For many contract marketers, charging clients on a retainer basis can be a smart way to lock in cash flow, strengthen a relationship with a client, and improve time management.
For many, the most difficult part of these arrangements is determining how much to actually charge. Let's look into the key considerations a marketer should consider to get pricing right and take full advantage of this payment structure.
An appropriate retainer depends on the value and method the work will be provided
The first step is to determine the basic structure of the contract with your client. To get pricing right, you simply must understand exactly what, when, and how you'll deliver value to them. You have several options to fit any type of job.
The simplest arrangement is to receive a retainer in exchange for a guaranteed number of hours per month. This time can be spent in whatever way is agreed to, but you'll essentially be under their employ for a consistent, routine pattern of time.
If you're providing ongoing support to their marketing group by maintaining a specific system or providing an outcome based service, it may make sense to structure the contract based on those outcomes instead of basing it on time. In this case, you agree to complete the given tasks for the retainer, without regard for time.
For strategic consulting or other high value, advice based arrangements, the retainer agreement could specify that the client will have access to you for counseling at any time, on a stand-by basis. You may or may not want to limit the total hours you're available, given the specific job, the pay, and your personal preferences.
Retainers can also include clauses where you're paid whether or not the company calls on you to do any actual work, or they can be structured to adjust higher or lower over time depending on usage.
The sky is truly the limit on how to structure these arrangements, so when setting your retainer it's critical to consider the best way get the job done, with a pricing structure that works for your business as well as the client's pocketbook.
Setting your price
With an understanding of how your work will be structured, the next step is to start thinking about the appropriate rate to charge. This rate must be enough to cover your expenses, pay yourself a salary, and provide for a profit margin to sustain your marketing business. It must also match the services and value you're providing to your client.
Estimate the costs for your travel, your administrative expenses, the supplies you need to complete the job, and any other items you'll have to purchase to get the job done. Next, research your specific function to determine an appropriate salary to do the job function, and add that to your expenses. Finally, increase this number by the profit margin your company hopes to achieve; for a marketing business, a profit margin of 15%-30% is an appropriate place to start.
This sum is your starting point. Your client will oftentimes negotiate for a lower price to fit in with their budget, and likewise you must ensure that your pay is reflective of the value you're providing. Price too high and you'll probably lose business; price too low and you're selling yourself short. Find the right balance and everyone wins.
Pitfalls to avoid
Before you sign your retainer contracting agreement, make sure to avoid a few common pitfalls.
First, make sure the agreement clearly describes exactly what is expected of you and of your client. Depending on the structure of your retainer, this could include a specific number of hours to be worked, any required turnaround times or "stand-by" hours, how your pay will be affected for unused hours, and so on. Take the time to anticipate any possible disagreements or misunderstandings that could cause problems down the road, and get them resolved, in writing, up front.
Some companies will include a clause in the contract that prohibits you from working for any of their competitors. This may not be a big deal to you, or it could seriously limit your ability to grow your business. Be aware of this convention and make sure you're in agreement with what the client requires.
Finally, don't underestimate the value in hiring an experienced lawyer to assist you in creating or reviewing your contracting agreement. Spending that extra bit of cash now can go a long way to avoiding problems in the future and making the most of your retainer based marketing contract.
This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Email us at firstname.lastname@example.org. Thanks -- and Fool on!