What Is A Retainer, And Why Do You Need One?

Figuring out retainer fees isn’t as difficult as it first seems, but the vast online information is daunting to follow.

This article answers the question “What is a retainer?”, how do they work? and what are their pros and cons?

What Is a Retainer?

A retainer or a retainer fee is the upfront payment a client makes to a consultant, lawyer, or freelance contractor in exchange for their services. This fee ensures you, the service provider, are committed to delivering the service.

There are two main categories of retainer fees:

• Unearned retainer fees: The initial or upfront fee a client places in a retainer account as an advance payment for the services.
• Earned retainer fees: The remaining portion of the retaining fee that was paid earlier. The client transfers what’s left to the contractor after they have completed the work.

What Is a Retainer Salary?

A retainer salary is a fixed amount of money, also called a flat fee, paid to a professional regularly, usually monthly, in exchange for their availability and commitment to providing services or expertise.

They differ from regular salaries in that a regular salary is a payment for your specific responsibilities and hours.

For the retainer salary, however, the client pays to ensure your availability and commitment to providing them with some of your services or expert knowledge, even if they don’t engage you for the entire period the retainer agreement lasts.

What Is a Retainer Contract?

A retainer contract, or a retainer fee agreement, is a contract between an independent contractor (or a company) and a client. It details the client’s obligations and defines the services provided by the company or contractor.

A retainer agreement also outlines how you will provide your client with the services, the number of hours, days, or months you will work for them, the retainer fee, and any other additional fees the client will pay. It may also include your preferred fee structure and how you will receive payment.

Retainer agreements are necessary because they help build trust between clients and contractors. They guarantee that you will provide the service you have received payment for.

How Do Retainers Work?

Service providers usually request retainer fees as a down payment for future services. Clients deposit the retainer fee in a trust account or retainer account to ensure providers don’t use the retainer funds for personal benefit before performing their services.

Contractors usually can only withdraw from the funds after invoicing the clients for the services performed. When you request a retainer fee, you must create a retainer fee agreement or retainer contract describing what the retainer will be used for and how much you charge.

Retainer fees can be a flat fee paid periodically or at an hourly rate, depending on your payment preferences. Once you’ve performed the services stipulated in the fee agreement and invoiced the client, the retainer fee will be transferred to your account.

When additional costs are accrued during the work process, you may request more money.

What Is a Retainer Used For?

A retainer is useful for various types of professional relationships and different types of industries. Here are three major uses of retainers in various fields:

• Consulting: Consultants require retainer fees before they begin to work on a project because the money can cover the initial expenses involved in running the project.
• Legal Fees: A lawyer charges clients an upfront retainer fee before they provide legal services for them. It can help to cover legal costs like filing fees, court documents, and other charges that pile up during a pre-trial process.
• Freelancing: Freelancers like graphic designers, marketers, or writers often request retainer fees when they work with a client on an ongoing or long-term relationship.

What Are the Advantages and Disadvantages of a Retainer Contract?

There are many advantages to gain from working with a retainer contract. However, there are some drawbacks that you may need to consider as well. Let’s take a look at both.

Advantages of Working on Retainer

• Pay Is Reliable: Charging a retainer can guarantee you’ll receive consistent pay from the client.
• It Represents Trust: Retainer fees create a trustworthy work relationship between the client and the contractor.
• Clients Are Better: People who agree to pay retainer fees often have more ongoing work and are looking to build lasting relationships with contractors or freelancers.

Disadvantages of Working on Retainer

• Clients May Expect Discounts: When you charge retainer fees, clients may request a discount because they’re paying upfront for your services or paying for your services in bulk.
• Schedule Can Be Unpredictable: Given that the client has paid a retainer fee to have access to your time, you may need to always be available for them when they need you.
• You’re Dependent on a Client: When you start to work with the same set of clients on a retainer, you can get dependent on them to support your business. It may be wiser to find and work with some non-retainer clients as well to balance out your income.

How Long Does Retainer Last For?

Usually, a retainer fee applies for as long as the client’s case or project lasts or for as long as they need your services. The duration of the retainer should be expressly written out in any contracts you share with the client.

Note, however, that if you offer professional services, it is better to create retainer contracts that run for about 3-months at most. This will allow you to test out the terms and offerings of the agreement to find out if it is truly beneficial for you.

If it’s not, you have the leeway to review your retainer fees or the number of hours you can offer the client. You can give your client(s) the option of a 30-day cancellation period if they want to back out of your agreement.  

How to Structure a Retainer Agreement

Here are some to create an agreement based on the type of retainer you need:

1. Hourly Rate

For this retainer structure, offer to work with clients for a specific number of hours a month and charge them an hourly fee. Since they’re making an upfront payment, reassure them of your commitment by stating clearly what happens to unused work hours already paid for.

If they can carry over a certain number of unused hours to the new month, let them know. If the hours that were not used are gone for good, also inform them via your agreement.  

2. Per Deliverable

This structure is suitable for freelance graphics designers, writers, or anyone who delivers specific products or services. Offer to provide a specific number of products or services every month and charge flat fees per deliverable.

You can also include whether you are willing to take on more work outside the regular amount agreed on and how much you’ll charge.  

3. For Access to Services

This type of arrangement is great for clients who need ongoing legal representation and advice for legal matters. The client pays a monthly fee to access the contractor’s services for the length of time needed.

If you’re in the legal profession or you run a law firm, you can use this upfront fee as a base fee in addition to charging your regular hourly rate.

Tip: Most retainer agreements run on a monthly payment schedule. So, you can allow clients to pay the lump sum of the money accrued on the first or last day of every month.

Retainer FAQs

Is a Retainer Paid Back?

In most cases, earned retainer fees are non-refundable because the services requested have been delivered. However, if you spend less than the stipulated amount in the agreement, you may refund the excess amount.

Who Pays the Retainer Fee?

The client or employer who needs the services of a professional pays the agreed-upon retainer fee.

The initial retainer fee payment guarantees clients that they have your commitment and availability whenever they need it. The fee may also help to cover other expenses that may accrue as the project progresses.