I am fairly new to the business and have a few clients I know and trust, but am branching out and will be acquiring clients I have no prior experience with. Do you have any recommendations or suggestions on how to deal with billing new clients who you have no prior working relationship with? When billing a monthly retainer package of $1,000, for example, if you do a month’s worth of work, then send them the bill, and wait another 30 days to get paid, you could potentially be working for 60 days before you get paid. Do you recommend asking for part or all of your monthly fee up front or would you bill at the end of the month? —LB
This is a great question because it’s another reminder for us veterans that we can never take for granted that everyone knows what we think are commonly understood principles or details in business.
So, the first thing I would explain is that a retainer is a monthly upfront fee paid in full and in advance of service. And the service for which retainers are charged in our business is a month of ongoing administrative support.
The idea is that you and the client are entering into a relationship. With the retainer, they are securing a spot on your roster, reserving your time and preserving their priority over any other side (non retainer) clients or project work you do in your business.
With retainers, they are generally billed with due dates of “on or before the 1st.” There are no “deposits” toward a retainer because it’s not a layaway plan. They either pay beforehand or they don’t receive services.
In my practice, I have clients sign a credit card authorization form (AGR-30 in the Success Store) so that I can automatically run their credit card when it’s time for them to pay their retainer each month. So essentially, I pay myself, and my due date is the 25th of each month (and I never pay myself late, lol).
I do this because:
- the 1st is one of the busiest days of the month for me and for my clients (and most people running businesses, I think). I don’t want my money and being paid held up in any way; and
- if I happen to do billing for any clients (i.e., invoicing their clients on their behalf), I don’t have my business’s billing and theirs all trying to compete for my attention on the same day.
If you are billing after the fact, that is not a retainer. For the reasons you recognize (and that fact that you’ll run into far more nonpayment issues with nothing to mitigate your losses), you will have all kinds of financial problems if you bill at the end of the month for services already rendered. The last thing you need to be in is the credit lending business (which is basically what you’d be creating by billing after the fact and waiting to be paid).
How you bill in your business becomes part of your business management and systems for success. It should be given as much careful thought and consideration as every other planning and operational aspect of your business.
This is also an example of the kind of things I will be sharing with attendees at my business management systems class this coming August 22. Check it out!
Great post Danielle. I never thought of doing this before and I’ve been in business for 3 years. By billing theire credit card, it enures I get paid and it frees up the client’s time becasue it is one less thing they have to do by writing another check, addressing an envelope and mailing.
Well, shock of shocks! Another way of thinking about something that makes more sense than the way I was thinking! Which brings me to another quandary. I’m thinking of offering PC or current clients a group of hours for a certain price based upon my standard rate. I think some call these block hours. What, in your opinion, is the difference between block hours and retainer hours? I really don’t see any difference so I’m trying to create differences with the primary difference being that retainer hours have guaranteed availability while block hours wouldn’t. The second difference would be to retainer would have the deposit held until the contract ends and then is applied towards work being done and/or unpaid fees. The third difference is block hours carry forward for one month while retainer hours are lost if not used. Another difference is the cost to the client. Retainer have built in discounts. Block hours are subject to me.
Hi Ann 🙂
I’m not an advocate of billing by the hour (i.e., selling hours). Here’s one of my videos that explains why:
I’m also not an advocate of discounting. Discounting is what is done by people who don’t think they have any other value to offer and need to bribe people to work with them.
I totally get why people do the discounting thing. When newcomers enter the industry, there’s a lot of monkey-see, monkey-do. They see that others are pricing that way and they just follow suit, not knowing any better and not applying any further critical thinking or business research.
You have to always remember, just because it may appear that the majority is doing things a certain way, doesn’t mean it’s successful. Discounting certainly doesn’t help them earn well and only serves to devalue the very thing they are in business to earn a living from.
What I promote and teach people how to do is what is called value-based pricing, which you can learn more about here: http://administrativeconsultantsassoc.com/success-store#gde39
With regard to a block of hours vs. monthly retainer, you’re always going to earn more and have more consistent, steadier cashflow each month with a monthly retainer. My advice is always to stop catering to every client’s needs under the sun. Decide on a certain way of doing things in your business and then focus only on bringing in those clients who are a fit for that and are ready to make the commitment.
A block of hours that someone can spread out over many months is a waste of your time, time that you could be better using to build your monthly retained client roster and be making a whole lot more money from.
Remember, you will never get the commitment unless you ask for it. If you never require clients to make a commitment, that’s exactly what you’ll keep getting. 😉