Retainers vs. Projects — Choosing the Best Pricing Structure

Many professionals have had the debate: Should we price by project or work on retainer? With advantages and disadvantages to both, the debate continues. Likely because there is no one correct answer that makes sense for all of your client work. 

After weighing the pros and cons of each, a retainer may be the right decision in one instance, but another may conclude that a project-based approach makes more sense for the business. Making the correct pricing decision requires an understanding of your organization's structure, determining your comfort level with risk and deciding what type of relationship you want to build with its clients. Before you can decide which pricing structure makes the most sense, let’s explore these two concepts a bit further.

What Is a Retainer?

A retainer is a contract between a client and a service provider that requires regular payment from the client, typically monthly, to ensure access to a set of services during that time. The retainer agreement exists for a certain amount of time, often six months to a year, and the services provided to the client during that time are established at the time of the agreement. 

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Businesses that follow a multi-channel approach may choose a retainer because they can support various needs of one client through their wide range of services. For example, a multi-channel marketing agency may offer graphic design, web, advertising and social media support through one retainer agreement. Companies that focus on one type of service might decide a retainer is best if they support clients who are regularly in need of their specific skill set.

Pros of Retainers

• Create a steady income. With a retainer pricing structure, there are no surprises for you or your client each month, making it easier to budget and plan ahead.
• Establish client relationships. By agreeing to work with a client for a certain amount of time, you have a better opportunity to build trust and get a deeper knowledge of your client’s goals so you can better support them. 
• Develop a strong client base. With retainers, agencies spend less time looking for and pitching to new clients. When you know who you will be working with, and how you can best meet their needs, more of your day can be spent focused on doing the work you love. 

Cons of Retainers

• Retainers may have a lower hourly rate. Although the hourly rate sometimes calculates as lower than average, the steady stream of income can produce greater revenue for your business.
• Workload may vary. By working on a retainer, your tasks will be determined by the needs of your client, so there may be more variation in your day-to-day workload.
  

What Is a Project-Based Pricing Structure? 

Project-based pricing means that you work on one project at a time for a specific client. The agreement with your client will be based on the project needs and the timeline your agency expects to complete the project. Typically, using this structure causes a great deal of fluctuation in how many clients you may be working with at one time.

In this type of pricing structure, you would not be expected to work on client projects that were not previously agreed upon at the start of the project. Payment is received after the project is complete or when certain project benchmarks have been reached. With a project-based payment plan, it is important that your business has a project management tool in place that can easily track project progress and anticipate any lags to prevent any delays in getting paid.

Pros of Project-Based Payment 

• Charge a higher hourly rate. Compared to rates for a retainer agreement, the rate of pay is generally higher for agencies working on a project-by-project basis. 
• Work with a more diverse client base. In a project-based pricing model, you will have the opportunity to work with a more diverse group of clients. And if you impress those clients with successful projects, there is a better chance of getting your company’s name in front of new potential clients. Finding the right client work management platform can ensure that each client has a positive and seamless experience while working with your business.   

Cons of Project-Based Payment

• Uncertainty with future projects. If you're getting paid by project, you may reach a point when you do not know when your next paying client will come along. When this is the case, it can be difficult to create an accurate budget for running your agency and impact your ability to not only plan ahead but to have enough revenue coming in to do business.
• Pressure to find new clients. When you rely on an active client project for income, there is more pressure to attract new client work. This requires additional time and money to connect with the right clients. Attracting and closing new client business takes time. Instead of spending time getting to develop relationships with existing clients, you might feel like you are always having to look for what is next.
• A constant need to adjust. When your work revolves around one project, you will need to be ready to adjust every time you start something new. Every new client requires an onboarding period and discovery of their working style. You spend time making adjustments to ensure the client has a positive experience, in the hopes that they become a recurring business.
  
  

How Do You Know Which Style Best Suits Your Business? 

One of these pricing structures might align perfectly with your company’s goals, but you might find that you could benefit from using a combination of the two styles. To find the best fit, here are some questions to ask yourself before making the final decision.

• How many clients does your company want to work with at one time? 
• Would you prefer to work with a client for an extended period, or do you like having a lot of variety with the clients and projects you take on?
• Does your company offer a wide variety of services, or do you prefer to focus your skillset on one particular service? 
• What's more important: making the highest hourly rate for your services or having a consistent monthly income? 

Learn more about the profit-boosting potential of retainers and how to automate retainer tracking to make this pricing structure achievable.