As a small business person the most important thing you can do to make sure you stay in business, as well as provide for your family, is keep cash flow well, uh, flowing. As the old adage goes, “cash is king.” It’s important for you to make choices in your business that will help you effectively schedule and manage cash. A key way to do that is via retainers.
Retainers vs. Deposit
In the worlds of small independent photographers and filmmakers/video producers, it is common to receive some form of cash payment up front from clients who hire you. Some call it a deposit. Some call it a retainer. There is a distinct difference between the two.
A deposit suggests something that is “tentative,” an amount paid to hold an event, or commit to a service. By definition, it is usually something that can be paid back, or is temporary (e.g. key deposits for P.O. boxes; deposits on utility or rental accounts; etc.) I even think in some states, deposits are legally refundable. (Note: I am not an attorney, consult one to get the real 411 for your state).
A retainer on the other hand is a pre-payment of a committed fee the client will pay. The client has committed to hiring you, and you have committed to providing the service. It is not refundable.
Guess which one I’m going to suggest you use?
How to Manage Retainers
One of the most common questions asked by newbies in the business is “How much of a retainer to charge?” As it relates to event professionals (e.g. weddings, bar/bat mitzvahs, etc.), there are two schools of thought: all prior to the event (albeit maybe over some given number of payments), or most prior to the event, and the rest after delivery. In the commercial world my experience has been that just based on how businesses operate, except in the most rare occasions, you will typically pay most up front or “along the way”, then the balance when the project is complete. For what it’s worth, this is how I handle it:
- Commercial work (the majority of our business): four equal installments paid at contract signing, before start of principal photography, before start of post production, and when project is completed, respectively.
- Event work: half up front at contract signing; the balance due prior to the event.
I have found this works best for my business. There is no right or wrong way to do it. Another popular method for event professionals is 1/3 up front, 1/3 before the event, then the balance when the project is complete. If you feel more comfortable collecting money this way, more power to you. I have found in my experience though that most clients are used to paying everything before the event, in which case, as a small business person, it’s better for you to get paid up front because of the time value of money (a concept that is foreign to a LOT of artists who go into business then spend thousands of dollars on equipment up front rather than renting over a period of time as you build your business. But that’s a soap box for another blog post.) 🙂
You have to survive so that you can continue offering your service. And the truth is, sometimes things happen in people’s personal lives (especially after they’ve spent a fortune on a wedding and/or gone into massive debt) that may affect your ability to get that final payment 2, 3, 4 or more months down the line. Or, you may get a client who is just so busy, they never get around to finalizing that album or video. Then you have to play accounts payable police. Not fun. (I still have a wedding video a client paid $8,000 for over five years ago who still haven’t given me their edits, despite multiple attempts on my part.)
Also remember that whatever you charge up front needs to be high enough so that it reduces the chance of a client even asking for a refund. When I first started out, my retainer was only $250. On a $3,000 gig, that’s not very much, and I had times where people just walked away and gave up the $250. That’s a lot harder to do if you’ve plunked over half of the fee.
Deliver on Promises (In Fact, Over Deliver)
If you do go the route to collect all up front, it’s that more important for you to deliver on promises. In fact, if possible, over-deliver. And if you do mess up (e.g. you’re late delivering that album or video, you forget to get that one important shot, etc.) go above and beyond to make it up to the client. Sometimes how you handle the bad times will make you a bigger hero in your clients’ eyes than how you handle the good times.
To Refund or Not to Refund
So what happens during those times when a client does ask for a refund. Do you stick to your guns or not? That depends on you, the client, and the circumstance. For me personally, when I’ve been faced with situations like that, I pray about it, talk it over with my wife, then try to do what I feel is the right and just thing. If someone wants to cancel just because they change their mind, or because they spend too much on food and now since the hotel won’t give them a refund, they want one from me, I’m less inclined to budge. But I’ve had situations where someone was critically ill, or died, or some other terrible family incident. In times like that, I will most likely offer some (if not all) of a retainer back. Ideally, and per my contract, I try to see if there’s some other video service we can provide. But, if it’s a very sensitive situation, I’m not going to push it. Listen to your heart, consider how much time you’ve spent on the client up to that point, try to be fair, and remember the “golden rule.” In the end, people just want to know that you really care and if so, you can usually come to a mutual agreement that makes everyone feel good.
On Monday I will follow up with a blog post on justifying the non-refundability.