I've done work on retainer before, but it's time to update how I do this. Especially since I have clients who are being asked to provide clients with retainer fees.
I'd love to learn how others determine their rates when they're working "on retainer" with a client. Also what problems you've had working this way.
One approach --
There are three data points I recommend you consider. This information will allow you to determine the optimal retainer fee -
1) Obtain a six month plan from the client, i.e. what are they going to need you to accomplish. Based on your knowledge and experience, how much time will it take you to complete the tasks * the hourly rate you charge for projects = data point one.
2) Project what any other Consultant would cost for doing one-off projects = data point two
3) Project what a full time employee would cost if they hired one instead of using you * 135% for benefits = data point three
The pricing in order of expense should be the employee (most expensive), followed by any old Consultant, and then you. Clearly you will be the best alternative.
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Here's another great discussion here on Proformative about working as a consultant on a retainer.
Thanks Regis. You bring up a point I "forgot" all about. What it would cost to be hired as an employee.
I posted this question for a client of mine -- a consultant.
If I can determine the value of a proposed result to my prospective client, they and I benefit when I relate my fee to that value. Ideally, my fee should include a premium for fixing my price to the agreed upon result as well as a money back guarantee. My prospective client, who presumably trusts me enough to retain me with cash, benefits by the fixed budget and guarantee. I benefit by removing the possibility I may be penalized for being excellent. Admittedly, I challenge myself by engaging in the discussion of value with my prospect (that is, I find it much easier to discuss a time based fee); however, I must admit that it is intellectually honest and challenging...as well as beneficial to both parties...to focus on the value of the desired result.
What kind of work or tasks are involved? Is this something 24/7 like M&A work which would command a higher rate?
And this may sound odd, but how "nuts" is the client- are they straight-shooters, are they managerially challenged, are they great clients and just need "that little extra to get them over the fence," are they likely to change their minds like people change their socks (pain point to the consultant)?
I had a client once that always did the complete opposite of what I recommended. Then after it became a mess, they would call me back in, I would make the same recommendation, then I would implement it and fix it. I increased my fees for the second part often (this happened numerous times). My pain point was high, therefore, in order to take me out of the market, they had to bear market rate plus a bit extra for all the chocolate and beer I had to buy just to get through the implementation part of the project (just kidding, sort of).
My point is, what is your time worth? Goes back to Regis' and Brian's point on value.
I agree with Dana. Make sure it's worth your time and the pain of servicing the client. I worked with someone who never did what I told them to and always came back to me when things got out of control. I even moved out of state and they said I was the only one who could fix their problems. Make sure the rates reflect what you are worth and what it's worth to them to keep you.
Your rate is your rate. Any retainer is a deposit against the time or flat fee incurred.
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I have never asked for a retainer. What is the benefit /
Amanda, if you don't have a solid payment history with the client or if you require the funds to begin servicing the project, then a retainer, i.e. upfront deposit, is the way to go. It mitigates your risk and more closely aligns the movement of cash with movement on the project.
If a client doesn't want to pay a retainer, start asking questions. It may indicate that you're about to launch a project with a 365-day receivable, if you get my drift, or the client may simply be more comfortable with frequent milestone-based billings.
Dana, your "chocolate and beer" rationale is the best way I've ever heard someone describe a premium!
One area or consideration that was not brought up is the LENGTH (time) of assignment. Shorter periods of assignment may command a higher quoted price than a longer one.
And for me, the retainer issue depends on my payment experience with the company. I also usually amortize (deduct from my monthly billing) the retainer over the life of the project.
Dana alluded to this, but any type of project where there is a flat fee involved (a retainer is not a flat fee, it's a deposit you work against), is a statement of work to be performed.
Example: Your hired to created a Cash Flow. That's basically straight forward. Then you get a call asking about an
I had a PE firm offer me a project, but they wanted a flat fee. I refused. Why, I knew what the job would entail, and that mission creep would become mission explosion. Day one, I spent it mostly on the explosion, not the stated mission.
