What Is a Retainer in Business? Definition, Types and Examples

Chelsea Williams
Subject Matter Expert
December 19, 2023
7
min read
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Changing up your business’s payment structure is a big deal. It’s important to do your due diligence to determine what will work best for you and your clients.

Retainers are a popular choice for service providers. Here, we’re reviewing everything you need to know before committing to this form of payment.

What Is a Retainer Agreement?

Retainers are structured agreements in which the client agrees to pay a specific amount of money to a business or freelancer — usually monthly — and, in return, receives a set of services during that same time period. These are typically advance payments. Additional services outside the scope of a retainer are billed as ad-hoc work.

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Types of Retainers

Once you determine that a retainer is the right choice for collecting payment for your services, you need to figure out which type you’ll use. Below are the two most common types you’ll come across.

1. Pre-paid (Fixed price)

A pre-paid retainer, also known as a fixed-price retainer, requires that you commit to handling a certain amount of work during the predetermined period. This work can be measured by a number of hours or total output.

Businesses use pre-paid models when they need specific work done — work that’s broken into a defined set of tasks. Think accounting, SEO and website maintenance, for example. 

2. Post-paid (Time and materials)

Sometimes, a client may not have an immediate need for your company’s services but wants you to be available when they do. A customer will pay a fee to access your expertise in the form of future services as problems arise. A post-paid retainer will require being available as needed.

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This often happens with consultants working in fields like IT, web development and other specialized services.

READ NEXT: Retainers vs. Projects — Choosing the Best Pricing Structure

Examples of Retainer Fees

Retainer fees are not exclusive to any one industry; they’re a versatile payment model that can be adapted to various service-based businesses. Understanding how different sectors use retainer agreements can help you decide the best way to apply this payment structure to your own business.

Here are a few examples of types of retainers in different industries.

Lawyer retainer

A classic example of a retainer fee is in legal services. Lawyers often require a general retainer for their availability over a certain period. This gives the client security in knowing they’ll have legal help as matters arise. The initial retainer often covers a maximum number of hours of legal work, with additional costs incurred if the work exceeds this allocation.

Marketing agency retainer

Many marketing agencies charge a flat fee each month for a package of ongoing services, such as content creation, social media management or SEO optimization. This arrangement allows clients to maintain consistency in their marketing efforts.

IT support retainer

In the IT industry, retainers can be particularly useful because technical support and maintenance are unpredictable. Clients on retainer will have immediate access to the help they need right when they need it. This model is beneficial for business owners who don’t have the resources for an in-house IT department.

Consulting services retainer

Consultants, especially in fields like business strategy and financial planning, frequently work on a retainer basis. For long-term projects or ongoing strategic guidance, where the consultant's input is needed over an extended period, retainers offer a win-win scenario. It’s common for consultants to offer a percentage discount for retainer clients.

Are retainers right for your business?

Perhaps your business doesn’t fall into any of the above categories. Before you make the decision to move to retainer fee agreements, take the following steps:

  1. Explore the types of retainers that apply to your industry and service category.
  2. Identify the tasks and assignees required for each step of contract renewal.
  3. Determine the percentage of clients you need on retainers to achieve your revenue goals.

 

Why Use a Monthly Retainer Structure?

Instead of spending time and money looking for new clients to keep cash flow coming in, many business owners choose to build a retainer program. Recurring work serves as an insurance policy of sorts, especially when times are tough.

There are three primary reasons to go with retainers:

  • Less pitching‌: Chances are, you don’t want to spend a lot of your time selling. You have a very specific skillset that you should be able to put to use. Retainers will ensure you have consistent work without having to pitch your services all the time.
  • Better cash flow: Waning cash flow is one of the most significant issues a service business can face. If you rely on new clients, it’s challenging to estimate how much cash you’ll bring in each month. Retainers solve this problem.
  • Stronger relationships: There’s only so much you can learn from someone when you work with them one time. Working on a retainer allows you to get to know your clients much better over time. As your relationship grows, you’ll be able to anticipate what they need and provide improved service as a result.

READ MORE: Why Retainer-Based Services Are the Best Option for You and Your Clients

How Much Should a Retainer Be?

Your retainer amount should reflect the value of services provided while also considering industry standards and your clients’ budgets. It should be high enough to cover the expected volume of work but also reasonable to encourage a long-term working relationship.

How to calculate a retainer fee

Here are some recommended steps for determining what you’ll charge your clients on retainers. Think about your average project or repeat this process for each type of project or client you have.

  1. Evaluate your hourly rate. Is it in line with industry norms and, more importantly, your level of expertise?
  2. Estimate the monthly workload. This is a total number of estimated hours, but it should include more than just the hours dedicated to project work. Also, think about all the time your team will spend researching, invoicing and completing other non-billable work.
  3. Consider additional costs. Factor in software subscriptions, travel expenses or special equipment.
  4. Calculate a base retainer fee. Multiply your hourly fee by the estimated monthly workload.

For example, your creative agency charges $100 per hour and a typical client requires about 20 hours of work per month. You incur $200 in software and miscellaneous costs per client. Your base retainer would be: ($100 x 20 hours) + $200 = $2200.

Keep in mind that you can choose to further ensure the profitability of each client relationship by requiring down payments for new clients or charging contingency fees for projects that may be unpredictable.

Once you’ve implemented retainers for a number of clients, closely monitor indicators that could provide insights about the fairness and appeal of your retainer pricing, including:

  • Your sales win rate
  • Your conversion rate for transitioning hourly clients to retainer accounts
  • Your client churn rate

How To Manage Retainers

If you’re intrigued and looking to switch to retainers, you’ll need to consider how you’ll keep track of retainer periods and accurately attach work to each client’s agreement. Follow the steps below to set up an efficient retainer management system.

1. Define the scope of work

The first step in managing retainer projects is to establish a scope of work. Talk with your client to set expectations about what your company can help them achieve. Then, establish the type and amount of work you'll do during the retainer period.

2. Use software to manage retainer tasks

To ensure your retainer program is successful, you’ll need to be diligent about keeping track of internal tasks. Task management software can offer the visibility your team needs to categorize, assign and complete all the tasks involved in client work. 

3. Invest in continuous reporting and on-demand access

Upfront payment is an expression of trust, and your clients expect you to accurately track the work you’ve done for them. Reporting on hours and tasks is necessary for accurate billing, and a platform like Accelo can compile live dashboard reports for you automatically. A client portal can also be helpful for providing real-time status updates to retainer clients, whom you probably interact with less often than one-time clients.

4. Streamline your billing

Billing is a headache when you don’t have an organized way to process retainer invoices. Retainer management software that automatically attaches work and hours to a client record can save time and prevent confusion when it’s time to bill for recurring work. Look for retainer templates and customization options to make sure your recurring invoices are aligned with your brand and other client communications.

A retainer-based payment model brings numerous benefits — if it’s carefully planned and well-communicated to clients. 

Dive deeper into retainer management best practices and tips to find out what this payment structure could do for your business's bottom line.

Author Bio
Chelsea Williams
Accelo's blog posts are brought to you by a team of experienced subject matter experts. With a deep understanding of client and sales management, resource planning, and project efficiency, we aim to share our knowledge and practical insights to help you navigate the complexities of operating a service based business. Our goal is to provide you with expert-driven content, up-to-date information, and actionable advice on Professional Services Automation, designed to help your business succeed.
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