Expert: Peter Gabany - 2/12/2007

Question
I currently work for a small advertising agency of 12 people with an array of
clients. Most of these are on retainers for billings. The problem is these
clients have gone way over their retainer agreements and we as an agency
haven't had the time to review all billings and assets a new retainer
agreement, which is usually done at 6 months or a years. A number of our
large clients are way over their amounts, thousand  of dollars over. The group
here seems to think we can't bill them for any of the overages. That we can
only address that at a future review and up the retainer in the future. What is
the best way for us to formula a retainer agreement with a client? Is it a 100%
swap for services at our regular billing fee? Should a client be billed for any
hours over their monthly retainer cost for hours? Any clarity would be
appreciated with trying to overhaul our billing process.

Answer
Heck yea - this is how you make money and I assume that you are in business to make money? Sorry to be so tongue in cheek about this but I have seen this problem a lot.

A retainer answers two important things.

1./ It helps to even out cashflow for both you and the client. It should never be a replacement for overall billings.

2./ It keeps people honest. The client maintaining their budget and the agency for responsible for utilizing the overall budget effectively and responsibly.

Maintaining the retainer budget is NOT a simple task and unfortunately it takes some time to manage each retainer account.

Here are some pointers.

1./ The retainer billing should go out at least 2 weeks prior to due date and due the first of each month. When we send out a retainer billing we prepare a BCR - Budget Control Report.

2./ The BCR is a must tool to cover your ass while delivering on the expectations of the client.

Let's use a simple account. $150,000 account. We determine that we will create a retainer of 70 of the total or (for this explanation) say that 70 is $120,000/annum or $10,000/month.


We start the BCR budget at $120,000 and send out a bill for $10,000 - thus deducting $10,000 from the total. Since no work has been done yet the client has used $110,000 of their overall retainer budget.

At month end it comes time to reconcile accounts. Let us say that you did 53 creative jobs of $2,500 apiece and place $5,000 of media for a total of $12,500.

By now you will have received $10,000 for the retainer. The client has a billing overage of $2,500.

Your BCR should read something like

Budget (annual Retainer budget) - $120,000

Media (for the month                   – $ 5,000

Creative job #1                            - $ 2,500

Creative job #2                            - $ 2,500

Creative job #3                            - $ 2,500

Total (this month)                        - $12,500

Less Retainer (paid)                     - $10,000

Amount due                                 - $2,500

Remaining Budget for 2007         -108,000

Please remember that there is a $30,000 slush amount that is not within the
BCR. You do this because you know that clients change their mind. That the account manager (if they are doing their job) is working to grow client spending.

An invoice goes out at the end of each job (NOT at month end) and accounting applies the unspent retainer to these invoices.

This is probably as clear as mud but I have decades of experience at this.
DO NOT NOT bill for your work. Also, at the end of each year - reconcile the entire years spend on a BCR and determine if there are any additional $$$ that need to be billed for.

When doing your work ensure that you get signed estimates. if the client ads an illustration, a photo or additional copy or 5,000 extra brochure - send out a a change order for the job. Get all of these approved. If you have approval, you have permission. I you have permission  your client can NOT start a billing question with BUT.

Please write often or please give us a call. Please - for your sanity - look into Clients and Profits. it has made us all the money it cost us in 6 months of use. You are a size that you can afford it (I assume).

Pete 905-885-9895