Retainer projects are the best thing that can happen to your freelance or software development business, why?
- You improve your business recurring revenue – thus making it more stable and predictable.
- You can better plan your workload and calendar.
- You increase your clients LTV (lifetime value) so you can aim for higher acquisition costs.
- You norture great relationships which may lead to additional work.
- You’ll be able to deliver better results with less effort over time by getting more familiar with your client’s business.
On the other hand, it can also become a nightmare if you don’t price it right and correctly manage expectations. If you’re not careful you may end up having retainers draining all your time (your most precious resource) without putting that much money in your bank. Is it worth it?
The best way to make sure a retainer is worth is to:
- Track every single minute you spend on that retainer: calls, meetings, answering e-mails (or messages), planning and development. Each month.
- Track every payment your clients makes to you regarding the retainer.
- Track every cost you may have with the retainer: hosting, domains, payment fees, outsourcing, licenses, etc.
With all this information compiled you can calculate:
- Total Time Spent on the Retainer
- Total Payments received
- Total Costs
And now comes the fun part, calculating your hourly rate for that retainer:
Hourly Rate = (Total Payments Received – Total Costs) / Total Time Spent
If the hourly rate you end up having is below your expected ones there are a few things you can do, like:
- Increase retainer price.
- Agree with your client on a limit of time per month.
- Charge extra for time that goes beyond the allocated time per month.
Important
Some retainers are not as profitable in the beginning of the relationship, so it’s important that you also know how the retainer may grow. Most of the time retainers will take a lot of your time in the beginning because you have to know the client and the project and you may have a lot of things to setup. But, once it’s setup the necessary time to handle the client may decrease, but the payments will keep coming.
So, you should keep your long-term vision and be able to understand if a not so profitable retainer may grow into a exponentially better one.
How should I keep track of profitability?
Now that you’re convinced that you should track your retainers profitability, we’ll go through how you can do it. There are a lot of ways you can achieve this.
- A simple stopwatch and a spreadsheet can do wonders. Just keep track of how long you spend on a task and insert the task into a spreadsheet. Do the same for payments and costs, and each month you can gauge what was your hourly rate for that month and how did it grow (or shrink) on a global level.
- Using our tool that was designed specifically for this use case: PAYTICK.
Using PAYTICK to track retainers profitability
- Start by creating a new project for your retainer.
- Everytime you’re starting a task start the timer.
- Everytime you receive a payment or have some costs, enter it on the project details.
- Overtime you’ll see how your hourly rate is changing.
- On your dashboard you’ll also be able to see your hourly rate across all projects you manage. This is the best way to know if you’re charging enough for your time.
Final Notes
Start tracking your hourly rate today if you are a freelancer or manage a software development business. Your time is precious – and limited – so make the most of it. Most business owners are afraid of raising prices because they aren’t even aware that they are charging too low.
When you start having your hourly rate in front of you everyday you’ll become a lot more aware on how you spend your time and how much you’re charging for it.
Bonus tip: You will also feel better about delegating tasks – If someone charges you less than your hourly rate to do something for you, isn’t that a good deal? Without this data, you wouldn’t be able to know it’s a good deal. 😁