The pros and cons of retainer pricing

Retainer pricing is well-known for stabilizing a fluctuating revenue base and quelling much of the chaos associated with income in consultancies. Retainer contracts actually have many benefits in contrast to one-off, fixed-price projects, or time-based projects, but it doesn’t mean they come without challenges, so let’s focus on the pros and cons of a retainer pricing model first.

Pros of a retainer pricing model

There are many reasons why both consultants and clients love retainer pricing packages. Cooperating on a retainer basis, consultants are able to forecast revenue more accurately than when using other pricing strategies. Knowing what to expect from the beginning, it becomes easier to calculate cash flow and maintain costs.

Being paid on a continuous basis, you can focus completely on your clients' needs and issues and deliver high-quality work, rather than spend an unpredictable amount of time looking for new clients that can pay you this month and writing project proposals. In turn, your clients can rest assured knowing that you have a dedicated number of hours available.

With retainer pricing, everything is different. Signing retainer agreements, you become more than a trusted advisor for your client. While the client gets priority treatment from your side, you can dedicate more time to getting a profound understanding of your client’s long-term goals and roadblocks.

Clients like retainers as much as consultants do. Collaboration with someone who understands your business deeply not only saves time but also leads to a better quality of work. With priority access to someone they can trust, clients don’t need to look for service providers or worry about who to book for another project. Moreover, booking time in advance, chances are that the client will be able to save more money, compared to fixed-price project budgets. And that’s not even mentioning experiments and optimization that naturally happens when a retainer pricing model is adopted.

Cons of a retainer pricing model

Retainers are not for everyone, and like with every pricing model, there are cases when they become dangerous.

When both sides fail to set expectations, retainers get riskier as the amount of work will hardly line up with your own.

They can easily lead to unintentional underservicing or over servicing of clients, with your company producing either less than a client expects, or more than you’ve anticipated.

What usually happens in a bad retainer setup is that the client pumps more work through resources for the same retainer fee and it can stifle the processes, create scheduling conflicts, and cut into your margin.

Due to the relationship with the client, it can make the conversation about charging for additional work difficult. Often this leads to a situation where the consultant foregoes charging in one period on the understanding that required work will be less in a future period, sadly this rarely materialises.

Another essential thing to remember is that most of the time, clients prefer a transparent process, which means that they want to see what they’re paying for and what they’re getting in exchange for their money.

This is where professional services companies often fail (and blame the retainer setup), saying that a retainer pricing model hardly provides the clarity their clients need.

So, if you’re failing to offer transparency and continue having hour conflicts with clients, it’s a wake-up call to revisit your process.

Check out our blog next week detailing the seven steps needed to introduce retainer pricing.