If you’re currently getting most (or all) of your revenue through one-off projects, you’ve probably thought, “I wish we could just get all our clients on retainer—then we don’t have to spend so much time on sales.” Selling a 12-month digital marketing retainer usually takes less effort than selling 12 small one-off projects. And it’s nice to be able to predict that revenue.
I like retainers a lot but they’re not a magic solution—retainers are good for sales and accounting, but potentially risky for staffing and project management.
If your agency’s systems aren’t ready to handle a demanding retainer client, client’s going to fire you mid-retainer because you keep missing deliverables. A contract won’t save you if you’re consistently incompetent.
Let’s look at the pros and cons, so you can decide what’s right for your digital marketing agency. I also share how to pitch retainers to clients, and add value without decimating profits.
The Light Side: Pros of Doing Retainer-Based Work
The key benefits to digital marketing retainers are in sales, accounting, and staffing—you’ll see more efficiency and more predictability.
Sales efficiency: It typically takes less effort to sell a single big project than a similar number of smaller projects. The same is true for retainers—selling a single big retainer will take less time overall than selling a similar volume of small retainers. The ideal is to do a mix of large and small retainers, to diversify your revenue.
Accounting smoothing: Signing a retainer makes it easier to predict future revenue. That’s great for accounting and financial planning.
Staffing support: Retainers make it easier to justify hiring part-time or full-time employees. This is good in a few ways—employees tend to cost half as much per hour as freelancers (which saves you money overall, as long as there’s enough billable workload) and you can have them do marketing for the agency itself at no incremental cost per hour.
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But it’s not all puppies and roses. Let’s look at the downside of retainers at digital marketing agencies.
The Dark Side: Cons of Doing Retainer-Based Work
The downsides to having retainer work are around project management, staffing, client service, strategy, and sales. Prediction—you’ll develop ulcers if you dive into retainers before you’re ready.
Project management problems: Someone needs to be managing retainer consumption, to ensure the clients are getting their full value every month. Miss a month or two because you’re distracted and the client will start demanding free makeup work… which you likely don’t have the staff (or cash) to do. I recommend making retainers “use it or lose it” (instead of rollover) but it’s ultimately up to you to ensure they’re using it.
Staffing bursts: Yes, it’s easier to sell a single 12-month retainer than 12 similar projects—but now you need to have team members to fulfill the retainer every month. A client ran into this, where he sold a $20,000 retainer but didn’t have people lined up to help fulfill the work. I helped him build a pool of freelancers to help while he builds his full-time team. I wouldn’t do a retainer-based business without a pool of 10+ freelancers who can fulfill the work—you need enough of each role to be confident that they’re available when you need help.
Client service overload: Retainer clients (rightly) expect more-responsive client service—yet it’s easy for you to get distracted by project-based clients, because projects have launch dates and urgent (projects) tends to be important (retainers). And it’s harder to move a client to a new contact at your agency if you’ve made yourself indispensable… yet client service isn’t your primary job as an agency owner—your primary job is running the agency.
Strategy atrophy: In my experience, agencies tend to put most of the retainer budget toward monthly fulfillment—a mix of planned work plus the client saying, “Wouldn’t it be cool if we did this instead?”—but this means you’re not paying attention to strategy. Ignore strategy at your own peril—you’ll get to renewal time and the client will say, “Well, you did a lot, but nothing seems to fit together.”
Sales apathy: Land a big retainer? Take a moment to celebrate—and then get right back to selling again. Retainers are likely revenue, but not guaranteed. You have to keep delivering. I’ve seen clients get fired when their agency kept making avoidable mistakes, even when there was a retainer contract.
How to Make Retainers Attractive to Agency Clients
- Agencies will often say the retainer helps them dedicate a certain number of hours per month to help that client.
- If your clients’ have a large enough budget, a retainer may also mean they get dedicated team members.
- Sometimes it means they get a discount on the retainer hours (but no discount on overage hours). Just be careful with discounts.
- Retainers let you dedicate a portion of the budget to ongoing strategy work, to keep things fresh.
- Corporate clients usually value retainers, since they make monthly expenses more predictable.
- Clients will also get a single Purchase Order for the year, instead of fighting Purchasing every time they want to do a project. That one PO helps you say “yes” a lot faster as things come up.
- One thing I’ve noticed in corporate budgeting (at the department level) is managers may compete with each other on how many people they manage and how much budget they oversee; you can help them manage (aka spend) more.
- A minimum spend helps them feel confident that they’ll come out on the winning side of corporate “use it or lose it” policies. (That is, they can report they spent 100% of their budget, instead of risking an automatic budget cut next year.)
Bonus: Add value for your retainer clients, without decimating profits
What are some low-cost, high-value bonuses you could offer if your clients don’t jump to sign a retainer?
The ideal here is to find value-add solutions that don’t involve a discount, because that opens a can of worms that will stay open—painfully—forever. Precedents can be extremely dangerous.
One idea that comes to mind would be a quarterly training workshop at their office on a topic that helps their marketing team look smart to the CEO.
A second idea would be a monthly industry trends update, telling them what other companies in the industry are doing. Ideally, you’re an expert in your clients’ industries already anyway. Imagine how much easier your sales pitch will be when potential clients see you as someone who cares about their industry as much as they do… yet has more time to keep up with things than they do.
Prepare for overages and rollovers
Be careful about clients going over their allocation—be sure to charge them for this, or frame any waivers as a “strategically free” situation.
Likewise, be careful about rollover situations—you don’t want to find yourself owing a client hundreds of hours that they expect to use on short notice.
Sample policy: “Retainer Rollover Hours”
Here’s a starting point for your agency’s “rollover hours” policy:
“You can ‘bank’ rolled-over hours, up to the equivalent of one month of your retainer (e.g., you can accumulate up to 80 hours if your retainer is 80 hours/month). Because we reserve time for each retainer client, your PM can confirm our availability when you want to use rolled-over time. Rolled-over hours automatically expire 12 months after the original retainer ends.”
What’s Right for Your Agency?
You’ll need to decide for yourself whether digital marketing retainers make sense for you—as you can see above, there are both pros and cons. I recommend seeking a mix of retainer and project-based work, to diversify your revenue in case one or the other lags. It comes down to what your clients care about, personally and professionally.
Consider using project-based work to ensure your systems and processes can handle fulfilling a retainer. Once you’re confident you can fulfill multiple projects at once (say, 3-5 clients simultaneously), then you’re probably ready to grow your retainer-based business.
If a project-based client has approached you to help them on an ongoing basis, think about the changes you’ll need to make to be successful. Otherwise, you’ll sign that contract… and a few months from now, realize you’re in way over your head. Fortunately, this is largely preventable by following the points above.
Question: What’s been your experience transitioning from project-based work to retainers?
Image credit: Handcuffs photo by Victor Casale, via Creative Commons
