The retainer fee, and corresponding annual contract, is perhaps the most common basis for PR client / agency relationships. It gives the client budget clarity, while allowing an agency to appropriately plan and allocate program resources. It just makes sense.
I’m here to tell you it’s also a really bad idea.
Retainers create an inherent imbalance in client-agency relationships. They discourage communication, fail to reward creativity, and establish an underlying conflict where one party or the other feels like they’re getting the short end of the stick at any given time. To understand why, and what a better approach might look like, let’s go under the covers of a typical retainer.
What is a retainer fee?
A retainer fee is an agreement whereby a client pays an agency a set fee over a proscribed period for a certain amount of work (typically measured in hours). For instance, the retainer might be $10,000 per month in exchange for 50 hours of PR services at $200/hour, paid each month over the course of a year.
What’s the problem?
Retainer fee agreements have a number of inherent flaws. First, they are paid regardless of the work performed at any given time. Retainers assume there will be lulls where the client is getting less than the 50 hours they’re owed, and busier periods where the agency is doing considerably more than 50 hours to handle the load. Hopefully things balance out over time. The problem is this structure can discourage communication on the agency’s part (better to get paid more for less work), puts the burden on the client to drive the relationship (“I want my money’s worth!”) and creates a steady undercurrent of frustration.
Second, for this arrangement to work – to balance – requires good guesswork and lots of time. The client and agency must accurately estimate an average amount of work for the coming year; if they get it wrong, one party or the other loses out. Even if they get it right, it also requires time to average out the costs and services … meaning the parties must agree to work together for 6-12 months at least, regardless of how things are going. If you realize in month three you’ve made a mistake, too bad, you’ve got another nine months to go on the contract.
So why do it?
Let’s go back to what we discussed at the start.
Clients like (need) budget clarity. I’m spending X amount for Y services. That’s good.
Agencies need to be able to plan and allocate resources. I know client A requires amount B of support, so I can make sure I have the appropriate staff and other resources available to get that work done. Also good.
If only there were a better way…
You knew this was coming, right? How can we capture the above goodness without the inherent conflicts and shortcomings of a retainer agreement? I’m here to tell you it can be done, but requires considerable proactivity on the part of the agency in putting systems in place to manage and match the workload and budget.
What we are talking about is budget targeting – setting a specified budget for an appropriate level of services, with the agency proactively identifying the opportunities and activities that ladder up to this level of support. This puts the incentives where they should be: the client is committed to a specified spending level, but only if it’s justified by the amount of work and output. Conversely, the agency is incentivized to uncover and surface as many opportunities and creative ideas as possible to justify the projected budget spend.
If service needs to ramp up during particular times of the year (say, around a major tradeshow) or drop around a planned seasonal lull, this is where a target budget range comes in – a narrow scope that allows the budget to ebb and flow to match changing support requirements.
Ideally, this is planned on an annual basis and communicated and managed with a monthly scope of work from the agency before activity and spending begins, so everyone has clarity on what the next month will look like.
Budget targeting also has the benefit of compressing the contractual commitment. The program is essentially being driven in real time, so there’s no need for a long-term contract. That’s not to say that the relationship shouldn’t be long term… but as we often say at Voxus, clients should be working with us because they’re getting great results, not because they’re legally bound. The many clients that have been with us for years attest to our success.
This is the way Voxus has always operated. It works for us, it works for our clients, and it creates great, long-term alignment on program results. If you’d like to find out more, contact us.