It was inevitable that at some stage this column would address how agencies get paid, and since this is an agency-orientated feature it was predictable that we would put forward the case for the resurrection of the retainer fee. In the agency world in general and especially in the B2B sector the notion of paying your agency a flat fee every month has fallen into disrepute. It seems that the pressure on client’s budgets and the rise of ‘accountability’ as a business idea has consigned retainers to the same sepia tinted nostalgic reminiscence as the four hour agency lunch. And yet ABBA would argue that from a client’s point of view, the retainer fee if administered and managed properly represents not only good value for money, but a good way to get the best out of your agency.
At first sight, clients’ antipathy to the concept of the retainer fee seems a logical attitude. Why should I pay my agency when they aren’t working for me? Clearly, most agencies would argue that the slack times when activity is slight is more than made up for by the busy times when the hours put in more than outweigh the level of the retainer. But that argument simply reinforces the notion that the fairest way of remunerating an agency is to pay for what you get, project by project, and that any retainer fee system of remuneration is bound to be either unfair to the client or unfair to the agency. Most clients believe that it is usually the agency that gets the most benefit. And it is true that for some agencies, the retainer fee is a lazy way of getting paid you rarely have to justify it, and you sometimes don’t even need to record the time spent covered by the fee.
However, all of these objections are objections to a bad fee system. A retainer fee that is well administered and monitored can create a benefit for both parties.
So how should you run a retainer fee remuneration system? I recommend a three-stage process:
1. Put down in writing exactly what activities are included. Often it is just used to cover the cost of ‘account management’ or project management, but different levels of activity from tactical recommendations, to strategic marketing initiatives can be part of the whole fee. Some agencies/clients prefer to keep creative activity entirely separate from the fee, while others may use the fee to cover the whole services the agency provides. In essence, it really doesn’t matter what the money is meant to cover so long as you both understand it and agree it.
2. The hours actually spent on these activities should be both recorded and be accessible to the client, and used as evidence of work done as well as an indicator as to whether the fee should be adjusted. This will enable you both to monitor whether the fee is out of kilter with reality, whether the agency is milking it or the client getting away with murder. The point is that situations where someone is getting a raw deal will result in an unhappy partnership. The agency allocating the work to lower cost (and quality) resources or the client deciding it’s time for a repitch. Both situations are best avoided by a regular quantitative and objective assessment of the way the fee system is working.
3. Each of the activities should be separately appraised against set targets also on a regularly (probably quarterly) basis. If the level of time spent tells you how much the fee should be, appraisal against performance indicators will tell you if it’s good value. And it is important to separate each of the activities and assess each of them individually, because some can have more value and represent a better investment for the client than others.
If all of this seems a lot of bother just to justify a way of paying your agency, we should consider the benefits.
From an agency perspective, of course, it removes some of the uncertainty. Most agencies know every month what their overheads will be, but find it difficult to predict income. Retainer fees give them regular, steady income and will enable them to resource at appropriate levels. From a client’s perspective, most agencies will sacrifice some time recovery for the sake of certainty, so the client will always get better value through paying a regular fixed amount. All those phone calls, the little extra bits and pieces all go uncharged or at least unbilled when a fee covers it all.
Furthermore, the fee elevates the status of the client within the agency. We probably should and would always claim that all clients are treated equally, but sometimes they aren’t because we all live in a real world. And the clients that pay a fee will nearly always get priority of attention.
But perhaps the most important effect of a retainer fee is that it is symptomatic of a deeper agency/client relationship. The agency feels more like a partner instead of a supplier. They are far more likely to be proactive in offering advice, solutions or initiatives. The agency feels like a valued member of the client team and in return the client gets a higher level of service.
PR agencies have always recognised this, and retainer fees are not only the norm, but usually the only way a PR agency will be remunerated. We would argue that the B2B marketing communications agency is no different.
So, if you are reconsidering the way your agency is paid, don’t throw out the idea of a retainer fee as an old fashioned relic of the heady days of excess, or reject it as unfair or lacking accountability. It need be none of these things; it could in fact be the foundation of a valued and valuable partnership.