In my last message, I talked about the problem of retainers, they seem like a great way to smooth out revenue and make delivery more predictable. Still, in reality, they may turn into a bog of over-servicing and under profitability.
I asked you to tell me about your experiences, and you were very generous with feedback! I’ve tried to summarize them below.
Those who LIKED their retainer agreements usually had one of the following conditions in place:
- They are a solopreneur responsible for selling and delivering. In that case, you are less likely to over service.
- If you have a truly “productized service. Services like website maintenance, or social posting, or content production, wherever there are repeatable tasks to be done every month or quarter, retainers can work well.
- Where your work improves the client’s performance. Rene Zamora works as an outsourced Sales Manager, and when he’s doing his job well, the team’s efficient, they aren’t calling or needing interventions; sales are good, and everyone’s happy. So a retainer works well for him.
- If you have a tight scope and onboard effectively. Carey Rome makes the terms and services to be provided VERY clear upfront with retainer clients. Not just with a written contract, but verbally on a recorded meeting as well. In that recorded meeting, he reviews possible scenarios that could (“will”) happen in the future and conveys that these additional services will require a change order.
- If there’s an overall plan, with milestones, that’s mutually agreed to. For example, an established marketing plan, with tactics calendared out for the year. This plan can change throughout the year, but when it does, it’s a discussion with the client. You need a strong commitment to the client’s “why” for the marketing plan to keep the client-focused and on schedule.
- They are willing to push change orders. Nick Richtsmeier offers retainers as a way of maintaining continuity over a variety of deliverables and timelines. But when a request is out of the agreed scope, they offer to take it on as a separate project.
Those who didn’t like their retainer agreements usually had one of the following conditions:
- The retainer offers “unlimited advice,” but I’m not very good at actually limiting our assistance to “advice.”
- The “retainer” is really just a bucket of hours. Constant back and forth about how long things take, do the hours rollover? Why didn’t you get this done this month? It sets up a harmful, micromanaging, dynamic between you and your client. Plus, now you are working by the hour, that’s not a win for you!
- The retainer is more like monthly payments on a fixed scope project. Sometimes, when you’ve got a long project, it makes sense for both of you to break up the payments. But when you call that a retainer, it gets fuzzy what’s in scope vs. out of scope. Just call that monthly payments and bill things that are out of scope.
- You aren’t great at going back and asking for change orders. If that’s you, you want to be “nice,” you don’t want to bother the client. Stay away from retainers. Bill things fixed fee.
So, should you entertain an MRR arrangement with your client?
If you have a tight scope, and repeatable processes and you are willing to hold the client to the scope when they ask for more (which they will), it can be a great way to make your business more predictable.
If you are engaged in more strategic or creative work, where the impact of the work on the client’s business is disproportionate to the effort you put in, MRR could be costing you a lot of money. If you value priced your projects, the additional margin would likely make up for the reduced predictability.
If you don’t have tight scopes of work or aren’t willing to hold people to that scope of work, you should never touch an MRR arrangement.
For further reading, check out David Baker’s thoughts on Why Monthly Recurring Revenue (MRR) Arrangements May Not Be Ideal
As always, I’d love to hear your thoughts.