Projects vs. Retainers: Which is better?
There are three main methods creative production service providers use to charge for their work:
- Project fee
Other methods exist and there are variations within those, but you’ve probably encountered all three at some point. Each also usually has the common denominator of a commodity of hours to determine the total fee. Naturally, the hour-by-hour model just charges for exactly the amount of time used. The project fee is likely a fixed fee, but the provider will still assess the expected number of hours needed to complete the work, even if only for their own calculations and planning.
And then there is the retainer model. With this model, the provider sets a fixed number of hours per month available to the client. It’s a pricing model most commonly used by law firms and PR agencies. However, it’s reasonably common in the web development world too. In fact, we use it here at Solspace with many of our clients, though we use estimated project pricing too.
So, which is better? And, is one better for the agency and another better for the client? It depends on the situation, of course, but we lean toward the retainer model being better for both parties. Let’s explore some reasons why.
For the client, you will often get cost savings from the hourly rate of a retainer. This is how Solspace operates, and we’re not alone. It streamlines our management so we lower the hourly rate some. Plus, with a project estimate, your provider needs to make sure they have enough time for the work, and will generally estimate in their favor, not yours.
Predictability with speed
Well-planned project arrangements should still have predictability, but retainers regulate this much better. Having a set number of hours to use up each month keeps a project’s pace steady and ensures you’re staying on schedule. With a project arrangement, you or the provider might feel the need to slow work down when it comes to big milestones. That’s never good for the pacing. Retainers help to keep both parties moving forward so monthly hours aren’t wasted. This results in hours used more wisely and efficiently.
Just because something is predictable, doesn’t mean it can’t be flexible too. Project arrangements only cover work detailed in the project contract. So, if you find you have an urgent need that your provider can help with, you’ll likely have to develop a new contract for that work.
However, if you’re on a retainer, those hours can be shifted for the short term to put out that fire you’ve got. In fact, it might even be able to happen concurrently with your project work. Timelines may be adjusted slightly or a few extra hours could be added to that month. Either way, it greatly reduces the friction to having your urgent, unexpected needs met.
Lower cost to start
Let’s say you’re working on a large-scale project around $100k in scope. Most firms (including Solspace) will ask for a 25% to 33% engagement fee to start the project. That’s a large sum of cash flow all at once.
However, on a retainer model, you’ll likely start with only needing to pay the first monthly fee. This makes payment terms much more regular and often fits better with the cash flow and budget activities of most businesses.
Access to more talent
Project arrangements often involve a provider assigning specific staff to the work. Whereas retainer agreements are generally less rigid. This connects back to that flexibility benefit, but in this case, the client will likely have more access to different team members with varied skill sets. It’s often easier for providers to shift staff allocation within a retainer agreement than with a project arrangement.
Preparation for the future
Honestly, we believe this is the best benefit of a retainer agreement for a project. When working on a limited scope project arrangement the work often halts once the project terms have been met. We find launching a new project for a client is just the beginning of the work they’ll need. Most web and software properties need ongoing maintenance, updates, and improvements. If on a project model, you’ll have to go through the contract negotiations and planning all over again. And, to keep continuity, you’ll have to do this in the midst of wrapping up your original project. That’s a hassle.
With a retainer agreement, you and the provider can just keep working as usual once your project has launched. Almost all projects need continued attention post-launch. Plus, you’re likely to discover new needs during the course of work. With a retainer, these can be started right away (sometimes they can even overlap). Monthly hours may need adjustment, but that’s much easier to do than trying to determine the scope of every new need with a separate SOW.
It’s actually more freedom
Finally, entering into a retainer agreement can seem like locking yourself into a never-ending commitment. But, most retainer agreements give clients the ability to move on within 30 days or so if they need to. That freedom is much more restricted with project agreements.
Project fee arrangements aren’t bad. We still do plenty of work for clients using that model. But we find our best work happens within the retainer model. We think you’ll find that too.