Expert: Peter Gabany - 4/20/2010

Question
Pete

I read your response on a previous question regarding retainers and must say put me at ease especially due to the BCR. I was always wondering whether you should reconcile estimates with the remainder of the budget or just keep track of time spent according to the retainer.

However, with a very aggressive client with high turnover of projects it makes sense for them to request a retainer like in our case however can you work on the time spent since our senior creatives obviously deliver work much faster than the allocated time or estimate/quote. Our speed and efficiency should not reduce our billings?

Do you then simply define all the various cost per project with the client: in our case and multiply by the end of the month the amount of projects for example: 20 x labels (@R5000 per label), 15 x print adverts (R6500 per advert, 10 x brochures (R4500 per brochure), 30 x hrs general creative (R550 per hour) etc and subtract that from the agreed monthly retainer amount. I assume if you have not spent the monthly amount the client builds a credit for that month taken over to the next and if overspend you bill them accordingly at the end of that particular month?

Do you perhaps have a not too complex retainer example, template, for me to work from?

Thank for you great advise to date on the form. It really helps growing agencies like ourselves. LKDA Creative based agency, South Africa, 13 people, Annual Billings: R7.5 mil.

Answer
I really don't understand the flurry of comments and questions. Maybe it is simply too early in the morning for me. For an easy example:

The retainer simply takes the sting out of cash flow – for both parties.

It is a flow of dollars for an expended spend.

The example is that if the client is going to spend 1,200,000/anumm with you the agency will prebill the client $100,000 each month and reconcile that budget at the end of each month with jobs through the system. In short if you did 10 jobs at $10,000 each then the client would receive an invoice for the end of the month for each job with no balance being owed.

If the number of jobs were 11 at $10,000 each then each invoice would be reconciled at $0.00 being owed accept the last one that would obviously indicate the $10,000 being owed.

As for crediting the client. This does not happen on a month to month basis. The additional monies that are NOT spent through monthly activity are simply held in trust and used against future billing. Each quarter we review the expenditure and if the amount held in trust ever reaches close to the monthly retainer we simply wave the next months retainer. And while this does not happen often it does happen and the client is typically very greatful that you are managing the budget so well.

I hope that this helps. By the way, the BCR is key. It is the pacifyer and negotiation tool. It is also a great sales tool as larger industry/business often have a need to spend the budget or the brand supervisors have a lot of answering to do if they do not reach their targets but were granted budget that was not spent.

I hope this helps,

Thanks for your question,

Pete