hard costs on only (no management time booked to individual jobs).

Roxanne Cowan

Hi John,

Watch out for what is covered under retainer. You'll need to be very specific as to the services (activities or people) that the retainer would cover. Generalized coverage can come back to haunt you later. If you negotiate fixed retainer for certain services, try to link the amount of retainer to the number of hours. If hours go beyond specified numbers, the retainer goes up and vice-versa.

Retainer is good for cash flow purposes but it does increase your compiling and reporting activity.

Good luck!

Johnson Paul Controller Campbell Michener & Lee

We have used different fee arrangements in different agencies that I have worked in. Some have worked out for the agency and some have not.

Some thoughts:

1) I think it is better to set a non-reconcilable fee. It can be adjusted for future periods every quarter or every year. Preferably every year. This allows for the peaks and valleys in time usage. Clients tend to want credits if they feel you are under hours and have a problem with paying for over hours. With a non-reconcilable fee you may not recover ever billable hour at the full billable rate but if you recover at least 80% of the hours at billable rates then you are probably profitable. Your profitability will increase as you approach 100% recovery of billable hours. (IE if you have $ 100,000 of billable time against the fee and the fee is $ 80,000 per year then that is recovering 80% of your cost). Even in the 80 to 100% range there should be a fair amount of profitability. As long as the client feels his needs are met and the account is profitable I think it is fair to each party. The client has an incentive to use you because they are committed to paying. Both parties should benefit since the client probably committed to the fee amount for agency services in their company budget and the agency is being compensated for their time. The problem comes in when the agency doesn't provide an equitable service level for the fee amount that the client is paying. If the client senses this then the agency is in trouble.

2) A reconcilable fee is fine if a client is going to spend at least the minimum fee on a monthly basis and you get paid if they go over it. If they have a habit of not using the base fee of hours then you have staffed for a fee level that you aren't being compensated for. This would favor the client and they would not lose anything if they didn't use you. The client will also face paying varying amounts on a monthly-basis based on agency hours used instead of a level fee.

3) You can include account service hours, admin hours, media hours, production and traffic management hours and/or creative hours in a fee arangement.

4) Fees can cover hours and/or media commissions.

5) A clause should be included if a client adds a new division or asks the agency to provide services outside of the guidelines spelled out in the contract. The clause should state that these exceptions will be outside of the fee and be billed in addition to the fee.

6) It is difficult to get a client to pay for every hour in a "bill by the hour" or "bill by estimate" contract. So not recovering every billable hour is not anything new.

I would welcome any feedback anyone might have on my e-mail.

Bill Scarpa

We have retainer arrangements with several clients and they are working very well for both us and the client. I think it is important to keep in mind what type of services are being provided in addition to what costs the retainer covers. We use our retainers with those clients with whom we have "advisory" or "consulting" oriented relationships in addition to project related work. This allow us to think for them on a regular basis and come up with ideas that can help their business without the risk that if they don't like the idea it's a spec job. We also give retainer clients benefits that project clients don't have; i.e. we calculate our rate on a 20% discount from our normal hourly rate (we use a blended agency rate so we don't have the issue of different tasks billing at different levels); we charge net on printing and production costs, without any mark up, and we bill media at net, effectively rebating the commissions. This also makes our relationships "pure" ? our retainer clients are comforted that we're always acting in their best interest, we have nothing to gain from a media recommendation or a vendor selection.

In terms of reconciliation of hours to fee, we keep track on a monthly basis and report to the client quarterly, but the retainers themselves are on an annual basis. If at the end of the year we're within the 10% range, either over or under budgeted hours, we agree that we're even for the year. If we're outside the 10% range, we'll credit the under budget hours to the next year, or we'll be compensated at the reduced hourly rate for the overage.

All work within the agency is included in the retainer, account service, production, creative, media, etc. Our four biggest clients are all on annual retainers and they are all very pleased with it. (And continue it easily from year to year). At the end of the year we'll reset the dollar figure if an adjustment is necessary. We get all the work from these clients which helps both with cash flow and with keeping us busy. And from the perception of the marketplace, these are our clients, and the closeness of the relationships, while not detailed publicly, is understood generally.

Madelyne Kirch

We work with a client who is on a retainer but is also billed for jobs that are not on the retainer. Every month a report is created to let the client know what amount of hours were used and whether he is over or under for that month. The issue that we are running into is when jobs are to be only partially billed under the retainer--like production work but not the concepts. We are currently opening two separate jobs so that we can pull the retainer hours for the report (Client Productivity By Job) but feel that there should be an easier way to do this. We have C&P 5.03 Classic set up to bill by task. Does anyone have a different or easier way to do this?

Any help would be greatly appreciated.

Lisa Groth, Design Resource Center