Moving from project-based fees to retainers

How our digital agency is making the shift


We’re doing something we’ve never done before: asking all of our clients to commit to a three-month retainer agreement. Here’s why—and how.


The Problem

Many digital agencies are facing the situation we’re in: they’re doing great work, they’re operating near capacity, demand for their time is increasing, and yet they find it difficult to plan beyond the next month. Though they have signed contracts, there is no certainty that the relationships they have will continue beyond the current chunk of work that’s been estimated.

Planning becomes difficult because nothing is guaranteed. This means we business owners spend a lot of our time in constant sell mode — trying to get work instead of optimizing how we’re doing the work. We need to get the next estimate out, to scope the next project, to meet the next prospect, to sign the next client.

Meanwhile, clients of digital agencies are in similar predicaments: Their project or product is made up of many features, all in different stages of design and development, their priorities are shifting rapidly depending on how customers are actually interacting and buying, they are negotiating several estimates or invoices at once, and they’re finding it difficult to forecast reliably for the near future.

We think there’s a simple way to solve these problems: retainers.


Our hypothesis:
We can operate under an agreement that provides a client with better value and an agency with better stability.

Disclaimer number one: I won’t pretend to be innovating here. Retainers, or longer-term agreements, are nothing new in the agency world. But my bet is that, like us, many owners of small or medium-sized digital firms haven’t yet figured out how to work with retainer agreements, so they’re working project to project like us and facing the same uncertainties we face.

Disclaimer number two: A better writer would be more careful not to constantly muddle tenses and audiences. Too bad I am not a better writer.

Background

We typically plan our work at Dynamo in month-long chunks, sometimes even week by week, doing our best to plug in the various projects we have — each with their own size, scope, team and term. Our fees are usually tied to these specific projects. We’ll scope and estimate a chunk of work on its own, then assign a team to that chunk, and then put that chunk into our schedule. Because work often comes up that doesn’t fit into the chunk, we’ll either spit out an estimate on the fly so we can add a new chunk to our schedule, or open a catch-all project like “monthly maintenance” to book hours against. We do our best to accommodate our customers’ changing needs and move our team members across multiple projects depending on bandwidth, availability, and skillset.

The nature of our work has changed over the past few years. Instead of being mandated to simply build a site and launch it, we’re working on the same projects, and products, over longer periods of time: adding features, improving user experience, optimizing code. We couldn’t be happier. But the by-product of this change is that our planning methodology, if you can even call it that, has become outdated.

Our old methodology worked well when… actually, it never worked all that well. But we put a premium on flexibility for our clients at the expense of predictability for our studio. This flexibility is a mirage, however. Jumping from project to project in small chunks, and planning week to week, results in increased ramp-up time and fewer economies of scale or scope. Ultimately we feel that this approach benefits neither our studio nor our clients. As Kris Rohman wrote last month in AdAge:

The more time you spend on project maintenance, the less you can commit to creating great work.

Planning deficiencies are also often exacerbated because of inconsistent communication from clients. One month a client may want to move forward with three new features, and the next month we’re sitting idle waiting for feedback or signoff. Two weeks later they’ll resurface with three new requests and an ASAP timeline. We adapt and re-prioritize, which often forces us to re-negotiate the old estimates at the same time we’re generating new ones.

The other thing we struggle with is how to deal with work that comes up suddenly, and that has tacit but not explicit approval. This happens all the time, for all digital agencies: a client mentions that they’d also like to add X and Y to the list of ongoing work. “We’ve got a talk/conference/ad/PR opportunity/article/interview coming up and we’d like customers to be able to watch the video/see our lookbook/consult our site in Spanish/browse related products/leave a review/find love/download our app.” We can either investigate, scope the request, output an estimate, haggle over the budget, and begin the work, or—with a retainer in place—just begin the work. A few hours in we’ll be able to more accurately discuss scope, and not have to fight later about billing a piece of work we thought we’d agreed upon. We’ll also be forced to constrain our time within the parameters set out in the agreement. We both know what to expect.

There is a possibility that some of these planning issues can be solved by simply having better contracts and following them to the letter of the law. But we are not in the business of writing contracts, we are in the business of doing great design and development. I want us to do everything we can to simplify our project management and planning so we can focus our energy on doing the things we are meant to do—and ultimately where we bring most value to our clients.

Without retainers in place, our clients have always conceivably run the risk of Dynamo not being available in the near future. But companies rarely experience this — we bend over backwards to get work into our schedule in short order. So the risk of having to wait for something is minimized, and often non-existent. This might sound great if you’re a client of ours. But this scrambling leads to compromise or inefficiencies — we move people around, put whoever is available on a project, find a freelancer if things are tight, etc. I am not lamenting this bend-over-backward-ness, as it’s a reality of running a service business. People wouldn’t be working with us if we didn’t do our utmost to make them happy. But the more often this has to happen, the less likely it is that we’re doing our best work.

Dynamo has been in business for fifteen years. We’ve used retainers only a handful of times before. I use that term loosely, as these “retainers” have typically been built on non-binding agreements given tacit approval by email:

Me: We think it would be a good idea to set aside 30 hours per month for this kind of ongoing work.
Client: Let’s see how it goes.

These one-off, pseudo-agreements give us some stability in tiny chunks, but they do nothing to get us out of constant sell mode. The only real way to get out of that mode is to have certainty across the board. So most of our work has to come from longer-term agreements.


Our plan

We believe that in order for us to do our best work, we need to know we’ll be working with a client for at least three months. And we need it in writing.

Starting in March, we’ll only be working on projects for which we have a signed, three-month retainer agreement. We’ll have different options in terms of size (some version of small, medium and large), but the term will be fixed at three months. We think three months is the perfect amount of time to start with — not so long that a client feels stuck, but not so short that we miss out on the benefits provided by this kind of agreement.

We’re aiming to move the clients with whom we do have long-term relationships to these retainer agreements first. If we can work alongside our current clients to fine-tune the retainer structure, we should have no trouble consistently integrating the “three-month agreement” concept into our sales lexicon going forward.


Rationale

Having longer-term agreements in place across the board gets us out of constant sell mode. It allows us to assign a team to a project over a good period of time. It allows us to plan for the next three months, at least, and focus on delivering our best during that time. It allows us to truly be partners in our clients’ businesses, because it requires us to think beyond the next feature or two.

Could we accomplish what we want to without retainers? Perhaps. We could scope and estimate enough work for each client such that we fill out the same amount of time over the three months, and all those signed estimates could provide the same stability. But man, that’s a lot of work for the same result. The ratio of selling to doing is still way too out of whack.


What’s in it for me?

In a preliminary conversation about this change with a client of ours, the reaction we encountered was:

This makes sense for you. What’s in it for me?

Having anticipated this question, though obviously failing to have done enough in our original explanation to answer it, Bryan and I automatically went into sales mode. We are small-business owners, after all.

This is really designed to benefit you the most.
You’ll save money in the long run.
Your projects will be run more efficiently.

While we believe them to be true, those answers are too vague and generic to matter enough to a client who might be used to the purported flexibility that comes with not being locked into a three-month agreement.

So here’s what’s in it for you.

  1. Cost-certainty for a sustained period of time.
    You decide how much time we’re spending on your project, and you can build that into your budget for the next three months.
  2. A plan that looks beyond the next feature, or the next week.
    Having an agreement in place forces us to consider the bigger picture—the product as a whole. We’ll have a better sense of where we’re going and how changes we’re making now play into future development.
  3. A dedicated team.
    Instead of assigning people to a feature or project based on availability, we’ll be able to dedicate the same group over the next three months. In our experience, this has proven to lead to better code, better accountability, less project management time, and most importantly: more invested team members, each with a better sense of ownership and understanding of your business.
  4. Regular, consistent reporting on goals and time.
    With the same people spending the same amount of time on a product every week, we’ll be able to provide one concise weekly report with details on what was accomplished and where we’re focusing our energy next. This allows us to make decisions on how to spend the next week or month, and where to draw the line on a given feature or optimization.
  5. Less time spent haggling over estimates and invoices.
    Billing is simplified and more predictable, and weekly reporting clarifies what time is being spent where. We’ll still estimate chunks of work, but won’t have to spit out a separate document each time or haggle over multiple invoices.
  6. Shared responsibility in the prioritization of our work.
    This one might not initially seem like a benefit, since it may require more time from our clients. But our most successful projects are the ones in which our clients are the most involved. Knowing that we’ve set aside time and money to make a product better is the best way we can think of to foster an engaged partnership.

We believe strongly in each of the benefits listed above. We believe strongly that a retainer agreement will allow us to plan more accurately and deliver the best possible value for our time. We’ll spend more time executing — designing, coding, testing — and less time scoping change requests.

Even still, I feel a little like we’re dancing around the real benefit here, perhaps because it’s hardest to convey in the kind of sound bite that gives a client immediate satisfaction.

The real benefit you get out of signing a retainer agreement is a healthier agency. You need a healthy supplier as much as we need healthy clients. When you commit to us for a few months, you get that commitment in return. We don’t have to overbook to make sure our time is filled, or look for a new piece of work every two weeks. You want an agency that runs efficiently, that can attract top talent, that can stay at the forefront of its industry, that can update it’s equipment regularly, that can allow its team to go to conferences, that can focus on your work instead of worrying about finding work.


A new framework

One important clarification: these are not pre-pay-for-possibly-nothing retainers. These are reservations of our time. We set it aside, assign the team, and commit to spending that time. We’re both responsible for deciding how to best use this time. Together we work out a list of items, in order of priority, which dictates how we proceed with the time we set aside. If we don’t use some of the hours in one week, they’ll be spent the next. If we use less than the number of hours we’ve budgeted in a given month, we’ll add some the next month. We’ll be transparent with our time and deliverables, and report on them consistently, so you know how the reserved time is being spent, and you’ll have the opportunity to adjust priorities as we go.

Essentially, this retainer agreement makes it simpler to run an agile/lean process: we can assess together, in real-time, whether to keep iterating on a given feature or design, and what the impact is across the rest of the timeline. We work thorough a real backlog, without having to stop, submit an estimate, output multiple invoices for that project, and then follow up on each one.

This is not to say we don’t estimate—we manage the budget together. We can still estimate chunks of work, of course, but we do it with one bank of hours in mind. The path becomes much more clear simply because we know ahead of time how many hours in a week we’re spending making a product better.

This provides cost certainty for you, and time certainty for us. At the end of the three months, you decide whether or not to renew the agreement, or to move to a different size.


Reasons not to

As a client or prospect, you may feel like you have a reason not to engage in a retainer agreement.

If you feel like a project should have both a fixed scope and a fixed budget, then you have a reason not to. These types of arrangements, which we avoid regardless, are a recipe for disappointment (but that’s a whole other blog post).

If your plan was to launch something in under a month and never work with us again, then you have a reason not to.

If you don’t have the financial resources to commit to our minimum agreement—let’s say twenty hours a month over three months—you have a reason not to.

If you just don’t want to commit to an agency (us or anyone else) for three months, that’s your prerogative.

But those are probably signs we’re not a great match anyway.


Let’s do this

Again, we think Kris nailed it:

At the end of the day, we both want the same thing: Stellar work that drives results. After spending a decade in project management and operations, I’ve found that an appropriately staffed retainer has two critical benefits: higher quality work and a faster turnaround.

We think the move from project-based agreements to retainer agreements will prove our hypothesis—that we can an operate within a framework which provides a client with better value and an agency with better stability. These longer-term agreements create a healthier structure for partnership, which in turn allows us to do great work more often. And that’s what both Dynamo and our customers ultimately deserve.


One final note. After mulling over the idea for many months, we decided at last to embrace retainer agreements after Bryan came back from Owner Camp. He learned a lot there from other agency owners about how they approach the many different pieces of our business. He also shared a lot about what we’ve learned. Though there will always be things we want to improve, we ultimately we feel we’re doing a lot of things really well. We’re looking forward to attending one of this year’s editions of Owner Camp together, where we can share what we’re going to learn from this upcoming shift. Especially if you’re an owner or manager of a digital agency, I invite you to share your thoughts on this topic with me.