Retainers demystified

Are you a freelancer or professional services business and need advice on how to set-up a retainer contract? Find out more about how retainers work and why they are great to generate predictable and stable revenue.
Nicole Tiefensee

What is a retainer?

In agency-speak, a retainer refers to a rolling month-to-month agreement between the agency and the client. The way it works is that the client pays a fixed amount of money for an agreed number of hours per month. It is common for agencies and their clients to enter into a retainer agreement after a bigger project (e.g. a website re-development project) has been closed out. Unused retainer time usually expires and the client cannot get a refund or take the unused time forward into the next month. Agreements are signed for longer periods of time and while they can last for up to five years, they are commonly reviewed, adjusted and renewed every financial year.

Retainer time should be used to work on smaller (recurring) tasks, such as:

  • infrastructure maintenance and monitoring
  • software upgrades
  • account management, advice and consultancy
  • content updates
  • analytics
  • small changes or bug fixes

Your retainer agreement

It is important that you set-up and review your retainer agreement with your client to make sure both sides are clear on the details.

Make sure to outline:

  • What type of work you’ll be performing under the retainer. Make sure to clarify points that could be misinterpreted, e.g. your client might have a different understanding of what a bug fix or a “small” change is than you.
  • Who will be performing the work. There might be a dedicated person or team (e.g. the team that worked on the preceding project or a maintenance team)
  • What's the process of booking work.
  • Billing cycle. A good approach is to bill monthly and in advance at the beginning of the month.
  • What reporting you’ll provide to your client, and when. It’s generally a good idea to send a report of the hours spent from the past month to your client along with the invoice for the next month.
  • What to do when the time needed to do the work is smaller or greater than the agreed retainer hours. It’s important to go over this with the client so there are no misunderstandings.

Advantages of retainers

  • The client usually pre-pays for the work, which makes it very predictable and creates stable and foreseeable revenue.
  • Retainer work is often pre-approved by the client’s organization and you won’t have to deal with any unexpected delays while the client seeks approval.
  • If managed well, retainers are a good way to build a long-lasting relationship with your client and it could lead to bigger follow-up projects.

What to watch out for?

  • Make sure to keep an eye on the retainer over time. If you are constantly spending more hours to complete the work than the client pays for, or if the client overpays, you should go back and renegotiate. The latter scenario might look like a deal in your favour and will work for a while, but ultimately your client will question the value of the retainer and might not renew the contract. If the client underpays, you will lose money and will have to deal with resource scheduling conflicts.
  • Make sure you have the time and right people to do the actual work.
  • Keep your business healthy and employees happy by making sure you have a good balance of retainer and new project work.
  • And as always when working with clients, be transparent and proactive. Track your retainer hours and keep your client up-to-date with where things are at. When using retainers, open and constant communication is the key to building long-lasting client relationships!
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