The value of retainers for consulting and service businesses

You probably think "lawyers" when you hear the word retainer, but I have used these in my computer consulting business since 1983 and have enthusiastically recommended them to every consultant who has ever asked me for advice. I've also pushed the idea to consultants who weren't looking for my advice - I know these work and I know you'll make more money and be happier if you follow my advice.

Funny thing is that most people don't think this is such a hot idea. Most that I pitch this to either ignore me outright or tell me it just won't work. Not with their clients, not in their business.

My friend Mike was one of those. We had a lunch date quite a long time ago to discuss his brand new consulting business. We talked about a lot of things, and I pretty much gave him a brain dump of what it takes to leave your cushy job and strike out on your own. I told him all about retainers and why he should use them. He didn't argue with me about that.

He paid no attention whatsoever.

Several years later we had another lunch. Before we even ordered, Mike said "By the way, I have to thank you. I owe you big time."

I probably looked puzzled so he went on. "It's retainers. You told me to do that, but I just didn't get it. Now I do get it and I started doing it, and I have to thank you. You were so right."

I raised my eyebrows and he explained.

"I've got ten companies on retainer now, and that's just in the past three months. The clients love it, it's easier for me, and I'm going to love it even more when I have a hundred of them doing this."

So, let me tell you about retainers. If you don't think it will work for you, just remember Mike. He didn't think it was such a great idea when he first heard it either, but he sure does now.

Here's how it works. I expect an average client to use me ten hours per year. Your business may be much different, but that doesn't matter. Don't get hung up on the ten hours - this works for 4 hours or 400.

My ordinary rate is $150.00 per hour, but for clients who pay a $560.00 per year retainer, I drop that to $85.00. Let's see how that works out:

See how nicely that works? A client who uses a lot of hours gets a lower rate, but not until they have used the hours. You don't give them a better rate because they might use a lot of time or because they say they will need many hours; it's automatic if and when they actually use the time.

They are ALWAYS paying $85.00 per hour. That never changes. It's the retainer that controls the real rate they are paying you.

It gets better. Every year when their anniversary comes around, you bill that retainer. After you have a few dozen of these, that starts to be steady recurring income that you get all year long, whether you are busy or not. This smooths out seasonal humps and dips and helps make your planning much easier. If a client doesn't renew for some reason, you know about it right then and aren't wondering "Gee, I wonder why I haven't heard from.."

Why would your customer go for this? Well, it does cost them less, but I sweeten the pot even more. You know all those two minute phone calls where half the call is chit-chat and half is a billable question you answer? You don't like keeping track of that junk and either does your customer. So I say that the retainer also covers all short phone calls and emails. The customers like that a lot. I also add that with the retainer, minimum on site billing becomes 15 minutes instead of two hours. They really like that.

Of course you don't have to do either of those things. Mike doesn't. But he sure likes those retainer checks coming in like clockwork. You will too. Give it a try.

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