How is retainer burn rate calculated?
First convert the retainer fee into hours. A $15,000 monthly retainer at a $150 blended rate includes 100 hours. Then divide the hours logged so far this period by those 100 hours. If the team has logged 68 hours, burn is 68%.
Burn on its own is not enough. The useful comparison is burn against the elapsed share of the period. At 68% burn on the 15th of a 30-day month the account is at 136% of pace and will finish around 136 hours unless something changes. The same 68% on the 25th is under pace.
Agencies with department-level scopes should track burn per department. A retainer that includes 40 paid media hours, 40 content hours and 20 account management hours can be at 80% overall while the content team is already at 115%.
What is a healthy burn rate?
The target is burn within about 10 points of elapsed time for most of the month, finishing between 90 and 105% of scope. Consistently finishing below 85% means the client is paying for hours it does not receive, which is a churn risk at renewal. Consistently finishing above 110% is over-servicing that the profitability report will show as a thin margin.
Front-loaded months are normal on some accounts, for example a paid media retainer with campaign launches in the first week. Pacing rules should be set per client rather than agency-wide.
- Burn within 10 points of elapsed time: on pace, no action
- Burn 10 to 25 points ahead: account lead reviews the work queue and reprioritizes
- Burn more than 25 points ahead: pause non-urgent work, raise a change order or pre-paid overage
- Burn 20 points or more behind at mid-month: pull forward planned work or tell the client
Why do agencies miss burn until it is too late?
Most agencies see burn once, at month end, when the invoice is prepared. By then the hours are spent and the only choices are to absorb them or to bill an overage that the client did not agree to. The number needs to be visible during the month, to the person who assigns the work.
The second reason is late time entry. If the team logs hours on Friday for the whole week, mid-week burn is always understated by up to five days. Agencies that require daily entry, or that use timers, get a burn number they can act on.
The third reason is that the hours are known but not priced. A project manager sees 112 hours logged and does not connect it to a 100-hour scope because the retainer was sold as a fee, not as hours. Verbial shows burn against scoped hours per client and per department as time is approved, with a projected month-end figure.
Worked example
A client pays $15,000 per month, which at the agency's $150 blended rate covers 100 hours. The scope allocates 45 hours to paid media, 35 to content and 20 to account management. On September 15, half way through the month, the timesheets show 31 hours of paid media (68.9% of that department's scope), 30 hours of content (85.7%) and 9 hours of account management (45.0%), for 70 hours total. Overall burn is 70 ÷ 100 × 100 = 70% at 50% of the month elapsed, so the account is at 140% of pace. Projected month-end hours are 70 ÷ 0.5 = 140, or $21,000 of work against a $15,000 fee. The content team alone is projected to deliver 60 hours against a 35-hour scope. The account lead moves two blog posts to October and raises a $1,500 pre-paid overage for the extra landing page work, which brings the projection to 108 hours.
Questions
Should burn rate be measured in hours or dollars?
Hours are more actionable for the team, because they map to the work queue. Dollars are more accurate when the people on the account bill at different rates, since 10 hours of a strategist and 10 hours of a coordinator consume different amounts of the fee. Track hours per department and dollars per account.
What should an agency do when a retainer is over-burned?
Stop and reprioritize before raising money. Move lower-priority work to next month, then propose a change order or a pre-paid overage block for the remaining out-of-scope work. Raising an unplanned overage invoice at month end is the least likely of these to be paid without a dispute.
Do unused retainer hours roll over?
Only if the contract says so. Most agency retainers are use-it-or-lose-it within the month, which protects the agency's capacity plan. Drawdown retainers, where the client pre-pays a block that is consumed over several months, are the exception and need their own burn tracking against the block.