Expert: Peter Gabany - 12/5/2005

Question
Hello Mr. Gabany,

My partner and myself just formed a small creative/advertising studio. We are seeking to work with small and medium-sized clients to service their advertising campaigns and creative needs. We've both worked in different areas of the advertising arena, however, although we have been able to come up with a pricing on an hourly basis, according to the different needs involved (i.e. copywriting, graphic design, art direction, etc.), we are now working with a client that wishes to work with a retainer, and we haven't been able to come up with a number that we believe is accurate. Do you have any pricing strategy that you could recommend for us? This potential client is Real Estate Developer/Architectural Firm that needs collateral material, branding/corporate ID, advertising campaign and logo design for each project. What would be a good way to approach a competitive but profitable proposal?

Thank you for your time

Answer
Good question!

What we have done - effectively is to calculate the approximate annual spend of the client. Let's say $250k/annum. Take 70% or $175,000 and divide this by 12(months) and you will arrive at a monthly retainer of $14,583.33.

But this amount is ony the first stage of the process. Your client deserves and will require a monthly Budget Control Report. For that you simply report the starting amount - $250,000 + all activity that your agency provides for the client less the retainer paid. Retainers are billed a month in advance and due net 30.

So – to start the client receives two invoices - each for $14,583.33. One is due upon receipt the other at the start of the next month. At the end of month one you show a start figure of $250,000 less the retainer $14,583.33 less work and work in process billing - let's say $20,000 showing a balance owing for the month of $5,416.67. All invoices can bill out as $0.00 balance owing (noted as covered by retainer) until you reach the overage where the remainder will simply show as owed. Retainers should NEVER include media billings. You are on the hook - liable - to pay these amounts - no matter what. We in several instances have had the media company bill the client direct and remit to us payment for commissions - this works extremely well and most media companies pay immediately.

I hope that this is of value. I know it can sometimes seem as clear as mud - so, if additional clarity is required simply ask.

Pete