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The Death Of The Retainer Model Is Coming, Are You Ready For It?

Posted by Mike Lieberman on Feb 27, 2019 7:44:00 AM

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Agency Engagement ModelI’m fascinated by what’s going on in the agency ecosystem. Study after study supports the move by companies to take their digital marketing in-house. Agencies are reporting it more challenging to sign new clients and clients are not looking for long-term relationships with a single agency anymore.

If one thing is true, the changes taking place in the agency community are real and they’re happening quickly. You can’t put your head in the sand or think this won’t impact your agency. Instead, you should be prepared for slower growth, more challenging sales cycles and downward pressure on pricing.

How did this happen? What can you do about it? What should you be thinking about to position your agency for the future?

Let’s get ready for the future.

How Did This Happen?

Over the past few months I’ve been reading a lot of research including HubSpot Research studies, RSW/US reports and surveys from the Bureau of Digital. All surveying agency owners of all shapes and sizes, with different technology bents and with a variety of specialties and one story is consistent across almost all this data.

Clients don’t think they need long-term retainers anymore.

How did we get here? It seems like just yesterday that HubSpot was teaching everyone to ONLY sell retainers. But in reality, that was almost 10 years ago. HubSpot came on the scene in 2006 and really picked up momentum with their agency partner network in 2008, 2009 and 2010.

Back then, there were only a couple hundred HubSpot agencies and they were telling a different story than the huge collection of website, pay per click, SEO and design firms. The retainer backed by HubSpot technology and with an overlay of inbound marketing methodology was a very compelling and differentiated story. It worked well. Clients liked it and they bought it.

Back then, we were most of our clients’ first agency. We had to teach them how to work with an agency and help them understand what they were getting and how it was helping them. We had to set their expectations around results and manage those expectations closely. We learned some hard lessons like it’s difficult to get results in a short amount of time at low retainer levels.

Fast forward to 2019 and there are thousands of HubSpot agencies, and even more tactical agencies. The agencies charge anywhere from $500 a month to $15,000 a month, with most leaning to the low end of the scale. Today, most of our prospects have had at least one experience with another agency and most have had two or three experiences. Most of them have not been positive.

They were sold a package of “stuff” like two blog articles a month, one email campaign, six social posts and some ongoing website work. Others were sold a low dollar retainer with the promise of big results and others were assigned to interns or kids fresh out of college. None of these service configurations produced the results they expected.

As a result, today companies are wary of agencies, they are slow to make decisions and the sales process is almost twice as long as it was just a few years ago.

In response, they’ve started asking to start with a project. Let’s date before we get married. In some cases, all they want is a project or a series of projects. In other cases, they’ve decided to hire in-house. The move to in-house teams is a huge trend impacting the agency community. Instead of a retainer, they’re asking for training, workshops and to have us fill gaps in their team’s capabilities.

You can ignore all this, or you can do something about it.

What You Should Be Prepared To Do

First, let’s be very clear. There are still plenty of companies signing retainer engagements with us. We’ll sign two this week alone. But the trend is clearly there. Clients are looking for different types of contractual agreements with their agencies.

What you should be doing is thinking seriously about how you offer your services and be prepared to handle objections around retainers or be proactive and offer clients something different and more aligned with what they’re looking for.

Here are a couple of examples.

Workshops and Training – Hiring in-house makes sense when the economy is good and that’s now. I still remember the Great Recession, and no one was hiring anyone, yet companies still needed help with their marketing and outsourcing the entire thing to an agency made a lot of sense.

The trend to hire is going to continue and those in-house teams are going to need training and help. You can offer workshops and training services to in-house teams. There are already a fair number of agencies who provide services like these and this is also an excellent way to get engaged with a company.

We did an onsite training workshop for a company in January and are not talking to them about someone’s work. As long as you can deliver the training profitably, you should make sure this is an active offer in your services portfolio.

Ongoing Project Work – One thing you learn when you work with bigger clients is they don’t need you for an all encompassing retainer. They need you to help them fill a gap in their existing marketing delivery. They have a team of people and just need you to do one or two specific projects. Build them a lead scoring model, enhance their lead nurturing campaigns, or launch an account-based marketing campaign for them.

What typically happens is that single project turns into a series of projects and you end up going from project to project with what can be a very good client. While you might not have a retainer, you have a long term and engaged client.

With the trend to hire in-house, I think you’re going to see more and more clients asking for engagements that look and feel like this. This relationship also puts some of the power back in the hands of the client who may have been burned in the past.

This type of engagement requires some changes to how you manage the account, your agreement and how you forecast both revenue and team expenses.

First, make sure you have a Services Agreement in place regardless of projects. This agreement defines the business relationship. Once this is in place you can go from project to project without worrying about some of the legal stuff. You only have to get that worked out once.

Next, you’ll have to be more active in account management to identify projects, proactively present projects, close projects, and make sure the client can fund and has approval for ongoing projects. Finally, you’ll need to be more careful to project revenue from projects and manage gaps in those projects.

Performance Based Engagements – It’s just a matter of time before these engagements become more commonplace. We’ve been experimenting with these for years. Backend bonuses or free months if we don’t hit our agreed-on goals. Free services if we don’t hit our goals over a 90-day period. Part retainer, part pay-per lead engagements cover your costs and give you upside potential based on leads generated.

We’ve tried them all with successes and with failures. It really comes down to whether you have the right client or not. When we have a strong partnership, it can work out well. When you don’t it can be very messy.

Being able to offer performance-based engagements can be a big advantage to your agency when you start talking about results, confidence in your ability to get results and differentiating your agency from other shops.

How To Get Out Ahead of The Changes

There’s nothing unique, differentiated or even close to remarkable about any of the three options described above. Training, project work and performance-based engagements are already options agencies and clients are actively considering.

What I’m suggesting is that you try to get ahead of everyone else with an engagement that is so dramatically different and so remarkable that everyone is lining up to talk to you about working with your agency.

I’m suggesting that you gain a deep understanding of what your prospects want and be creative in how you get them what they want.

Not sure what they want? Let me try to refresh your memory. They want results and they want it as fast as possible. They’re generally not afraid to invest, especially when they see clear ROI in a short timeframe. My challenge to all of you is to come up with an engagement model that delivers results in a short time frame. The “You have to wait six to eight months to see results” or “The package you bought doesn’t come with results” is not going to fly much longer.

Instead, ask yourself, “What do we need to do as an agency to get results and to get them fast? Is it a dedicated team? Is it a more experienced team? Is it different tactics? How does the client work with you to produce better results?” These are the questions you should be asking and working on coming up with compelling answers.

The earlier you can come up with engagement options that match up with the way clients are buying services from agencies today, the easier it’s going to be to manage the transition and the less impact any changes will have on your growth goals.

My suggestion is to be part of the group of people who are innovating and disrupting rather than be part of the group of people who are responding and trying to deal with the changes.

New Inbound Agency Mastermind Group. Join Today! Seats are limited.Start Today Tip – Your best bet is to be a part of the changes taking place, to be the ones making the changes instead of the ones who the changes are happening to. This means understanding what your prospects want to buy and why. This means being creative in the way you create your engagements and it might even mean blowing up your existing engagement model and starting from scratch to rebuild it. Wouldn’t it be great, for once, to have other agencies chasing you instead of you chasing them? What if you were the only agency with the creative and innovative engagement model that every company wanted? I know that’s where I want our agency to be and that’s why we’re already working to come up with something that disrupts the status quo and engages clients in productive sales conversations.

Agencies 2 Inbound – Focusing On Helping Agencies Who Want To Grow

Topics: pricing the engagement, agency operations, project vs. retainer

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