Josh sits down to talk a little bit about why retainer billing and agreements can build a base for growth.
July 28, 2022
Josh: About half of our business is on retainers. The rest is project based, it's a little bit all over the place, but it helps keep us kind of insulated. We still have to go out and hunt projects, but we also get to be a little bit more exclusive about who we work with or the type of projects that we take on as opposed to feeling like you have to take everything that walks through the door.
Craig: So are those month to month contracts or do you sign for one year and then sort out the details at that time?
Josh: I typically don't like to do it for less than six months or more than a year. If you cancel our retainer for whatever reason before that time limit, then the contract is clear and we bill for an additional 60 days from termination.
I did have a client that decided that they wanted to try and work with their in-house department. I think we only did 30 days with them. So we had an extra month of retainer where we were wrapping stuff up and sending 'em all the files. It was all very amicable.
So say your hourly rate, let's just make it round is $100 / hr. Then if they buy 10 hours a month, then you might drop your hourly rate to $90 or $95, and then the more they bite off, you might drop it a little bit more. Because you're trading in the profit margin for the amount of time.
Craig: So in a nutshell, basically it’s X amount of hours a month and then you talk about how many hours you've put in at month's end and make the adjustment. Do they pay at the beginning of the month?
Josh: Yeah. They're going to pay a set amount, no matter what. So if they buy 10 hours at a hundred dollars an hour, right, they're gonna owe you a thousand dollars. So they're going to pay you a thousand dollars whether they give you that amount of work or not. It's on them to give you that amount of work. That's the idea of a retainer. If they go over, then we would bill whatever the full hourly rate is on top of that.
So if they end up using you for 15 hours that month, then you would charge your full hourly-rate for those extra five hours. If they don't, the hours don't roll over. It's been great for us. We track all our time with retainer clients and list everything out in project management software where they can see how many hours we think it's going to take and then how many hours it actually took. So they know at any time in the month where they sit on available hours. They might hold a project until the next month to make sure that they're not going over hours.
Craig: And then at the end of six months, I assume you guys sit down and say this is what we actually put in?
Josh: We try to do it once a quarter. We get together with them and say on average, you bought 10 hours and used 15. We recommend bumping up the retainer to 15, that way you have a little bit more time and you can budget for it a little bit easier. It also helps us budget for it.
Whenever you have a big retainer client like that, and then they slam you for hours, or if they didn't buy enough it can be bad for them, they go over budget and it's bad for you because you get swamped. It's hard to plan around that.The other option is they've bought too many hours and they're overpaying. It’s best to be in communication about what that average looks like all the time.
Craig: That's pretty straightforward. That's kind of what I was expecting to do. One particular client came back to me with questions about how it's basically an advance.That client talked about a draw account that I would just sort of take from, as I needed. I think they're concerned about me going six months without getting a check and, you know, I don't know they've been a great client for me, that's not the concern. So I think it's more on their end. Just the optics of looking like they're keeping up with their payments. Do I let them know when I've reached the agreed upon hours or do they prefer one invoice at the end of the month for that full amount or, or what?
Josh: So, yeah, I think if you wanted to do that draw account and say it's $500, right? The draw account thing is weird because it's not as much visibility as I think that you might like to have. Really transparency is what makes this whole thing work well, you know? You could say I'm going to use 10 hours and just send me a check a month, you know, that's what we do and that's how it works out the best way. Otherwise it gets hard to manage from their perspective on workload and it gets hard to manage from your perspective on expectations.
Craig: Yeah, exactly. And I think to be fair to them, they're a startup, they've got a ton of things that are coming up, but I, I think they just don't know what their targets are because their work depends on growth. I get that they might be a little reluctant to say we're going to buy 20 hours a month when all those projects might happen three months down the road. However, I think I will approach them and say, let's try this for three months and then talk about how it went.
Josh: That's what makes sense to me. I would say the best thing to do though is to make sure you cover your bases. So if they say we have X budget to get this amount of work done over an amount of time and they decide to pull the plug on it, for whatever reason, then they are still going to pay. Pretty much a kill fee, you know? So they don't pull funds from you that you're expecting to get, and then you don't have time to figure out your next steps. Because if they just pull it one day and then it's gone, you don't wanna be left in a scramble at least then it gives you some cushion to figure out what the next client is or what the next 30 days looks like if you're depending on it.
Craig: Yeah, totally. That's, that's kind of what I was hoping to hear. I just wasn't sure if maybe you had some magic dust that you sprinkle on it that makes life easier for you guys, but that was what I expected to hear.
Josh: The big thing is making sure you get really good briefs from them. We use a project management software called Notion. It’s collaborative so they can put in any project details and we track hours against that in Notion as well. So they can always go on and see how many retainer hours remain that month. Giving the client the ability to ask if a project is something that we can fit in those last two hours and we'll be like, yes or no? Sometimes if it's no, then they might wait until next month to do that. While other clients might go ahead and do it and pay the overage fees or, not do it at all. It’s on them.
It’s the transparency thing, that's the magic fairy dust, giving the client full line of sight to how long things are taking and just being really honest and straightforward about it. You don't want to get penalized for working and that's how you end up doing it. We don't charge by the hour on any of our other work besides retainer work, but we price it accordingly. So we still get a pretty good profit margin on our retainers as long as we manage them, the way that they have to be managed and really stick to our guns on what we can and can't do.
We find that that works really well, man, if you're just really honest, really transparent and give 'em a lot of customer service, then generally speaking, it's a really, really good, safe way to build a base of clients that will pay your bills and cover your overhead and then everything else on top is profit margin, you know?
Craig: Yeah. That sounds great. I'll check Notion out.
Josh: Yeah, it's great! There's different options out there, but Notion’s cheap and it allows them to just hop on and edit jobs. It's really simple and intuitive to use, but you could use a shared Google document if you wanted to, you know? But the big thing is transparency.
Craig: Yeah, absolutely. This is good, I have a few other clients that I'm thinking about proposing a retainer to. And I think if I can say these three months have been awesome with the first retainer client I think they might see the benefits of it too.
Josh: And yeah, I mean, on a few clients that'd be awesome. It's a great way to pitch a bunch of different work. A great way to frame it is that it's good for their budgets, they’ll know exactly what the spend is over a certain amount of time and they can kind of pepper it out to you.
It can be a great way to pitch companies who are considering doing something in house or hiring a designer. Like, hey, I can do this for you. I'm fast and efficient. I'm better than what you can afford to hire somebody at this price. I'm gonna add you on top of my other clients and you don't have to pay employee payroll taxes. You don't have to worry about my health insurance. You don't have all those extra expenses that somebody invests in an employee.
They don't have to do that with you and they get somebody that's much more high caliber of a designer like yourself, as opposed to hiring somebody that's more junior.
Craig: I assume some of your retainer clients are the restaurant groups and stuff that you work with, right?
Josh: Yeah, a couple restaurant groups. We have one, that's an industrial refrigeration company. So like, it's just a weird one. But they do like really, really cool marketing because that's like their way to stand out in the marketplace. So we get to design just super weird stuff for them which is really cool. We have another one, that's a dispensary, one that’s a brewery. Actually, that's one of our biggest retainer clients. It helps us grow too and keep everybody fed.
I generally try to account for 50% of our business being on retainer. We're currently over that number and I would really like to get like another big one. I would like to, or my goal is to see if I can get us completely flush. Like our rent's paid for, everybody's payroll is covered, healthcare is paid for, like our main overhead expenses are completely paid for, with retainer work. We're not quite there yet but I'm trying to get us where everything that's on top of that is, you know, the cherry on top.
Craig: Yeah. Yeah. That'd be great. I'm kind of in the same position I have, essentially four or five main clients who provide steady work. Only one I’ve proposed this to but it just makes sense. Like it's, it's ongoing work. It has been five years with them and I think it would be great for everyone.
Josh: Some designers don't like it because they feel like they won't get the proper value for their time. But what I find is that those people weren't charging enough for their time in the first place.
Make sure you really like working with the people and then make sure that they're paying you for your time and, and valuing it. It's a great way to go because then it makes everything as a business owner a lot easier to take advantage of opportunities or to cut rates on other projects knowing your bottom line's taken care of.
Craig: Yeah. Makes sense for sure. That's super, super helpful. Really appreciate it!
Josh: Hey, it's my pleasure. You got any other questions about it?
Craig: I guess just how you initially drafted up, I assume a contract saying, you know, over the next six months, you're gonna pay this much on the first of the month.
Josh: Yeah. Yeah, and anything that goes over will be charged this much. Be clear. You can do it once every two weeks if you want, or you can do it once a month. Either Way.
I’d line out the full amount for a month. You need to put in there that, for example, it doesn't cover print costs or travel or photography or all those other things that might go into the projects that they do.
Be clear on turnaround times that you're gonna promise them. Like whether that's a week, two weeks, three weeks. What does the review process look like? You know, you want to give them an understanding that any time that they communicate with you, if you're emailing 'em or, you're on the phone with them, if you're in a meeting, that's gonna count.
And so if they, if they take up an hour of your time in a meeting or ask your opinion or whatever, then you're gonna bill 'em for it. I mean, it's the exact same thing that a lawyer would do or an accountant or any other service professional. And so that's kind of the way that I look at it and it's, you know, they would typically do the same.
There's a level of customer service that really has to go into it. So you're not trying to nickel and dime 'em, but you do want to make sure that you're, you just never get taken advantage of with it. They will do that, right? It's human nature to try and take advantage of that kind of stuff.
Oh, one last thing! Never, ever, ever, ever, ever roll over your hours. Never let them do that. Some people will ask about that. Something like if I bought 10 hours and I use nine hours can the hour that I have left roll over to next month? Don't ever let that become a thing because what they'll do is they'll collect hours. So they might not give you a project for three months, but they're paying you for three months. And then all of a sudden they're gonna hit you with 30 hours of work. You know what I mean? And it'll swallow you. They'll do it by accident and I've had to pay that price before, I used to do the rollover hour thing and nah, I don't do it anymore. Don't let 'em roll over.
Craig: Okay. Yeah. That's good advice for sure! Good meeting and, and catch up for another happy hour maybe soon.
Josh: All right, man. Talk soon. Take it easy.