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I just started my own IT Consulting business and I now have an actual business client! Woohoo! Just met with the owner today after meeting with the office manager last week, everything looks good.

The first thing he asked me was if instead of doing an hourly rate, could he set up a monthly retainer. Of course I said yes, as I know this is the norm, but that I would have to look into it.

Let me first start by clearly stating that I’m not asking about how much to charge, because that is a difficult question to answer for all except those who live here in Eugene. I’m asking to see what kind of rates you guys/gals charge for a retainer based on your hourly rate.

So for instance, lets say that I charge x/hr, but if they keep me on for a monthly retainer of 5 hours, I’ll discount those hours 20%, or something like that.

So tell me, how do you charge for retainers?

Last minute edit: Not sure if this should be in the ‘Consulting’ group or ‘IT Service Provider’, so feel free to correct that if necessary.

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I am in Eugene as well and I have a few clients that fit in this model. The other factors are:
How many hours are they purchasing?
Do unused hours roll over each month?
Do you charge a different rate if they use more hours in a month?

In both situations I have, a 15% discount off my hourly rate has worked, but they are purchasing 20+ hours a month and they don’t roll over.

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Yeah, good points.

Do you have a different rate if they are purchasing less than 20 hours per month? Or do you even go there?

I’m still at the point where I have a day job, so there is only so much that I can do.

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I am small enough that I don’t necessarily have a set % that I use. Normally it has just been going over what they want from me and coming up with something that works well for both of us, just don’t discount it too much.

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5

This worked for me:
I offered multiple levels per month, non-roll-over-pre-paid fee (similar to a retainer),
My time was “scheduled” in 4-hour blocks. Monday morning and Friday afternoon were not available. These were reserved for my clients that had a bad weekend or are planning some after-hours project on the coming weekend.

Offer 8-hour, 16-hour, 24-hour sessions per week. The greater the number of hours in a package, the lower the hourly fee.
Be careful that you don’t discount too much and make a pricing conundrum.
Example: 8-hours per week: 4 hours every Tuesday afternoon and 4 hours every Thursday afternoon.
In my case, whenever there were more than four such Thursdays or Fridays, I included working those hours, but did not charge extra (bonus for the client!).
I also provided a Network Administrator’s Notebook that had my reports and blank forms that clients could fill in to list pending tasks for my next visit.

I especially gave away free hours whenever the client made a referral.

Play with this and design your own packages and don’t just do ad-hoc calls. Ad-hoc calls are at full rate, perhaps a small discount for “scheduled” clients, but don’t substitute those ad-hoc calls for part of the scheduled/pre-paid agreement.

EDIT: almost forgot! Phone support is included in blocks, too! Big agreements get 60 minutes included, and fewer based on the contract size. I also offered the first 15-minute free of charge (in blocks of 15 minutes) with a fixed fee per 15 minutes or any part thereof. My rate for phone support was about 50% of the full rate.

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20% discount on 5 hours? That’s an absurd discount, and you’re robbing yourself if you go ahead with numbers like that. Don’t even bother with clients that won’t commit to at least 20 hours per month. It’s not worth the headache or the overhead expense.

Something like a 5-10% discount on 50-100 hours is more common for smaller service providers.

If you want to give a token discount, do it on invoice terms.

High base rate with discounts after commitments for a certain number of hours per month. If you want to shield the math from the clients by offering a ‘retainer rate’, do so, but don’t ever lock yourself into a terms beyond 30 days if you’re offering unlimited services. As soon as a client approaches their ‘break even’ rate on a retainer, raise the rate or drop them.

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7

Generally speaking, this is a huge mistake. Don’t differentiate between phone and on-site support; what you bill a customer for your time should be uniform regardless of your physical location. If you do anything else, you create confusion about a.) what the value of your time actually is, and b.) when it is or isn’t appropriate to request on-site work (because the client will be weighing competing cost-benefit analyses).

Similarly, never give more than 5 minutes of your time away for break/fix. You’re taking money out of your own pocket in two ways: you’re giving away your core services, and (if you’re actually doing things right), you’re driving up your own overhead expenses.

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8

For those considering this, never lead with this kind of offer.

As a freelancer, it is generally in your worst interest to give any particular client a monopoly on set blocks of your time. You want to remain agile, and you also want to ensure that you’re not creating situations where clients feel like they don’t receive value from the time that you’re booking - which is exactly what happens a majority of the time when you stipulate minimum-hour blocks for on-site services. Inevitably, you run out of things to do…and suddenly you’re unscheduled, until they decide that they need you back for another half-day. Before you know it, clients are dictating your schedule, not you.

In certain situations, a minimum number of hours per week can make sense, but you should:

  • Only offer that as an option if it looks like it is a particularly good fit for the business, and
  • Never commit to a set block of time on a certain day every week unless there’s a damn good reason for it (i.e., you fill in on Fridays for the normal ‘IT guy’ that only works Mon-Thurs). In fact, intentionally move the block around some from week to week. If you let a client feel like they have a ‘lock’ on a particular part of your weekly schedule, you’ve not only lost control of the relationship, but you’ve set the stage for dissatisfaction when you inevitably need to change your schedule.
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Agreed, that’s a horrible idea.

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Wow, guys … Perhaps not talking about the actual rate as the op requested (" that I’m not asking about how much to charge") … then realize that my income was well over 10K per month and certainly over 150K per year.
Hourly rate (sorry, Twon) … is $125 /hr. … Customer response: “How soon can you get here?”
Phone support is $1 per minute ($60/hr) in 15 minute increments.
This is in the Houston area mostly, but at those rates, I have been to Mississippi, Missouri, Louisiana and Mexico @ $1,000 per day plus per diem, travel, etc.
Yes, as I stated, “This worked for me.”

More background: I started my own company (Network Resources) and became the largest Systems Integration company in the Houston area, if not in all of Texas. I went national (as EverNet Systems) with nine branches in the larger cities (New York, Boston, Los Angeles, Sacramento, Orlando, Atlanta, Denver, Houston and Dallas).
I also spun off a software development company that I sold to Symantec Corporation.

Yes, This worked for me… But yes, a horrible idea if you don’t take risks…

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11

Its hard not to talk about fees and other variables when you talk about retainers and billable hours.

When I worked with a friend of mine our “retainer” was charged on the hour block and rate.

80$ per hour, billed to you at end of month with 21 days to pay full amount. 7% late fee or 50$ whichever is greater. (7% was always scary for the client.)

If not paid after 51 days total, all services suspended and recurring interest on the total balance accrued.

If it was in blocks of hours it was to be paid on the first day of the month every month unless pending change in conditions. The hour block was covering all types of support, phone, remote, email or on-site.

If the customer required Phone or Email support, it was billed by 15 minute increments. Remote and on-site was billed for first hour and 15 minute increments after.

Anything that was referred to as a project was not included in the “retainer” and was negotiated separately. (Allows you to make sure you negotiate a price and hours. I always made sure there was a 6 to 12 hour extra included in the negotiation in case something went wrong. If no issues came up and those were not needed, the customer did not receive the charge for those in the invoice.

10 hour block was billed at 75$ per hour

20 hour block was billed at 65$ per hour

50 hour block was billed at 50$ per hour.

(I do offer roll over of the 10 hour blocks for up to 12 months.)

My customers loved knowing I offered bigger blocks of hours because it showed them I would dedicate all my needed time.

You could not just call us up and asked to be put on a retainer. These are offered only clients who had been with us 6 months.

Edit: Evenings and weekends are billed at twice the rate.

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12

Well after reading what you guys have said, I can unfortunately say that I’ve already undersold myself. I started with a lowish ($50/hr) hourly rate and now have to discount it for a retainer, but as you guys suggested, for only a small number of hours, it doesn’t make sense to discount all that much.

This particular customer is a small business with roughly 15-20 employees and due to the nature of their work, they only have 10ish computers and a very rough network (its a single patch panel and a cheap switch hidden behind a curtain). So the chances of them needing more than just an hour or two a week is pretty low.

But! They are expanding to another town that is within an easy driving distance that should boost that up to maybe 2-3 hours per week, but we shall see. They’ve already contracted me to set up their new office, so there is one solid day of work.

On a side note, I have a day job (7-4) so my ‘standard’ business hours are M-F 5p-8p and Sundays 8-5. So I can’t charge extra for those hours, but what I should be doing is charging more because they are non-standard hours. And this fits right into their schedule since their office is open till 6 or 7 each evening.

So I’m thinking that my best course of action is to get my feet wet with a few projects of theirs, charging my standard hourly rate or negotiating a project rate, and then moving them over to a retainer in a month or two when we’ve got everything figured out.

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Have you read up on your tax obligations when you’re working as a freelancer like this? After taxes and overhead expenses, $50/hour doesn’t actually leave you with very much (relative to what you could be earning as a freelancer in this field, anyhow).

Don’t let the ‘promise’ of future work influence you too much. You’d be surprised how often it doesn’t pan out.

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How I calculated out the $50/hr is I just doubled what I’m currently making, but for future clients, there is a very high chance that I will look at increasing that, because you’re right, there isn’t a lot let over for me and I should have done the maths before settling on a rate.

And you know what? I should know better than to let promises of future work influence me. Here at the office, we’ve been ‘promised’ another body in the IT department for the last year and a half, and yet it hasn’t happened yet.

I laugh at my own naivety! And thank you for pointing it out.

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Hmmmm.

[Approximations]

$50 per hour, plus taxes = $54/hour
Hourly income expensed this way:
Job Taxes = $4.00
SS & Medicare Tax [15.3%] = $8.00
Income Taxes = $10.00
Expenses (tax deductible! … fuel, computer use, supplies, cell phone service, pocket protector, etc) = $4.00

SubTotal = $26.00

Available profit for Me AND Future growth savings [$54 - $26] = 28.00 / hour
Not bad at all … compared to your job [$25 - $5] = $20.00 /hour.

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17

For the hourly rate it varies quite a bit.

As I mentioned working with a friend he was charging 80$ per hour. This was 4 years ago.

Currently, I work at 125$ per hour base rate. Most people here work for 60$ per hour.

Many people will contact me but will choose one of the guys that fixes PCs from his mom’s basement because of my costly rate. Later times I am normally contacted to fix there mess.

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18

Generally speaking, this is a huge mistake. Don’t differentiate between phone and on-site support; what you bill a customer for your time should be uniform regardless of your physical location. If you do anything else, you create confusion about a.) what the value of your time actually is, and b.) when it is or isn’t appropriate to request on-site work (because the client will be weighing competing cost-benefit analyses).

I guess it depends on what you want to get out of your job. For me it’s worth it to knock $10-20 off my hourly rate if I can work from home in my bunny slippers. When you factor in drive time to some clients it ends up saving me money since most businesses won’t pay for travel time incurred by local MSPs.

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Al brings up a good point. Your billable rate should primarily reflect your level of expertise and in a distant second place, certifications. If you’re doing mainly desktop/laptop repair and support then I’d say $50-80 is about as high as you could charge in most decent-sized metropolitan areas. Aside from that though, if in addition to the desktop work you can also deploy Microsoft Small Business Server and setup Active Directory and Exchange then all of a sudden your rate just shot up to $100-125, depending on experience.

Five years ago I was exactly where you are right now. I had a full-time job and was trying to start a side business without affecting my 9-5. In order to avoid a conflict of interest with my day job (a huge technology company) I decided to do web design and digital marketing and like you I charged $50/hour. I ended up finding more IT work than web/digital work so last year I dropped the web stuff and pursued technology full-time.

My first $50/hour IT client eventually changed into a $65/hour client but when you factor in a 4-hour round trip travel time to get on-site all of a sudden my net billable rate dropped to $43/hour [(8 Working Hours * 65)/(8 Working hours + 4 travel hours)] = $43.33. Up until December of last year this client was my largest income stream but I my business was growing and eventually I got fed up with wasting four hours of my day driving when I could instead be chasing down local clients who will pay me the going market rate. I told them as nicely as possible that I wasn’t coming on-site again unless it was important.

Well… Big surprise but I haven’t really been asked to come back since then but you know what? I’m ok with that. Pretty soon after I quit working for those guys I found clients willing to pay $100-125/hour for my time for REMOTE WORK. Not only am I making more per hour now but I’m not driving four hours every day, either. I just walk downstairs to my laptop, VPN in, and start the clock. Sure, it was scary to drop a long-term client and somewhat steady paycheck, but now I’m actually making more and working less so it’s all worked out just fine. Mark my words - at some point you’ll have to cut loose customers who are either unwilling to pay for your skills or are just so much of a hassle to deal with that they become unprofitable to support. Make sure you can step outside your balance sheet from time to time and really evaluate where you spend your time and if you’re getting the best bang for the buck from your working hours. The entire world runs on IT these days and we’re too valuable to let customers screw us three ways from Sunday.

This was longer than I wanted but if you have any more questions about starting your own business feel free to message me any time.

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