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The HR agency monthly retainer model is broken

Tracy Carpenter: Human Resources Consultant: 31st October 2018

 Monthly retainers are the dirty secret of agency work. I don't think they always work in the interests of clients and, ultimately, not even for the agencies themselves. And yet they are still the way most agency services are delivered - and I'm not just talking about HR agencies here either. It's probably a little contentious to go against the ingrained wisdom on this, but I thought I'd share my reasoning with you. It's a very personal view, and I'm not discounting the model entirely, but it is the way I feel about my own business after many years working for agencies.

What the agency model looks like

The traditional agency pitch goes a little like this:

  1. You approach an agency with a problem that requires their expertise
  2. They tell you if and how they will fix the problem
  3. Theres an initial quote to fix that particular problem
  4. You are sold onto a follow up agreement of xxx per month to keep the agency on hand for a set number of hours to deal with further problems, or to deliver a certain set of outcomes each month.

This is broadly true about all sorts of things from (yes!) HR provision, through to marketing, legal services etc.

What's great about this from your perspective is that you know what you get: your immediate problem is addressed, and then you have a fixed monthly cost you can work into your budgeting to give you help in the future.

And for the agency, it gives them a steady income stream enabling them to plan and manage their own finances. The costs of running their own business are probably well-established, so to make a profit they can divide the costs of their business by the number of overheads and employee hours available to come up with an hourly rate that makes financial sense for them.

It's probably no wonder that it has become - in the main - the preferred method of running business for many companies.

Why it's broken

The truth for many (not all) industries is that work doesn't fit neatly into a steady stream of a set number of hours each month. There are, roughly speaking, two main scenarios.

  • Scenario A: You suddenly have a big change in the business perhaps a seasonal spike in sales, a market led downturn in demand, or a change of emphasis within the business.
  • Scenario B: Nothing much actually changes in the business for long periods of time.

In neither of these scenarios does the monthly retainer hold up very well.

In scenario A, you might have contracted a company for 4 hours a month, but suddenly need them to provide 20 hours due to some unforeseen event.

In scenario B, you might be paying someone to do 4 hours work a month, but in truth you just don't need them that often.

Where this becomes a problem is that agencies will often end up overservicing or underservicing you as a result. If you've agreed to a four hour retainer, but have a run of busy months that require more output from an agency, it puts them in a difficult situation of having to renegotiate the price you're paying them.

They can suddenly find they're being paid for 4 hours while working 12. And that's when you get an account manager on the phone asking you to pay more probably at a time when you're at your busiest.

But if it's the other way round, it might be you who suddenly looks at your books and wonders why you're paying xxx for a service you never use. In this case, the agency might be trying to look busier than they actually are perhaps sending you a monthly report to try and reassure you that you're getting something for your money. Meanwhile, they've lost touch with your business a little after a few months - and perhaps you've been quietly assigned to a more junior account manager.

This under/over-servicing is the stuff that can contribute to fractious relationships between agencies and their clients, with either side feeling aggrieved a bit about their end of the deal.

This isn't a universal truth (I know lots of businesses that have had happy relationships with agencies for many years, and consider them almost part of the team) but it is hardly unknown.

And for me..?

For me, it's pretty simple. I've never liked taking money from people when I havent done much (or sometimes any) work for them. If I'm supposed to work 4 hours a month for Client X and they haven't actually called on me, I'm burdened with guilt when sending out their invoice.

And most of my clients come to me in a time of need. They might want to sack or discipline a certain member of staff. Or they might be looking to update a bunch of their policies and procedures. These are basically one-off jobs: the kinds of thing that perhaps happen a couple of times a year.

So I'd rather charge on that basis than try to pretend that the company actually would be better off having me set aside 4 hours every month in my calendar to work for them whether they need it or not.

A couple of months ago, I took the plunge. Any new clients are now quoted for the initial piece of work they need doing, with the option of buying additional hours at a discount and banking them for when and if they're needed.

Now, I'm not claiming this is the way that would work best for everyone - and perhaps I might find myself reversing course on this down the line - but for me, at this point in my business life, it feels... right.

Let me know what you think!

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