Cash flow is the bane of nearly every marketing agency owner. One survey shows that two thirds of marketing agency owners consider unpredictable cash flow one of their top three challenges, and 19% of them called it their top concern.
That makes sense, because when you can't predict cash flow then you can't plan for the future. Can you afford to bring on another full-time copywriter? "I don't know." How many billable hours will the advertising team have next month? "No lo sé." Will we collect enough revenue to cover salary, contractors, and overhead next quarter? "Je ne sais pas."
It's no surprise that uncertainty is a major cause of stress.
You know who doesn't lose sleep over fluctuating cash flow? Business owners with recurring revenue. Online software makers, subscription businesses, and even professional service businesses like home cleaners enjoy a relatively steady and predictable cash flow month-to-month.
That's not to say they don't face other challenges, but at least they can allocate resources months ahead of time with confidence, focus on long-term projects, and increase their monthly recurring revenue with every new customer they sign on.
Why are marketing agencies especially vulnerable to this challenge? Because they sell projects, not monthly services, and therefore must deal with the effects:
- Some months you sell more projects than others.
- Some projects go stale before reaching a payment milestone.
- Some clients need to be reminded of past-due invoices.
- And even the best projects have to end at some point, ending their tenure as a source of revenue.
… All of which leads to irregular revenue that's difficult to predict, maintain, and plan around.
But that's just the nature of marketing agency work and there's no way around it. There is no recurring revenue for a marketing agency. Right?
Certainly, many agency owners seem to think so. They accept this "reality" and rely solely on selling enough one-off projects consistently to survive.
That's wrong.
Marketing agencies can earn predictable, recurring revenue, and enjoy all the benefits that come with it:
- Ability to better plan resources, budgets, and internal projects for next month, quarter, and year.
- Build a full-time team that grows with the company, rather than having to call in different contractors for short durations.
- Less stress about the future.
How can marketing agencies achieve this dream world of steady cash flow? By selling retainers, not projects.
A retainer is a relationship in which the marketing agency provides an on-going service for an agreed-upon duration, such as six months or a full year. The agency can then charge the client on a recurring basis such as monthly or quarterly, thus earning recurring, predictable, reliable revenue.
The task of switching from a project-based model to a retainer model is easier than you may think, for three reasons:
- Nearly any online marketing project can be made into an on-going relationship. Used to sell SEO packages? Now call it on-going optimization and content creation. Marketing strategy? On-going customer acquisition. Competitor analysis? On-going competition monitoring and reporting. And so on…
- In addition to providing recurring revenue for the agency, retainers are a actually a great benefit for the client, thus making it easy to sell.
How do retainers benefit the client?
- They will have have predictable expenditure, allowing them to better plan for the future.
- They don't have to worry about being nickel and dimed for every interaction.
- They get a partner they can rely on, who will get to know their business very well.
- The work done for them will be oriented on results, not on tasks or arbitrary milestones.
- They get faster turnarounds because there are no contracts or scopes of work to negotiate every time they need something.
- And many other reasons. See more benefits suggested by Carolyn Edgecomb of IMPACT Branding & Design, or the two critical benefits of retainers for clients as suggested by Kris Rohman, VP of Operations at Questus.
- There are tools that minimize the administrative work involved with charging clients on a recurring basis, nearly automating the entire process. ChargeOver is one example of a recurring billing software that can charge a client's payment method automatically on a pre-set schedule, and sync everything with your agency's accounting platform... That is to say, it's a great recurring payments solution for marketing agencies charging on a retainer basis.
So if there's no technical barrier, no client barrier, and no financial barrier, why aren't more marketing agencies doing this? The simple answer, it seems, is the mentality of marketing agency owners. If you've been selling projects (not retainers) for a decade, it may seem easier or more sensible to just keep doing that.
But in doing so they are leaving money on the table, living with the stress that comes from uncertainty, and leaving themselves vulnerable to competitors who can outgrow them—and sleep better at night—thanks to recurring revenue.
Further reading:
- Your Pricing Is Wrong: One Critical Mistake Most Agencies Make by Hubspot.
- How to Set Retainer Prices on Quora.
- How to sell a monthly retainer, according to David Weinhaus, Proposify, and Hubspot.
- How to Calculate Flat Monthly Retainer Fee for Marketing by The Motley Fool.
