Expert: Peter Gabany - 4/7/2011

Question
Hey Peter,

I've read your answers on retainer billing for ad agencies and I am currently working at an agency with similar problems.  We've had a great relationship with one client, but they have paid the same retainer for 3 years now, despite a significant increase in our quality, hours spent, etc.  The current agreement is basically all-you-can-eat.  We realize now that this was a bad contract for us, but she has been resistant to our negotiations to increase her retainer - her deal is too good.  It's a great account that means a lot to the company, so we don't want to lose it.  Any advice is welcome.  Also, I noticed you use Clients & Profits.  We use the program also, but probably not to its capacity.  How has it saved you money?  Please feel free to email if you'd like.

Answer
the best thing to do is call me to discuss but in short - don't increase the retainer but offer to DECREASE the retainer. Yes decrease the retainer, but alter the conditions that you provide service. My guess is that you offered a 100% retainer - let's say $15k per month.

Let her know that you are altering the retainer to $10,500/month thus reducing the retainer fee. Why on earth do that?

People assess their business presumably on an annual basis and assign their marketing budgets accordingly. Again, presumably this budget fluctuates.

The reason that we use 70% is wiggle room and we NEVER go over budget.

Next - the redefining of the retainer. The retainer is simply an accounting proceedure to streamline cashflow for the agency and the client. If you do the work you should get paid for it. If you don't do work you don't get paid.

The retainer respects the budget by charging a portioned rate for which you apply hours against based on project estimates. Lets say you have 4 jobs in the month of April
Job #1, #2, #3, #4
Each has a value of $2000. The amount of the retainer used is $8000 for the month.

This is reflected in the BCR - Budget Control Report

It shows/indicates $8,000 of the $10,500 is used for the month - correct?

So there is a credit balance of $2,500. This amount falls to May. May 1st the client pays another $10,500. The credit balance would then be $13,000.

Assume in that month you have another 5 jobs to complete.
Job #1, #2, #3, #4 and #5
Each has a value/estimate/billing invoice of $3,000 or $15,000

When you do your BCR reconciliation you will have an additional $2000 that has not been invoiced/paid or accounted for. BILL THE DIFFERENCE

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I hope this helps, please call if you need to - 905-885-9895

Pete