The Future of Agency Pricing: Why Smart Retainers are Overtaking Hourly Rates

by Henry Rahr Co-founder, Cerebral Studio

01/22/2024

"We're in the midst of a major shift - Companies are simplifying how they utilize design agencies to achieve their objectives."

The task of engaging with external design services has often been more complicated than the design work itself. Between the quote negotiation, contract redlining, scope tradeoffs, and ensuring the right designers are available, it's easy to find oneself overburdened with process rather than focusing on the goal - creating a great product.

In this article we'll look into two conventional billing methods, and contrast them to a new emerging standard.

Hourly Billing: The Unspoken Costs

Hourly billing, often chosen for its theoretical lower costs and simple correlation between work and pay, has many complications that can lead to the opposite effects. Let’s explore the common challenges with this model.

Lacking Efficiency: Hourly billing does not inherently motivate agency teams and/or freelancers to work efficiently. The longer a task takes, the more they can bill. Additionally, the model unintentionally leads to the client team becoming more lax in their requests, consistently expanding the project scope, and gradually accumulating hours which extends both the budget and the duration of the project.
Deprioritizing Prioritization: Hourly billing diminishes the urgency for client teams to prioritize features, and encourages scope creep due to the absence of an hourly limit. This can quickly lead to projects losing focus of the needle-moving requirements.
Budgeting with Uncertainty: Frequent changes in billed hours can pose difficulties in budget management, lead to internal conflicts, and create anxiety for those valuing project predictability.

Fixed Project Fee: Rigidity that Confines Opportunity

One-time fixed project fees may seem appealing for their clarity, but they can come with limitations, especially when the scope of your project evolves.

Inflexible Scope Management: The model of fix scope projects inherently conflict with the fluid nature of projects. As projects mature, new ideas come to light, often requiring tweaks to project scope. This situation can result in difficult scope tradeoffs, timeline resets, and modifications to the a now "un"-fixed project fee.
Incentivizing Speed rather than Quality: With fixed fees, agencies and freelancers are incentivized to exert the minimum amount of effort to achieve the client’s scope in order to avoid diminishing their hourly rate. This tendency can compromise the quality of the final product and prevent the full exploitation of the agency's or freelancer's professional skills.
A Lack of On-going Support: Once a fixed-fee project is completed, the agency or freelancer must shift its focus to the next client to sustain their income, often resulting in an abrupt transition and minimal support during the project's implementation phase. Consequently, this leaves the client team to navigate design decisions on their own, possibly resulting in subpar choices and a compromised delivery.

The Model for the Future: Smart Retainers

Imagine a scenario where every team member is motivated to deliver top-quality work, focus solely on critical tasks, sustain a rapid pace, and still manage to keep your costs under control. This brings us to smart retainers.

Incentivized for Mutual Success: Under the smart retainer model, the agency strives for your renewal by consistently delivering early and high-quality work. Their effective rate remains stable - eliminating any temptation for shortcuts. Meanwhile, the client team efficiently manages their priorities to stay within their retainer hour alotment, continually prioritizing the “must haves” and staying within budget.
Flexible Scope Control: As projects mature and new opportunities naturally arise, smart retainer models provide seamless ongoing support, eliminating the need for trade-off decisions and/or starting a new contract to accommodate additional scope.
Budget Mastery: With monthly smart retainers, your costs are clear and fixed, giving you exact financial predictability. At any time, you can choose to ramp up, scale down, or pause your smart retainer as per your needs.

Pro-tip: Begin with with a fixed project fee, then transition into an EasyRetainer™ model. This has been the most popular path amongst Cerebral’s clients.

Conclusion: A Win-Win Scenario

The growing smart retainer model stands out as clear preference for businesses aiming to stabilize their budget while improving the quality of output. It delivers the necessary adaptability, cost efficiency, and ongoing resource commitment vital for flourishing in today's dynamic environment. By opting for an SmartRetainer™ model, businesses are not just hiring a design agency, they are gaining a collaborator that is incentivized to grow your business for mutual success.

Getting Started

Ready to explore the benefits of Cerebral's SmartRetainer™ model for your design needs? Contact Cerebral today to learn more and join the ranks of visionary companies redefining their design strategy.

"We're in the midst of a major shift - Companies are simplifying how they utilize design agencies to achieve their objectives."

In this article we'll look into two conventional billing methods, and contrast them to a new emerging standard.

Hourly Billing: The Unspoken Costs

Lacking Efficiency: Hourly billing does not inherently motivate agency teams and/or freelancers to work efficiently. The longer a task takes, the more they can bill. Additionally, the model unintentionally leads to the client team becoming more lax in their requests, consistently expanding the project scope, and gradually accumulating hours which extends both the budget and the duration of the project.
Deprioritizing Prioritization: Hourly billing diminishes the urgency for client teams to prioritize features, and encourages scope creep due to the absence of an hourly limit. This can quickly lead to projects losing focus of the needle-moving requirements.
Budgeting with Uncertainty: Frequent changes in billed hours can pose difficulties in budget management, lead to internal conflicts, and create anxiety for those valuing project predictability.

Fixed Project Fee: Rigidity that Confines Opportunity

One-time fixed project fees may seem appealing for their clarity, but they can come with limitations, especially when the scope of your project evolves.

Inflexible Scope Management: The model of fix scope projects inherently conflict with the fluid nature of projects. As projects mature, new ideas come to light, often requiring tweaks to project scope. This situation can result in difficult scope tradeoffs, timeline resets, and modifications to the a now "un"-fixed project fee.
Incentivizing Speed rather than Quality: With fixed fees, agencies and freelancers are incentivized to exert the minimum amount of effort to achieve the client’s scope in order to avoid diminishing their hourly rate. This tendency can compromise the quality of the final product and prevent the full exploitation of the agency's or freelancer's professional skills.
A Lack of On-going Support: Once a fixed-fee project is completed, the agency or freelancer must shift its focus to the next client to sustain their income, often resulting in an abrupt transition and minimal support during the project's implementation phase. Consequently, this leaves the client team to navigate design decisions on their own, possibly resulting in subpar choices and a compromised delivery.

The Model for the Future: Smart Retainers

Incentivized for Mutual Success: Under the smart retainer model, the agency strives for your renewal by consistently delivering early and high-quality work. Their effective rate remains stable - eliminating any temptation for shortcuts. Meanwhile, the client team efficiently manages their priorities to stay within their retainer hour alotment, continually prioritizing the “must haves” and staying within budget.
Flexible Scope Control: As projects mature and new opportunities naturally arise, smart retainer models provide seamless ongoing support, eliminating the need for trade-off decisions and/or starting a new contract to accommodate additional scope.
Budget Mastery: With monthly smart retainers, your costs are clear and fixed, giving you exact financial predictability. At any time, you can choose to ramp up, scale down, or pause your smart retainer as per your needs.

Pro-tip: Begin with with a fixed project fee, then transition into an EasyRetainer™ model. This has been the most popular path amongst Cerebral’s clients.

Conclusion: A Win-Win Scenario

Getting Started

"We're in the midst of a major shift - Companies are simplifying how they utilize design agencies to achieve their objectives."

In this article we'll look into two conventional billing methods, and contrast them to a new emerging standard.

Hourly Billing: The Unspoken Costs

Lacking Efficiency: Hourly billing does not inherently motivate agency teams and/or freelancers to work efficiently. The longer a task takes, the more they can bill. Additionally, the model unintentionally leads to the client team becoming more lax in their requests, consistently expanding the project scope, and gradually accumulating hours which extends both the budget and the duration of the project.
Deprioritizing Prioritization: Hourly billing diminishes the urgency for client teams to prioritize features, and encourages scope creep due to the absence of an hourly limit. This can quickly lead to projects losing focus of the needle-moving requirements.
Budgeting with Uncertainty: Frequent changes in billed hours can pose difficulties in budget management, lead to internal conflicts, and create anxiety for those valuing project predictability.

Fixed Project Fee: Rigidity that Confines Opportunity

One-time fixed project fees may seem appealing for their clarity, but they can come with limitations, especially when the scope of your project evolves.

Inflexible Scope Management: The model of fix scope projects inherently conflict with the fluid nature of projects. As projects mature, new ideas come to light, often requiring tweaks to project scope. This situation can result in difficult scope tradeoffs, timeline resets, and modifications to the a now "un"-fixed project fee.
Incentivizing Speed rather than Quality: With fixed fees, agencies and freelancers are incentivized to exert the minimum amount of effort to achieve the client’s scope in order to avoid diminishing their hourly rate. This tendency can compromise the quality of the final product and prevent the full exploitation of the agency's or freelancer's professional skills.
A Lack of On-going Support: Once a fixed-fee project is completed, the agency or freelancer must shift its focus to the next client to sustain their income, often resulting in an abrupt transition and minimal support during the project's implementation phase. Consequently, this leaves the client team to navigate design decisions on their own, possibly resulting in subpar choices and a compromised delivery.

The Model for the Future: Smart Retainers

Incentivized for Mutual Success: Under the smart retainer model, the agency strives for your renewal by consistently delivering early and high-quality work. Their effective rate remains stable - eliminating any temptation for shortcuts. Meanwhile, the client team efficiently manages their priorities to stay within their retainer hour alotment, continually prioritizing the “must haves” and staying within budget.
Flexible Scope Control: As projects mature and new opportunities naturally arise, smart retainer models provide seamless ongoing support, eliminating the need for trade-off decisions and/or starting a new contract to accommodate additional scope.
Budget Mastery: With monthly smart retainers, your costs are clear and fixed, giving you exact financial predictability. At any time, you can choose to ramp up, scale down, or pause your smart retainer as per your needs.