Retainer vs. Project Estimate which is better for your business?

As an agency, one question we get often from both new and existing clients is how do retainers work and do I need one? This is something that, as the Accounting Manager, I help the account team at the agency evaluate for clients regularly.

Below, I outline the differences between a monthly retainer and per project estimates. This will hopefully answer any questions you may have about the differences between the two,  the advantages and disadvantages to each approach, and possibly help you decide which option is best for you.

First up, what is a monthly retainer?

Let me make this simple: a monthly retainer is an agreement between the client and the agency to purchase a predetermined amount of hours every month. You do not have to determine what the specific details of each project you will work on in each month will be in prior to the months start, although the initial hours determined are based on, by history, an assessment of overall needs and projects.

Retainers are developed regarding scope of work coupled with estimates of design/web hours and project management needs for that specific project (we try to base this on past experience). After doing our due diligence, a monthly fee is decided upon and proposed to you for discussion.

As the client, you will get one invoice each month for the exact same amount. That invoice covers a specific block of agency hours at a blended rate across all departments (this can include, web updates, graphic design, PR, account management, or anything else pre-determined by both the agency and client). For the right client and projects, a retainer can be a great fit.

Below are a few advantages and disadvantages for your organization to look at when considering a retainer-based structure:

Advantages

• Consistent billing for both parties, meaning there are no surprises each month.
• Clients can more accurately forecast an annual marketing budget.
• Typically, the hourly rate for a retainer structure is lower than per-project because you are getting a blended rate for pre-purchasing hours.
• The agency is able to start your work right away with no additional estimates or paperwork needed (as long as the request falls within scope) saving you valuable time.

Disadvantages

• Sometimes retainers can lead clients to ask for work to be done without considering priorities across all projects, which can often eat up hours.  
• The client will have to choose what is most important for the month since the hours are based on a timeframe and are not unlimited. This is the only way to work within the allotted hours.
• I can promise you, as much as you do not want to hear the words “over hours,” we don’t want to say them. Both parties have to agree to the hours ahead of time and stick to that agreement which could mean stopping projects mid-month if you have already used all your hours on other projects.
• Within this structure, there are no limits on changes to any project. We often see that rounds of revisions that are not consolidated and well thought out can really eat up hours each month.

Next on deck, what are project estimates?

A project estimate is an agreement to a preset amount of hours or cost to complete one specific project. This works best when you know exactly what you are looking for and it is a one-off kind of situation. 

Estimates are typically generated based on the agency’s past experience. It’s a culmination of collective wisdom from the account and design teams for the development of a similar type of work. For example, our agency will develop two to three design options for you to review. Then you will select one option you want to move forward with for final creative. The estimate we provide assumes there will be a set number of hours for client revisions to the chosen concept. Additional revisions that cause an overage of quoted hours typically result in a change order estimate prior to the commencement of the additional work. The client and agency will be in contact throughout the duration of the project to discuss the status of the hours used on the project and make sure everyone is aware of the scope as the project progresses.

Advantages

• There is no ongoing payment for you.
• If you need reactionary solutions to a challenge, this is a better option.
• The review process is often more tightly focused, as the estimate provides for a specifically allocated amount of time (or number) for revisions.

Disadvantages

• No work can start on your project until a formal estimate is signed by your team. Estimates usually take anywhere from 1-3 days to create depending on the complexity of the project you have requested the agency to work on. This means if you have a hot project, it is going to take a bit longer to get it up and going.
• This project process focuses simply on the exact task that has been estimated; therefore, it does not allow time for big-picture thinking on your brand.
• Sometimes the work may take a bit longer to complete since the project was unknown and schedules could already be full at the agency.

In the end, it is important for you to communicate your needs to your Account Manager so that you can engage in conversation that will help define the best decision for your brand and what path will work best. If you have questions about any of the options I have walked through, reach out to us and let’s start, or continue, the conversation about retainers vs. project estimates. Already have one of these working with us? Tell us about your experience and how you came to a decision about what worked best for you.