The Retainer Vs. Hourly Rates Debate Continues

We have constant pressure in our executive search practice to bill by the hour for work. We made a firm decision years ago - especially after reading much of the work by Author Alan Weis on Consulting, that we would only bill for projects. When you bill by the hour - you reduce yourself to competing on price with everyone else and many times your services are valued against your worst quality competitors.

Instead, when you do project-based pricing you can value your contribution to your client on the unique value only your firm can bring to the table. If you are a premium provider of services, you should command premium value for your services - this is almost impossible to convey through traditional hourly pricing.

Break your industry paradigm of pricing on hours worked and start billing clients based on the value only your firm can provide.

The approach to billables Steve Cody and you describe is very much like our own. We look at client needs and then develop a critical path, those projects that must get done during a certain time frame (either a monthly or quarterly basis). This establishes expectations from both sides to help clients get what they pay for. Simply, not planning what gets spent makes the agency pay.

In the end, I believe overvservicing only gets you in trouble in the long run. In fact, my main industry, educational publishing development, is changing drastically because it has been an overservicing industry that now finds itself in a tight bind, because, surprise, surprise, free services were given in order to maintain the client, when in fact, people were in essence, "afraid" to approach the client and do a scope change. Tough call, but I defer to business principle here. How long will this take you? How much will this cost you? How much can I charge my client to make sure I make a profit? Nice post, Gini.

Gini, very interesting discussion. Pricing is one of the most challenging parts of running businesses like yours and mine, but only because there are as many different client mindsets as there are projects.

The one model you discussed from Sean Cassidy, which was to do whatever it takes to achieve client results, even if you have to eat part of your fee, is not my favorite concept. This establishes expectations in clients' minds that this is all your services are worth. If it took twice as much time as was billed, then you have severely damaged the client's perception of your value. This is hard to overcome next time.

The challenging part about simple hourly billing is not taking in to account what part of the project might be up to the client to help make it a success. In my case, I help create strategy for companies and firms to grow, conduct client feedback interviews, and help execute strategy decided upon as a result of that activity. I can create the best marketing strategy in the world, and glean the absolute best information and advice from a client interview, but if the clients with whom I partner aren't interested in, or are too busy to, take the steps necessary to make that strategy a success for clients, then my work is, in essence, meaningless. I can nudge, encourage and cheer my clients on, but if we don't both play our parts, then we will not achieve success. If I bill hourly in this case, and have not established expectations up front as Trevor Campbell stated in his comment, which is sometimes hard for clients to do, then I set myself up for an interesting discussion come billing time.

I don't claim to have the magic potion or equation to achieve the right billing situation for everyone. I am not a fan of hourly billing, but favor retainers and project billing, all based on value and, yes, the amount of time I factor in to each project, combined with the worth and impact of the potential outcome of my work.

Thanks for continuing what is a very important discussion for services firms of all types.

Interesting post, Gini. I prefer the hourly rate (fee for service) versus the retainer. It works best for us here at Porter Novelli Canada. Clients get billed only for work done. If extra work/budget is needed, we agree to it in writing. We also work with clients to determine ROI so we all know what success will look like.

We did have a large retainer client at one time with multiple client contacts wanting us to do more work than was budgeted for. The over-servicing soon added up and we needed the client to clarify the scope of work with his team so they had more realistic expectations. We're certainly prepared to invest in clients but we also can't afford to undervalue our work.

Having been on both sides of this equation -- hiring agencies AND acting as the agency -- I completely understand why the over-service thing happens, even at smaller agencies.

In my current life here at a "strategic communications" shop, we're all about the project retainer -- but we'll overservice the project to meet specific metrics. We fine-tune the approach and track our time, and each one is a learning experience.

I do think, from my perch, that those most likely to do a hybrid approach are ones who are NOT looking for traditional PR -- but they need to be coached that they're not looking for traditional PR.

When you figure all this stuff out, let us know!!!