Tomicide Solutions, June 2010

10 Ways IT Companies Screw Up Their Retainer Contracts

By Tom "Bald Dog" Varjan


Podcast version: MP3 Version. Right click the link and click "Save As".


There are not many things in life that are worse than being forced to listen to Rimberger Zuzupimple's 1st vuvuzela Concerto in B-flat at full 127 decibels without earplugs, but one thing that is definitely worse is when IT companies make a pig's ear of their retainer engagements and turn those great opportunities into temporary manual labour.

Yes, when you listen to vuvuzela music, it sure hurts your ears like hell, and you may even go as deaf as a cannon more quickly than you could say Jemima Puddle Duck, but when your company's retainer contracts are set up incorrectly, you may equally go deaf by repeatedly yelling at yourself...

"You see, you raving bloody lunatic! What have you done!"

And while I can't offer any remedy against eardrum-cracking vuvuzela music, in this month's issue of Tomicide Solutions we discover some profit-leaking mistakes many IT companies make about their retainer services.

The realisation hit me many years ago when I started reading consulting rock star, Alan Weiss'[1] books and other materials. His notion was (still is) that a retainer engagement is merely access to your brainpower, but involves no actual work. Actual work is project not a retainer. First I found it strange, but I soon understood the difference.

This is my differentiation between a project and a retainer.

Let's say you want to become a doctor.

A project is when you go to medical school, buy into a system (curriculum), study hard, graduate and become a doctor.

A retainer is when you join the library. And when you have questions, you go to the library and get the answer to your question.

A project is a proactive, the retainer is a reactive endeavour.

They have different price points, and you have different chances of becoming a doctor.

By the way, how would you like to be operated on by a self-taught surgeon who's leanrt his profession in the library?

Many IT companies set up their retainer contracts incorrectly, often murdering their bottom lines in the process by positioning themselves as temporary day labourers and fungible vendors, as opposed to respected, recognised and in-demand industrial authorities.

There are probably more causes for this error, but over the years I've identified the following 10...

IT Professionals Often Believe Retainer Services Are The Same As Being On Call

I think this is why so many IT professionals sleep with their phones under their pillows and their Bluetooths (maybe Blueteeth) permanently inserted into their ears. Retainer services are all about availability to your brain. Yes, you respond promptly to your clients' requests, but they can't become interruptions in your normal life.

By "Normal life" what I mean is that when you do project work with a project team and working on some seriously deadline-sensitive stuff, you can't just say, "Guys, I have to go now. See you tomorrow."

You are not on call in a traditional sense.

Imagine a fitness centre. When it's open, you can train. You have unlimited use of the machines and you can stand under the shower as long as you want to.

But when it's closed, it's closed. You can't go to the manager's home, knock on the front door and demand immediate entrance to the centre.

Service retainers are the same. You are available to your clients according to the availability stipulations in your agreements.

IT Professionals Offer One Single Service Level At One Specific Fee

The problem is that one offer can result in a yes/no response from prospective clients. When you offer three service levels at three different fees, your clients can choose whichever they like.

You have a higher chance of walking away with a contract than with one-choice offers.

Psychologically, options empower people. Empowered clients enter relationships with your company with optimistic and "peer" mindsets, which half-guarantees your retainer services' success.

IT Professionals Fail To Specify Who Can Have Access To Them

As a result of this vagueness, often lots of people in clients' companies have access to IT professionals, often calling then way outside office hours, and pulling them into many directions.

One person reports one type of issue and the other person reports something completely different. And you try to figure out what the hell is really happening.

And you can't even keep the callers under control because due to the vague agreement, they feel they are entitled to call you whenever they feel like.

You have to be specific about who can contact you and how. The method of contact is one of the main variables in technology retainer contracts (the other is response time), and as you offer more ways of contacting you, your should charge more.

IT Professionals Offer Almost The Same Response Time To All Clients

Access time, that is, the time frame within which you respond to your clients' requests, is one of the two main variables in retainer contracts. And as your access time changes, so should your fee.

The truly value-focused clients appreciate unlimited access to their consultants and are willing to pay for such high level service. Also, for a select very few clients, you can offer "Concierge" level service. That's super quick response at super-high fees.

Build a gradual access format to you, like...

Fax & email => add office phone voicemail => add manned office phone => add mobile phone voicemail => add mobile phone with instant response.

Each access method adds new values to the service because it increases responsiveness. It means, your fee should go up accordingly too.

So...

"Ford" level access: Fax, email and office phone voicemail with 48-hour response.

"Mercedes" level access: Same as Ford plus manned office phone.

"Ferrari" level access: Same as Mercedes plus mobile phone with 24-hour response from specific specialists.

So, just fiddle with the access methods and the response time as you see on the scribbling below...

Access-Responsiveness Diagram For IT Retainer Services

As you can see 1 notch of increase either in access or responsiveness adds 10 value units to the equation.

The idea is that you collect a handful of premium clients who want both level 10 access and level 10 responsiveness.

Of course, if you're a solo pro, this doesn't makes sense. You must have more than a one-person show to provide such concierge service.

IT Professionals Put Emphasis On Face-Time And Physical Activities

IT professionals specify the number of hours they are available to their clients to perform visible, measurable and documentable manual labour. They believe they have to deserve their fees by showing enough sweat on their brows and demonstrate sufficient number of hours doing visible manual labour.

But in reality, you have to focus on what clients get out of your help and support regardless of the number of hours and whether or not you turn up in person.

It's important that you "train" your clients right from the beginning to understand where the value they receive comes from. And it doesn't come from the number of hours spent sitting in the client's office of or crawling in the client's server room.

IT Professionals, Since Their Payment Is Based On The Number Of Working Hours, Get Paid In Arrears

The problem is that IT services are much more valuable before rendering than after. When the retainer service period is up, clients are off to the races to do the next thing on their lists, and leave you behind high and dry, often with your "90 day net" bill.

So, it's not enough that you finance your clients throughout your retainer services, but now you keep financing them beyond the retainer contracts. So, make sure you get paid upfront either in full or at least 50%, with the other 50% around 1/3rd or half-way through your engagements. And never leave a penny for completion.

There are lots of variables that are out of your control and are dependent on your clients. So, when your clients invest, they follow through. Otherwise they may not give you the help you need to do a great job.

IT Professionals Let Their Retainer Contracts Turn Into Haphazard Bugging

The time frame specified in agreements is continuous regardless of whether or not your clients call you. It's clients' responsibility to call you when they need your help.

Excuses like...

"I haven't called you for three weeks, so either we extend the agreement or you return some of my money."

...are unacceptable. Retainer services are like pre-paid gym memberships or car insurance. If people choose not to exercise or not to drive, it is up to them, but there is no refund.

And to avoid future arguments with clients, make sure you point this out in your agreements.

Agreements remind me...

Stay away from small print on your agreements and if clients give you agreements with small print, just hand-write an amendment on the paper, saying...

"Any small print on this agreement is nil and void."

Put this amendment right above the signatures.

Small prints are slimy, and we'd better stay away from them. Their only purpose is to make lawyers rich.

IT Professionals Fail To Develop Clear Renewal Processes For Their Retainers Contracts

Be very clear about how to renew for another work period of retainer services. Request clients to either renew one month before the completion date of the current period at a "savings" rate or renew at the end at full rate.

The other option is that clients renew one month before the completion date of the current period at the current rate or renew at the end at a slightly higher rate. Yes, if clients are courteous enough to give you one-month notice as to what will happen when the engagement is done, then you can offer a courtesy discount.

In the other option, if they lack the basic decency of giving you some notice, so you can plan your life, then a penalty is in perfect order.

No, this is not about being a jerk, but imagine this...

The client says he will renew your retainer contract, so you turn down other potential retainer work. Then in the last moment he changes his mind, and all your previous retainer prospects have already found someone else. And then you fall flat on your face and end up with an empty calendar.

Give clients options, but make sure a decision is made either way. Remember, psychologically options empower people and they feel in control.

IT Professionals Lump Full-Blown Projects Under Their Retainer Services "Umbrellas"

If you find out that your clients have some specific objectives to achieve, recommend to clients to sit down with you and discover whether or not the initiative is worth pursuing in a more proactive manner.

And when clients agree to proper projects, make certain you have separate agreements and fee structures for these new projects.

IT Professionals Often Get Lost At A Tactical Level

Emphasise true collaboration WITH your clients and make sure not to become a contract labourer FOR you clients.

Also, focus on thinking strategically, and don't get lost at tactical level. Think about how your area of IT fits into your clients' overall strategy. Don't think FOR your clients but think WITH them.

Take your clients' noses off the grindstone and make them see the future where they're headed. That is where emotional involvement lies, which in turn makes your clients act, not merely think.

Most clients are so stuck at dirt - tactical - level that they can hardly ever see the big picture (strategy) let alone following it.

Presidents don't hire chief advisors to advise them on petty issues like what colour of underwear to wear on certain days. Advisors advise presidents on big-picture issues, on strategy, on where countries are headed. And you, as an IT professional should work on strategic matters as well.

Summary

No IT professional should ever have to work as a day labourer

FOR their clients, and the sooner they learn how to set up rewarding retainer contracts, the sooner they can start charging for their expertise what they deserve.

Just think of your own opportunities that are not full projects but still require your expertise in some way. In those situations most IT professionals give away their hard-earned expertise for free.

Just think of talking to a lawyer friend of yours, and you casually mention to her...

"By the way, Liz. What do you think I should do in this situation?"

I dare to say that Liz is most likely to say...

"Jeff, call my assistant for an appointment, and we can discuss it in my office where we can dedicate our full attention to your issue. It would be unfair on you and unethical of me if I gave you some shoot-from-the-hip advice here and now without proper understanding of the context."

IT professionals can learn a lot from lawyers and doctors about setting up their retainer contracts.

During my engineering years, I spent a number of years in biomedical engineering, working with all sorts of medical professionals, including highly in-demand doctors and surgeons, and I learnt selling from them.

Have you ever met a doctor who has price or any other kind of objection from patients?

Well, neither have I.

And the way doctors achieve this objection-free "selling" is by not selling.

One of my badminton partners, a an orthopaedic surgeon gave me this example from his own work...

Based on my diagnosis, you have rheumatoid arthritis in your left shoulder. You can take antibiotics to cover up the pain, but within 12-18 months, the situation will be so bad that there is an 85% chance that you lose the use of your left arm (handing over a bundle of references from peer-reviewed medical journals) and, in turn, lose your job as a commercial pilot. Based on what you've told me, you have 25 years left until retirement, and you make $250,000 a year. Upon losing your arm, your expected income loss is $6,250,000. The surgery, the hospital care and the post-surgery physiotherapy will run you about $180,000. So, shall I prescribe you the antibiotics or shall we schedule you for surgery. I can prescribe the pills right now but the waiting list for surgery is about 2.5 months. As a life-changing decision, please discuss it with your wife, and let me know within 48 hours what you intend to do. I'm waiting for your call.

Now, this is not scaremongering. This is the reality. Sometimes the reality can be scary, but it's not you who creates it. It's there. As an objective outsider, you merely reveal the obvious.

And your clients have such re-occurring problems that require the availability of a technical expert like you.

So, look at your engagements and see where you give away unpaid expertise unnecessarily. You may find more profit leaks than you can think of.


[1]Million Dollar Consulting and other masterpiecs. Continue where you've left off...

Come and let's discuss this newsletter issue on my blog...


Attribution: "This article was written by Tom "Bald Dog" Varjan who helps privately held information technology companies to develop high leverage client acquisition systems and business development teams in order to sell their products and services to premium clients at premium fees and prices. Visit Tom's website at http://www.varjan.com.