AboutPeter Gabany Expertise Strategic planning:
Objective based advertising, Ad creative, Writing, Photography - buying and making, Illustration - buying, Print, Outdoor, Event, Media, Media Planning, Broadcast, How to select an agency, What the client must provide, Pitching a client / being pitched
Experience Over 25 years in the business - 22 years operating an agency. Creative direction and agency management.
Question QUESTION: I work at a small ad agency in Las Vegas. We have several clients we bill by
retainer; however, we have never billed for time spent above the retainer
amount - we have just written that time off. Now we want to bill for it. I use
Clients and Profits. I have several questions - What happens if clients are
below their retainer amounts? Do I carry it over to next month or it is just
their loss? Any suggestions on the best way to inform clients of this change?
Many have been with us for years so this is a big change although most
months they are close to their retainer amounts. I have read some previous
answers on retainers but haven't seen these issues covered. Do you know if C
and P has a report similar to the BCR that you suggested in other posts? I
appreciate your sharing your knowledge. Thank you.
ANSWER: The key to this is simple. The retainer is not a bill for work performed it is a liability to the agency for anticipated work to be performed. not unlike a deposit for work pending.
Its sole use to is to even out cash flow. Both for the client and the agency. A client does not like getting collective bills of $150,000 all in one go. if your retainer were $20K per month over 4 months and the work load for that same time period was $150,000 then incremental billing makes it far easier to control for both the agency and the client. The agency because it meets its cost obligations and the client because it creates an relatively equal payment scheme over the billing periods.
It also helps the agency in other ways. It ensures that the agency is spending the allocated budget in a progressive way rather than wait till near the end of the billing cycle (end of year) and scrambling to find projects to spend it on. It also keeps the client honest.
Retainers can remain flexible and we encourage their review each quarter. Another part of the retainer is the reporting of the billings/expenditure. Monthly Budget Control Reports should be submitted to the client and reviewed by the account manager on the the clients business to maintain clear understanding of the charges. Failure to do this may result in full account audit, dissatisfied client or worse - loss of client.
A BCR is a very simple spread sheet. It illustrates the overall annual budget - let's say $150,000 and incremental retainer billings coming out at the first of each month. We always determine this up front and typically throttle the amount based on 70% of annual billings. In this case $120,000 or $10,000/month.
Each month the client then knows that they will be billed a minimum of $10,000. Each $10,000 is then reconciled against monthly billings at the end of the month.
So the client in the example above has paid $10,000 paid at the first of the month (this means that the retainer billing must be sent at least 15 days in advance of payment and marked DUE the first of the month. (Any sway from this arrangement can serve as a warning - that the client has a problem with the billing, the finance department does not understand the arrangement, they are having cash flow problems - whatever the case it opens the door for discussion). At the end of the month accounting prepares invoices for work performed and allocates portions of the retainer to the invoice. Sometimes this generates an invoice where a $0.00 balance occurs. This is great. This means that the former retainer liability now becomes an asset to the company. The last invoice or two will undoubtedly have a balance due and this is the overage of the retainer charged monthly.
There is absolutely NO reason to not charge for this additional work. If you have done the work then you need to charge for it. Please ensure that you have signed estimates for all work and agreements to all monthly BCRs. This will help with your every account.
I recommend using Clients and Profits software for any agency. And they have the ability to record retainers. The software at this time does NOT generate a BCR, but I have forward a request to their R&D department to see if one could be generated.
Any further questions, please don't hesitate to ask.
---------- FOLLOW-UP ----------
QUESTION: Thanks so much. Am I right in assuming that if the client only used $9000 in a
month, the remaining $1000 would be forwarded to the next month? So the
next month they would have $11000 in deposit that I would bill against. And I
would show that on the BCR? Thanks for your help.
Answer right on - this is absolutely correct. And if you find that after 3 months billings are less than the retainer and you don't predict an increase in billings you may opt to reduce the client retainer or work harder to sell more into the client - of course based on the overall strategy.
