If you run a business in the service industry you’ll be in tune with the idea of paying by the hour. It’s something that many of us do. We land a job, tell the customer it will take X amount of time and that you charge £X per hour.
If you run a business in the service industry you’ll be in tune with the idea of paying by the hour. It’s something that many of us do. We land a job, tell the customer it will take X amount of time and that you charge £X per hour. All this is fine if you complete the job in the set number of hours, days or weeks, but it can cause friction if you go over your estimated time and can even lead to your customer getting suspicious that you are trying to boost your pay cheque.
The Downside of Charging by the Hour:
* Charging by the hour can mount up the costs and cause friction between customer and service provider and lead to questions about efficiency and the legitimacy of a particular amount of work.
* If you are an individual trader it can often lead you to ‘stretch’ the time out, either consciously or unconsciously. It can not only get you on the wrong side of your customer but also make you less productive.
* If you charge by the hour then you may well have to spend time explaining your billing and there could also be delays in payment because of disputes.
* The focus of your client tends to be on the money, so perhaps wont give you the whole picture/project as it will cost more.
* Charging by the hour works better if you are undertaking a one off job for an individual or business.
If you are carrying out ongoing work over a number of months or have a regular contract to provide a service, there is a much better and mutually beneficial option available.
The Benefits of Charging Retainer Fees
A retainer fee is an upfront cost charged based on the amount of work that the service provider is expected or may expect to provide each month. This is an agreed amount based on the actual work that will be done rather than the time it will take to complete. This kind of relationship has a number of benefits for both parties.
It allows the customer and the third party provider to settle on the terms of service and what is provided on a regular basis. For instance, if you provide IT support this could include regular security updates, access to cloud software, a comprehensive helpline and call outs for maintenance.
There is no confusion over the time it takes or the amount to be billed and everything is agreed beforehand allowing both parties to stop concentrating on the money and focus on the work at hand.
This is particularly beneficial for small businesses that have a limited budget and need to keep on top of costs. The retainer fee can be added to or further developed without fear that the charges are going to get out of control which means the service can grow holistically with the business.
For most businesses that do not have experience of suppliers charging a retainer fee the idea may be met with a little suspicion. But for those who have taken the plunge it is a totally different story.
Because it is results driven rather than time driven, this kind of arrangement helps the provider and customer develop a more effective and ultimately trusting relationship. Most importantly it allows both sides to focus solely on the work at hand, it takes the money out of the equation.
Isn’t it time you stopped charging for your time?
Jules White is the founder, franchisor and the Northampton franchisee for The Last Hurdle. A business development specialist with over 18 years’ sales and marketing experience. Jules has twice been invited to be a panellist for Facebook, advising small businesses how to use Facebook for business.
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