01 Feb Keep ‘Em Coming: Monthly Retainer Arrangements
Most people in sales know, whether you’re a one-person shop or a multinational, it’s often easier to keep a current client than to get a new one. But what if you’re a service provider and a few clients are slowly using you less and less? Or they disappear for months, only to pop up again? You could consider offering clients monthly retainer arrangements. If you haven’t quite lost them, but they’re not coming to you as much as you like, this might be a solution.
Things to consider about monthly retainer arrangements:
The amount of energy it can take to convince someone to try you, someone new, including the number of meetings, pitches and negotiations, can be months of work. But, in theory, if you give clients a good product (or service), they’re likely to keep coming back. The problem is, if you’re a consultant, or a service that is not mission critical, projects that you can help with are sometimes put on the back burner.
Monthly retainer arrangements can encourage clients to start a dialogue with you. If you can set up a monthly meeting to discuss their needs, they might inform you of projects you can work on, even if they aren’t urgent.
For example, if you offer human resources advice, perhaps they keep meaning to update their employee handbook. You can offer to do this project after some initial meetings, even if they aren’t prioritizing it.
But how exactly does a retainer work and why would a client be interested?
Economics. For you, monthly retainer arrangements mean predictable cash flow. If you charge $100 per hour for services, and they agree to ten hours of services per month, you can lock in some anticipated income. But usually there is a trade off — a client might expect you to give them a discount in exchange for their guaranteed business.
Use it or lose it. Many retainer arrangements are the traditional “use it or lose it”. This means, if the client does not give you, in the above example, say, ten hours of projects, they lose those hours.
In other words, the ten hours that would be $100 per hour, you perhaps agree to offer at $90 per hour, if they agreed to a retainer of ten hours, or $900 per month. Even if they don’t use the whole ten hours, you keep the remainder.
Most clients will be encouraged not to lose the hours. It might seem great if they are paying you for doing nothing. But, really, you want to have opportunities to prove your value and get even more than the retained amount. Which brings us to another structure.
Flat fee. Another option is to charge a flat monthly fee. Perhaps you have already discussed several projects, and their deadlines. If you can estimate how much work it is, you can offer a flat fee that you consider sufficient, but, usually such an arrangement also means you won’t charge if it takes more time than anticipated.
There are lots of variances of these arrangements, for example, the use it or lose it arrangement sometimes allows a rollover clause. You can give your client a credit, essentially, of unused hours from a previous month to the current balance.
That said, while online legal documents like LegalZoom can be ok for traditional pricing, the more complicated the arrangement, the more important it is to hire an attorney to write the language for you.
Monthly retainer arrangements can be a great way to keep clients and cash flow.
Be aware that some clients will shudder at the word retainers, in particular with the use or lose it clause. It can feel like a scam to get some free money. The better way to approach the arrangement is to settle on a rate that is reasonable. Start with a few hours, and give them an opportunity to assess the projects.
Or, go with a flat fee that doesn’t require a certain number of hours to seem justified, simply economically logical. Whatever your ultimate arrangement, you can find a solution that’s a win for you, and your client.
