Structuring retainers for long-term profitability

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Hello and welcome to today’s webinar on structuring retainers for long-term profitability. I’m Chip Griffin, the founder of SAGA, the Small Agency Growth Alliance, and I’m delighted to have you all with me today as we are gonna be talking about something that I know is, something we all aspire to. We all want that recurring revenue because it feels good.

And we’ll talk more about some of the specific benefits of retainer or recurring revenue. But there are also some potential problems with it, and so many of us would struggle with the profitability around it. So, before we start jumping into the topic at hand, I’ll allow people a little bit more time to continue filtering into the room and we’ll go over a few housekeeping items.

So first of all, a replay of this webinar will be made available in the next couple of days. So if you are listening and have to drop off or, listening and just don’t want to take notes. Don’t worry about it. You’ll get a recording with a transcript and all of that very soon. If you are here live, you’ll be able to participate in the question and answer session at the end of the prepared presentation.

Feel free to submit your questions at any time using the function that should be at the bottom of your screen. And I will take all of those during that q and a portion. If you are watching this on replay, you won’t have the q and a, but you can feel free to email me your questions at chip@smallagencygrowth.com.

I’ll be happy to try to answer them. If you’re here live and just don’t want to ask it publicly, feel free to send it that way as well. And of course, we always encourage you to join our free community on Slack where you can interact not just with me, but with other agency owners and get feedback and questions answered there as well.

And then finally, if I mention any resources today, or frankly lots of resources I don’t mention are available at smallagencygrowth.com. Just use the search function at the top of the screen and you will be able to find something on just about any small agency business related topic that you can think of.

So with all of that out of the way, let’s start diving into what we have to cover. And, and so the, the key thing is to understand who this webinar is for. If you’re an agency owner and you feel like you’re just, you’re not being paid enough for the work that you’re doing by your current clients, maybe you secretly even dread some of your retainer clients because you know that they’re pulling down your agency’s profitability.

Maybe they’re impacting team morale and you’re just struggling with how to manage them correctly and how to get the results that they’re looking for while also generating profits for yourself. Maybe you like the idea of predictable revenue, but you don’t like the idea that the profitability will fluctuate a lot from month to month depending on how much work you’re doing for a particular client.

If you’ve got any of these problems and you’re not sure how to fix it, that’s what we’re gonna be trying to address today and give you some tips, advice, and and practical steps that you can implement in your own agency going forward. So we’ll specifically cover why it is that retainers succeed or fail.

We’ll talk about the scoping and pricing of retainers to get the right results. We’ll talk about how you manage the relationship with your retainer clients so that you can make sure that you are as profitable as possible for as long as possible. And then we’ll talk about how you can apply some of the lessons learned from past experiences to your future retainer work.

So I’m gonna start by talking a little bit about words, because words do matter, and particularly for us in in marketing and communications, we are focused on some of these things. And so we need to understand how they impact our thinking around this. So first of all, I say retainer, for the purposes of this webinar, and I will use that throughout.

But there are a lot of different things that fall into this bucket Retainer is sort of the classical word that agencies use for ongoing work that they’re doing with clients, usually at a fixed fee on a monthly basis. Most of the time these are fairly open-ended, even if they require an annual contract renewal.

So you might hear them called retainers. You might have it referred to as monthly recurring revenue and put a pin in that, ’cause I want to come back to that in just a minute. Modern agencies are sometimes referring to it as subscription work. Particularly digital agencies will describe it as a subscription many times instead of a retainer.

It could also just be something that you call an open-ended project, or as I said before, ongoing work or frankly, simply a monthly fee for the services provided. So these are all ways to talk about it. The one that I really want to call out is the monthly recurring revenue. I think that’s one we really need to be careful about in the agency community of using, because it really is more, a term that’s appropriate to the software as a service industry.

And I used to own a SaaS business and monthly recurring revenue was absolutely a key metric that we looked at, but monthly recurring revenue generally has the connotation of essentially being like a seat on an airplane. You already have fixed costs and so all of this revenue just goes, more or less to the bottom line as you add each incremental one.

Obviously in the agency world, that is not the case, so I think it’s really incumbent upon us to be careful about using some of that language that implies a different kind of service than what we’re actually providing. But whatever we call it, this is money that we are fairly sure we’re gonna get every month for a fairly well-defined, hopefully, set of services that we’re providing to the client.

And of course this is a great thing. We, we like having this predictable cash flow that comes in the door, particularly these days where most clients are paying electronically. And so it becomes a lot easier to make sure that this is filling up your bank account on a monthly basis. It allows you to pay payroll, rent, meet other expenses, that sort of thing.

It also makes it easier to do resource planning. When we’re doing a lot of project work, you know, we have a lot more peaks and valleys in terms of the demands on labor, and so with retainer work, we generally can say, okay, we know we’re gonna need half of a person to serve this account. Two and a half people for that account, whatever it might be.

We’re able to be a little bit more predictive in how we need to staff our agency and staff accounts, so, so that predictability is helpful. It also allows us to become more efficient. Obviously, as we continue to work with clients, we get to know them, we get to understand how they do things, what their approval processes are, and we figure out how to work within their constraints a lot better.

And so that makes it a lot easier to service that account than one where we’re just starting to learn them, or perhaps again, if we’re doing project work where we’re constantly learning new clients and new approaches. It also tends to allow us to be a little bit more creative because instead of working in a very short timeframe about a very particular thing, where we certainly have some level of creativity within that, usually with retainers or recurring revenue, we’re able to, to apply our creative juices a little bit more if we allow ourselves to and offer some new strategic ideas and strategic thinking as we increase our knowledge of the client and as we have the ability to take advantage of knowing that we can engage in 3, 6, 9 month idea planning processes without having to sell something brand new, as we would with project oriented work.

And finally we view retainers as something that makes it easier to retain revenue, build loyalty with clients, because we are working with them on that ongoing basis, sitting in, in weekly and monthly meetings, providing a lot of reports, and just generally having that tighter relationship than we might, if we were not doing retainer work and instead doing one-off projects for individual clients.

So with all of that, at the same time, we need to remember that retainers aren’t the only thing. And in fact, if you’ve listened to me at all, you know that I am an advocate generally speaking of successful agencies having a healthy mix of both retainer work or recurring revenue and project work or one-off revenue.

The reason for that is that project work really has its place in allowing you to try new things, whether that’s new pricing, new service offerings. It allows you to try different verticals potentially, for potential future targeting. It just gives you a lot of flexibility from that standpoint. It also is a lot easier to extract yourself from a, a bad project relationship because it has a defined end than it is to get out of retainer work with a client that maybe is no longer a good fit for your agency.

The other thing to keep in mind with project work is that oftentimes it acts as a great feeder for retainer revenue. And another thing that I’m a big advocate for and that can really help you to structure your retainer relationships more successfully is to start working with a new client on a project basis so that you understand how they work, what kind of feedback they offer. Are they easy to work with, difficult to work with? Do they tend to request a lot of revisions and feedback and those sorts of things? And if so, then you can work that into how you scope and price the retainer relationship.

One of the struggles with retainer pricing is that we are going into it off and off of just a few hours worth of conversations with the prospect. It’s generally a very rosy conversation. We don’t really have a good feel for how they work and how that’s gonna impact what we do. And we’ll talk more later about the importance of the client understanding their responsibilities as part of the relationship if you’re going to be successful in a retainer setup.

And then finally I would say that that not all retainer work is the same. And what do I mean by that? Effectively what I’m saying, not all retainer work is the same. There are good retainers, there are bad retainers, there are, there’s the retainer kind of work that, that drags you down. And there’s the retainer kind of work that is really profitable because you’ve figured out exactly how to do it and you’ve got a, a client that, that accepts what the approach is going to be.

So, retainer work is, is good conceptually, but not all retainers are necessarily good. So keep that in mind and, and don’t fixate too much on retainer revenue as your primary metric of success. And I know there are a lot of agency gurus out there who do push the idea of just getting recurring revenue, but it’s not all it’s cracked up to be in every case. And you need to make individual judgments for how your agency is structured, how your clients work, and what your own experience is in the past and, and what you think it will be for the future.

And as we’re thinking about retainers, one of the things that I talk about a lot is what I call the bell curve of profitability for agency client relationships.

And so in this bell curve, essentially at the start of the relationship, we tend to have lower profitability on the work that we’re doing because if we’re charging the same amount on a monthly basis, usually in those early stages, we’re investing a lot more time because we’re trying to get to know the client and understand their processes, and so there tends to be a lot more back and forth.

Maybe we’re trying to understand a new industry or product offering that they have that we need to be able to help them to market and promote. There are things that we need to do early on, to try to set the relationship up for success. Maybe that’s planning, maybe that’s getting them some quick wins, and so we over invest to get those. But then over time we start to become efficient in how we work with that client. We start to understand how they function. We make fewer mistakes that they need to edit because we’ve learned what, what makes them tick and what they want to see from us. So that efficiency generally leads to a higher level of profitability. But then over time we start to see a decline.

And that decline comes about because of things like scope creep, and over-servicing because we’re afraid of potentially losing the client. And we’ll talk more about some of these specific factors in just a moment, but as you think about this bell curve of profitability, keep that in mind. In how you are structuring the relationships that you are building with your retainer based clients.

It might mean that you want to, for example, work in set up fees or it, it’s a good argument, frankly, for doing some project work initially to do strategic planning before the client is even asked to commit to an ongoing monthly relationship, because that can help smooth out that front end of the bell curve so that you have a higher level of profitability.

And frankly, that project work can also help you to price more effectively so that you get a, a bigger hump in the bell curve before you start to get to that scope creep and over-servicing problem and there are ways to address that as well. Can’t eliminate it completely, but I think you can address it, pretty effectively and we’ll talk about that in a little bit as well.

So some of the, the common problems that we see in retainer relationships, and I’ll say that they’re, I’ve put the word fear in all caps here because really that’s what drives a lot of what’s going on. A lot of the problems that I see in retainer relationships in my work with agency owners. And a lot of it starts with pricing too low.

And the reason why we’re pricing too low in many cases is because we start negotiating with ourselves because we want to win the client. And so we start to lower the price in our own mind before we even share it with the prospect because we want to do everything we can to win it ’cause we’re afraid that we might lose it if we price too high.

And so that’s, that’s probably the biggest problem that I see on retainers since they’re just not priced correctly. So we’ll talk about how to price specifically in a little bit. Another problem can be that we scope too vague, and part of that is because we don’t want to challenge the client on their expectations coming in.

We don’t want to tell ’em what’s out of bounds because we want them to feel all warm and fuzzy and excited about the potential relationship because we believe that makes it more likely that they will sign the contract we put in front of them. And while it may make it more likely that they sign that contract, it can feed into potential problems later on down the road.

We also tend to accumulate a lot of really low value work as we work with retainer clients. That might be things that we started doing at one point because it was useful, but it, but it no longer is perhaps we were posting for a client to a particular social network that no longer is a priority for them, but we never go back to them and say, Hey, should we just stop doing this?

And instead, we’re now posting on a new social network. And so we’ve started accumulating good work, but we’re still doing all of that lower value work as well. A lot of this low value work comes out in the form of reporting. Clients will ask, can you start sending me your report on this or that? And we, we add it into the mix, but, but we never go through and sit down with the client and say, are you actually using these?

Can we weed some of these out? And so that low value work tends to weigh down the retainer work that we’re doing, and certainly it impacts the profitability of the work that we’re doing.

And then finally the fear really drives this over servicing problem that many agencies have because we’re, we sit there and we are afraid of losing a longstanding client.

And so we’ll just put all sorts of additional effort and maybe we’ll do things that they don’t even ask for. So it’s not even really a scope creep problem because they’re not asking for the work. We’re just doing it in order to try to impress them and make sure that they continue to remain with us. So we can’t allow this fear to drive the relationships that we have with our clients.

And instead we need to be more proactive about how we’re going about things. And what that means is that we need to be really focusing on the value that we are creating for them. Fundamentally, this means we, we shouldn’t be having conversations about retainer work that surrounds hours. It’s not about the number of hours we’re putting in, and one of the most deadly things you can do in a retainer relationship is talk about hours, but not charge by the hour.

So I am not one who believes that that hourly billing is completely dead. I think there is a time and a place for it. But if you’re doing fixed fee monthly work, you need to stop talking about hours with your clients. Because oftentimes what happens is we’ll tell the client this is for 10 or 15 hours a month of work.

And we’re just sharing that with them, but they’re now doing the math in their head and saying, well, that comes out to an hourly rate of X, Y, or Z. But if we’re not actually capping them at a set number of hours and then charging them for additional hours, all we’ve really done is allowed them to zero in on the hourly cost as opposed to the value of what we’re creating for them.

So you never want to mix fixed fee billing with talk of a number of hours that just, it’s a, a very bad combination that will only lead to bad things for you and your agency. And really what we want to be doing in these conversations with our prospects, with our clients, is helping them to understand that, that we are an expert, that they can trust.

We are someone who will not steer them incorrectly. We’re not steering them to spend more money. We’re steering them to make the best decisions, to get the best results within the budget that they have available. And so we should really be framing all of our conversations around retainer work in this way.

And in order to do that, we really need to understand what the client’s actual goals are. And so that means we need to be careful about accepting the first thing they say to us when they come to us as a prospect, when they say, we need a media campaign, we need a new website, we need a social media program.

Understand what they’re driving at, what are their ultimate goals for that? What do they want to see as the business outcome? On their end, and the more we understand that, the more we can speak in that expert terminology to them about the solution that we would recommend as opposed to simply going with the easy route, which is to say, oh, you want a new website?

Sure, we’ll build you a new website. From a business development standpoint, that might sound easy, but it’s not gonna get the results that the client wants. And particularly if we’re working with someone on an ongoing basis, we want to make sure that we set ourselves up for success by focusing on those outcomes that they’re looking for and making sure that we’re steering all of our effort in that direction as opposed to simply producing specific deliverables that they might think they need.

And then finally, we need to make sure that in those early conversations, we’re having a clear meeting of the mind on the expectations on both sides.

And I’ve talked a lot recently about the importance of really getting alignment on expectations sooner rather than later, and not allowing unrealistic expectations that prospects might have to go unchallenged. Again, very easy to do that during those business development conversations. We don’t want to, to make them less likely to work with us. And so if they say something like, oh, you know, I’m sure that, that based on, on everything I’ve heard about you, you’ll be able to get us in the Wall Street Journal in the next month or two, or that the campaign that you’re running for us will 10 x our sales in the next three months.

We want to make sure if we start to hear those things, that we help them to understand better what the reality is. That reality might be about outcomes. It might be about timeline. For example, I used to do a lot of web development work with clients and, and one of the things that clients would always do is anticipate they could get feedback to me a lot more quickly than they really could.

And so I always tried to help them to understand, you’ll tell me that, that you can get approvals for a website design to go to the next phase in 24 hours. Guarantee you that’s not gonna happen. Particularly if you’re a larger organization, you’re gonna bring in other people. It’s going to take time.

And so as an expert, we need to help our clients understand what realistic expectations are, because that will make it a lot easier to structure your retainer relationship in a way that’s successful for the client as well as to your bottom line.

We need to be thinking about how we’re scoping towards these goals and expectations that we’re talking about.

And when you’re putting together a scope for ongoing work, obviously there are some challenges here because we don’t know exactly the work we’re like likely to be doing in 6, 12, 18 months. And so, as we start thinking about longer term relationships, we can’t necessarily be as specific as we could in a project one, where in a project scope we can be really clear because we know that there’s a defined time limit for it, and we’ve really got a clear picture of it.

Retainer relationships, recurring revenue relationships by their very nature in the agency world evolve over time, and they should. But as we’re thinking about that, we need to, to really think about putting some guardrails into our scope for retainers. And so we need to talk about what’s included, but just as important, we need to be clear about what’s not included.

If there are certain things that we know are not going to be included as part of that fee that we’re charging, we need to call those things out. We can’t allow there to be ambiguity on those things. As I mentioned earlier, we need to be really clear with the client about what their responsibilities are, and so that might be being clear about who you need access to, what kind of turnaround time you need from them on feedback to be successful, what kind of timelines you need for planning.

Anything that you can use to help them to understand that, that your success depends on them being an active participant in the relationship. And it’s not really one of those things, in most cases, where you hand things off solely to the agency and the agency can run with it alone. And this tends to be a bigger issue with retainer work because in a project environment, the client will often understand, yes, we need to do these things, and they can see that short term time horizon and commit to that. But if it’s a retainer, they need to be committing to helping you over time to get you these things. Otherwise, the, the success of the work will be deteriorating over time.

One thing that can be really helpful in these scopes where you’re having to be generally more ambiguous with what the specific tasks might be, is to be clear about what kind of turnaround time the client should expect. And so, you want to make sure that you’re not setting yourself up where the client is believing that they can call you up at 5:00 PM on a Friday night and you’ll turn something around on Saturday. And so putting in there things around the most common kinds of requests that you might get as part of this retainer agreement and say, typical response for this will be one to two business days, for example, or three to five business days.

Anything that you can do to, to set those expectations and help them to understand that, and don’t just put it in the scope of work and walk away from it. Make sure you’re having a conversation with the prospect about these things so that they have a clear understanding of how this relationship will work. Going forward.

And finally, you need to learn lessons from past experiences. We’ve all had successful and less successful client relationships. That’s project based. It’s recurring. Doesn’t matter. We’ve learned lessons. And we should learn those lessons and apply them to future work. So. Particularly with retainer agreements, we know what has sidetracked our previous retainer experiences, and so we should make sure that we’re addressing those things in scope.

If there are particular things that a lot of clients in the past have assumed was in scope and we felt wasn’t. All that out specifically in your scope of work so that there is no ambiguity or misunderstanding. And so if we’re putting in these guardrails based on our past experiences, we’re not gonna be able to preclude everything that erodes the profitability or success of a retainer relationship, but we can start to improve the likelihood of success.

So now let’s talk about the elephant in the room, which is pricing itself. We can put together whatever we want for a scope of work, but how do we price retainers so that they’re profitable? And the first thing I would do is direct you to the resources that I have on the website, including webinars, articles, that sort of thing around my floor to ceiling pricing model.

And essentially in a nutshell, floor to ceiling pricing is, it requires that you understand what your cost of actual delivery of services to your client. So that is your floor. Understanding what it just straight up costs you to do work and what kind of reasonable profit margin you can achieve in there and say, okay, that’s the, that’s, I can’t go any lower for this scope of work.

And so from there you can then push higher. And one of the benefits of project work is that you can keep pushing higher, and test different pricing models to see if people will pay those kinds of prices and then start applying it to your ongoing retainer work or your existing clients or those kinds of things.

So. Try to find that floor. Make sure you understand that. You have to know your costs. You have to know how much time it’s taking for your team to deliver services. You have to get good at estimating the amount of time that you’re going to spend on a particular retainer engagement. And if you understand that and if you get that floor in place, you’ll at least protect yourself on the downside.

You’ll be guaranteeing yourself, assuming all goes more or less according to plan a base level profit margin. And so you need to make sure that you’ve got that because your idea here is that you are pricing to be profitable. It doesn’t matter whether you win business, if the business that you win doesn’t put money in your pocket.

It’s great to have the revenue flowing in, but it’s not so great when all of that revenue flows back out in the form of expenses, largely labor costs, whether that’s staff or contractors. So you need to, to include those things, but you also need to understand that there is going to be pushback with a lot of clients, particularly when you’re talking about ongoing monthly fees, and it’s common for a client to try to whittle you down. And you need to make sure that as you’re going through that process, you’re not simply negotiating on price. Anytime you agree to lower that monthly fee as part of the proposal process, you also need to lower the level of service and the expectations that the client has. You should never give up something in terms of price if you’re not getting something in the form of a concession from the client. That concession might be the amount of time it takes to do the work, the amount of work that’s being done, the payment terms.

There’s a lot of ways that you can address that. And again, I have a lot of resources that go into those pricing and negotiation tactics, but keep that in mind, particularly for these retainer engagements. Because it’s very common for a client to try to get you to lower from, if you come in and say, I want $5,000 a month, they try to get you down to 4,000, but there’s no clear understanding of what 20% of the expectations are being cut in exchange for the 20% of the cost being cut. And so that’s something that’s really important for you to zero in on.

You also need to make sure in your retainer work that you’re building in a cushion, and this cushion should include two things. The cushion should include the idea that you haven’t scoped everything, that there will be unexpected things that pop up from time to time.

There’ll be targets of opportunity that pop up where you want to do the work. And so you want to be priced in such a way that you can account for that. But the other benefit to building in a cushion is it helps you out because as these long-term relationships proceed forward, it becomes challenging to increase prices for the same level of work.

And we’ll talk about that a little bit more in a minute. But I also have a whole webinar on increasing prices for existing clients where I go through some of the details of that a bit more for you to, to look at, but have that cushion in place. It’s sort of like if you’re putting on an addition to your house, you generally want a contingency budget.

So when they open up a wall and they find something else that needs to be done, or you have a request for moving a wall because geez, as you look at it framed out, you want something in a slightly different location. You want to have that contingency budget available. It’s very similar when you’re putting together your retainer work.

Figure out what it will take to do the, the work that you’ve defined in a profitable fashion, but then add on an additional amount largely based on your personal experience and working with other retainer clients that will give you the flexibility to adapt to those things that pop up. And frankly, make it so that you don’t have to make the client feel nicked and dimed about every little tiny bit of scope creep. Again, I have a webinar recently on scope creep where you can look at, at how to manage that more effectively in particular. But one of the key lessons there is that you don’t want to be going to the client for every little thing that’s out of scope, because that just becomes annoying to the client, particularly in a retainer style relationship.

And finally, when it, when it comes to pricing, you need to know what your, what your bottom line is, what you will not accept. And your goal again, should not be to just win the account at all costs. It should be to win it at a profitable price. And too often I see, occasions where agency owners just feel like they’re so invested in the proposal process.

They’ve spent so much time, they’ve, they’ve put a lot of emotional energy into it, and so they’ll do almost anything in order to get the signature on the contract. You can’t be like that. You have to have that, that place where you will walk away either because it’s gone below your minimum monthly or because it’s not generating the kind of profit margin that you anticipate you’ll want to have on it.

You have to be willing to walk away. Frankly, this is a good lesson as you’re managing the account. You always have to be willing to walk away from retainer work at the point in time where it no longer makes sense for your agency. Retention is great, but not something that you should do just because you don’t want to lose a client.

And finally, as you’re signing the deal with your client, as you’re getting to those final stages, one of the things that I always say to my clients and have always said over the course of my career is we need to make a promise to each other. We need to understand that if at any point either one of us feels like this just isn’t working.

That what we’re paying if on the client side, what the client is paying, isn’t delivering the value that they’re expecting, or if on my side is the agency, the work that I’m putting in is not commensurate with the amount that I’m being paid. We need to come together and have an adult conversation to figure out how to fix it.

And, frankly, this is a good way to reassure a lot of prospects in those final stages because what it’s saying to them is that you want to be an honest broker in this arrangement. You want to be there to help them, but they also need to understand that it needs to work for you too. This is a two-way street, and I’ve always found that the, the clients that are the, the ideal clients for me are the ones that that stick with me for a long time and that I’m happy to continue working with.

They understand this. They accept this and I think that it’s, it’s really important to drive this point home, and particularly in a retainer relationship. Both sides need to understand that some months the agency comes out ahead and some months the client comes out ahead. That’s just the nature of this work.

It ebbs and flows. It should ideally come out in the wash so that neither side feels advantaged or disadvantaged over a longer period of time, say six, nine months. But there will be absolutely months where one side or the other feels like things are out of balance. That is to be expected. And I, again, set that expectation at the start of the relationship because I don’t want a situation where a client has fewer requests one month, and so they come to me and say, geez, we didn’t ask for very much, so you know, we should get a, a discount or something like that.

Because the reality is a lot of months we’ll be doing more work on the agency side. So we need to set that expectation and really establish that rapport with the prospect before they come a become a client. So I think this is a key promise to get, to make to your clients and also to get them to make to you.

So now let’s, we, we’ve got the, the signature on the contract. We’re all excited about it. Now let’s start thinking about how do we manage these relationships to make sure that we remain profitable or at least as profitable as possible over time? Understanding that that bell curve of profitability I talked about will still kick in at some point.

It’s not possible to, to make that a nice straight line of profitability. There’s still gonna be an impact, but let’s do the best we can to maintain as much profitability for as long as possible. And I think one of the, the key things that we need to do as an agency and a retainer relationship is make sure that we are documenting and reporting what we’re doing.

A lot of times, clients don’t see all of the work that we’re doing. And so one of the other points I have here is, is not suffering or succeeding in silence. This really goes hand in hand with making sure that we’re reporting effectively. On what we’re accomplishing for the client. And so we need to structure the, the reporting that we’re doing so that they understand what they can’t see and they understand the impact that we’re having.

Because if we don’t do that, we can’t expect that they, through osmosis, know what’s going on. We also need to do things internally in order to manage these retainers more successfully. And something that many of you know, I’m a huge advocate of is client and project budgeting. So rather than looking at budgets and p&l’s just on an agency-wide basis, we need to really look at those on an individual client or project basis.

And so that means that we’re tracking all of the expenses that go into the work that we’re doing, and we estimate that upfront to set the budget, but then over time we’re tracking it on a regular basis so that we can see, as soon as possible if we’re starting to have a profit issue with a particular client.

This does necessarily mean that we have to do time tracking, and I know that’s painful, in concept for many of you, but it will make a huge difference in how well you can price future work and how well you can maintain the profitability of your existing relationships. Again, I have a ton of resources around project budgeting and profitability, webinars, workbooks, the whole thing. So use the SAGA website to find those as well.

You want to make sure that, that, as you are moving ahead, you do flag that scope creep, that that inevitably comes up. Not necessarily, again, every little tiny thing. If it’s just a tiny little project, 10 minutes outta scope, don’t lose sleep over that. But if they start to add up over time, you need to raise that.

If they are more significant, and it’s gonna be a three or four hour thing outta scope, you need to bring that to the client’s attention. Even if you’re not gonna charge for it, you need to make them aware of it. So that they know when they are asking for something out of scope, many times they may just say, oh, then don’t worry about it.

Sometimes they might say, well, can you do it anyway? And you might say, sure, but you know, this is a one time thing. Goodwill gesture, whatever you want to call it. Or you may say, no, we simply can’t do that unless there’s an additional fee or unless we remove some other thing that we were planning on doing so that we equalize the resource equation more effectively.

And again, I’ve got a whole webinar on scope creep that goes into all of this in a lot more detail. I think one of the key things that we can do though for a successful retainer relationship is to make sure that we have certain markers, usually either quarterly or annually, where we’re sitting down with the client and doing a more in-depth review of the work that has been done, but more importantly, planning for the future.

Because this planning process is where we get to make more substantial adjustments to the scope and potentially to the budget of the work that we are doing, so that we make sure that we are maintaining both success for the client and profitability for us. And so if we’re thinking about how we want to structure these retainer relationships, this is a key piece of it.

Ideally, you have a whole planning process upfront in, in a project that you get paid for separately. But even if you don’t have that, you need to have these ongoing points on the calendar where everybody understands we’re going to go through this process. It allows you to shed that less productive work.

Focus on the higher value things. Take advantage of your position as a trusted expert in order to be able to reshape the relationship going forward, keeping it on the right track and doing what both parties need it to do. And if you’re really being proactive with all of these things and, and driving the ball forward, you have a much greater chance of having a retainer that you’re gonna be happy with and not regretting a year or two down the road.

And I should say, by the way, those planning processes, they need, they need to happen like clockwork, not just when you hit that point where you just are at wit’s end, right? If that’s not a good place to go into those relationships, so make sure that it is something that is pre-planned on the calendar when everybody still feels good about everything and not a triggered event, when something bad has happened, or when you see something bad happening to your bottom line.

So now we’ve, we’ve been working with the client for a while, and so we come up to that point where we have to start thinking more actively about retention or renewal. And so, I have, again, a lot of resources around my philosophy around contracts. I’m a big fan of simply month to month agreements.

For ongoing work with clients. I’m not a big fan of annual contracts in most cases, because the reality is most of the time when I sit down with an agency and start looking at their contracts, what they tell me are annual contracts are really 30 or 60 day contracts. Because if a client can cancel on 30, 60, or 90 days notice, that’s really the only length of the contract that you have.

You just have the worst of both worlds because you’re forcing them to resign the document every year. Even though they can get out of it with just, in many cases, 30 days notice. So instead of having that construct, I like an open-ended month to month agreement, and that allows you to focus less on a specific trigger point for renewal.

Instead, lean on your planning process that I described before that has a lot more flexibility baked in. Doesn’t require typically lawyers on their side to look at anything. It doesn’t require as many approvals because oftentimes your point of contact within the organization can sign off on new strategic plans as long as it’s within the same budget.

But as soon as you need a signature on a contract, that often triggers a different process. So, really that would be my recommendation for most retainer relationships for most agencies. But that doesn’t mean that we don’t need to still be thinking about retention overall because whether you have a client who’s got an annual agreement that they can get out of or a month to month agreement that you’re trying to keep them in, there’s still going to be points where they will be considering whether they should move to a new agency or perhaps take things in-house. And so by having these processes, these strategic processes in place that allow us to force periodic rescoping, that can help because it’s also an opportunity to have the conversation with the client about what they’re adapted goals and expectations are and how we can continue to adjust to it and essentially re win the business, but in a less formal way.

We also need to understand that, that things are gonna change for the client over time. Maybe their staffing has changed and they’ve got additional resources or fewer resources. Maybe their financial outlook has changed. A lot of things can change on the client side and we need to be ready to adapt as an agency to that.

And so the more that we can spot these things happening and be proactive in our recommendations, whether that’s going to the client and saying, Hey, I, I see that you’re struggling with this. Maybe we can, we can add, you know, you’ve got a fewer headcount. Maybe we can do some additional work to pick up the slack.

Or maybe you hear they’re having financial challenges. So you start to think proactively about how you might be able to re-scope the work, to perhaps save them a little bit of money, but in a way that, that potentially could even improve your profitability. Depending on which puzzle pieces you move around. Perhaps you could move from some low profit work that’s, that’s high revenue or high cost for them to some higher profit work that’s less costly, right? There’s a lot of things that we can do to move things around in retainer relationships, to adjust for those kinds of situations. And, and ultimately our focus needs to be on what’s right for the client.

If we truly are gonna be a trusted advisor, we need to act like a trusted advisor. And that means we don’t try to sell them things that they don’t need. We don’t try to have them keep paying us if they no longer need it. We need to, to be honest with them when they are in a situation where it just doesn’t make sense to continue with a relationship in the way that it is.

Whether it’s because we see that it’s, it’s not great for them or it’s not great for us, and I promise you clients will appreciate it when you do this. And more often than not, when I’ve gone to clients with these sorts of things, they not only are appreciative of it, but sometimes it leads to additional work in the short term or the long term because I was just honest with them and they appreciate that.

And then finally we need to be thinking about how we adjust the prices for the work that we’re doing as needed. So we’ve gone through the scoping process, the planning process, all that sort of thing. There are times where you can’t find things to, to take out. There are times where your cost base has gone up or the scope creep has gotten to a point where you simply have to charge more.

I would say that this should be your last option, don’t bake in automatic price increases to your contracts because price increases should generally come in a more meaningful way. Adding 2 or 3% to your contract every year. All that tends to do is, is annoy the client, ends up with a, a really weird monthly number that that goes to you. Instead, have these more substantive conversations with them, which may well involve increasing your price, but, but don’t do it in a nickel and dimey kind of way. Do it in a more substantial way. Usually tied to an increase in the value of the services that you’re providing so that they focus on that more so than the dollar value.

And finally, keep in mind that adjusting your price often can be done by simply removing work that you’re doing. So if you can shed things while keeping the price the same, that often is easier for a client to accept. They don’t need to go through any kind of a budget process on their end, but what you’re doing is basically saying you’ll still pay us, say, $5,000 a month, but, but we’re reducing our cost by taking some things out there.

And at the end of the day, what you should care about is not your top line revenue number, but what your bottom line profitability number is.

So with all of this said, you need to be making sure that you are learning lessons from each and every retainer that you take on. Every time you work with a client, you should be having regular internal reviews where you sit down with your team.

Probably on an annual basis, but it could be more frequent, certainly no less than annual, where you sit down and you evaluate the work that you’re doing. You take a look at those project and client budgets that you have. You understand the financial implications. You understand what the results are that you’re producing for the clients, and you start looking at it in terms of two things.

One is what you can do differently with that particular client going forward, but also what lessons can you take away from it so that as you structure new retainer relationships, you can address some of those things that you’ve learned from your past. You also want to make sure that anytime you lose a client, you’re conducting a postmortem, and I think that you should do this, whether you lose a client because it simply ran its course, or you lose a client because they canceled.

Those are all opportunities for you to take that look back internally. Understand what worked, what didn’t, how could you price it or scope it differently? What would you change going forward? How might you staff things differently internally? What have you learned about the positioning of your agency?

There’s a lot of things that you can learn from those experiences, and you want to make sure that you’re taking advantage of that as much as possible. And if you do that, then you’re able to adjust your price, your scope, your processes, all of these different things on an ongoing basis to have better results for your clients and for your agency.

So with that, we’ll tie things up here with a bow and, and just offer you a, a few final thoughts. And as I do that, feel free to use the q and a function if you are attending live to, to submit your questions. I see that some have already come in and so I’ll, I’ll jump into those here in just a minute, but, feel free to continue to submit them.

So final words, I, I think we need to, to keep in mind that retainers are potentially a very good thing. It’s predictable recurring revenue. It’s good for cash flow, and they absolutely can be healthy and profitable, but they also can be detrimental if you are not scoping and pricing them correctly. So we need to make sure that we’re getting the expectations correct upfront.

From the client so they know what they’re getting for the service. They know what we are expecting of them, and we’re, we’re not having big surprises that we didn’t cover early on. We need to make sure that we’re having ongoing communication with the client so that they understand what we’re doing, the results that we’re achieving.

And we also need to have that communication internally so we know how we’re investing in the retainer work that we have, so that we can address scope creep, pricing issues, anything that we might have to do going forward. We need to realize that the relationships we have, particularly with retainer clients, particularly as they, they’re with us longer and longer, if they’re with us 2, 3, 4 years.

Those relationships aren’t static. Things change for them. We need to be ready to adapt. That adaptation doesn’t always need to be that straight line to getting more money out of them and just keeping them around. It might be being candid with them that they need to change the approach. Sometimes it might even be that we just tell them that we are no longer the best fit for them given what their current needs are.

It’s better to part ways amicably with a client like that than to try to string them along as for as long as possible until they just get frustrated. And fire you as an agency. And then finally, be really careful about allowing fear to drive your decision making in retainers. And that’s at every stage of it.

Fear of not winning the work, fear of not being able to keep the client happy, fear of losing the client. Fear permeates a lot of the bad decision making frankly, in life, not just in business, but particularly in these retainer based ongoing agency client relationships. So with that, I hope that I have given you some practical things that you can take away from today’s talk and start applying to the work that you are doing with your ongoing clients.

And, I’d be happy to take any questions that you have live for those of you who are here. Or sorry, for those of you who are watching on replay, feel free to submit your question to me by email at chip@smallagencygrowth.com. Join our free community on Slack where you can ask questions, not just of me, but of your peers as well.

So thank you all for joining. I appreciate it. And after a sip of water, we’ll get into the q and a.