How Do Retainer Agreements Work?
I’m a freelance copywriter and brand strategist currently working with two clients on retainer. They pay me a fee equal to 15 hours per week, less a 10% discount. I do whatever they need me to do for up to 15 hours a week. Additional hours are billed at an agreed-upon rate. Unused hours typically don’t roll over (although I made an exception for the client who paid me three months’ worth in advance). They get an on-tap resource without the overhead of having to scope and negotiate each project. I get steady work without having to go out and chase it down. Everybody’s happy so far.
I’m a freelance software engineer. When a client knows they need my services, but cannot define the scope or requirements of the project beforehand, and want me to sit by the phone and respond to their situations immediately, I charge a retainer. It’s essentially for situations where they want me to twiddle my thumbs until they know what they want and then have me snap into action. My basic retainer fee is $250/week (or $1000/month). This doesn’t buy them anything other than my undivided attention–no hours of work, and certainly no discounted hours. It’s money to keep me from taking other work, and thereby being unable to immediately begin work on their emergent problems. They’re paying my opportunity cost for turning down other paying work on the chance that they’ll need me during that time. I have to do this, because my deadline guarantees are solid, and most people want their shit done yesterday (especially the ones who’re going to give me their requirements tomorrow).
There is also a beast called the “evergreen” retainer. It’s a lump sum paid into escrow/trust and has to be maintained at the specified level throughout the duration of the work. For example, the retainer is specified to be $5,000 and during month one, you bill $1,500 worth of work. You draw the $1,500 down and pay it to yourself; client then must “refill” the retainer account back with the same amount ($1,500) to get the balance back to $5,000. This excerpt from a bankruptcy court decision gives a short explanation of the several types of retainers and what purpose each is designed to serve. Once you have the terminology down, some googling on specific types should get you what you need: –snip– There are essentially two general categories of retainers: “classic” and “special” retainers. The classic retainer is when “a client agrees to pay a fixed sum in exchange for the attorney’s promised availability to perform legal services that may arise during a specific period of time.
I used to work for a boutique management consulting firm that occasionally worked off retainers for regular clients for periods of 6-12 months. Rather than giving the client a lower rate in exchange for a consistent business, it usually was more expensive than normal rates because it meant reserving certain key talent at the firm for exclusive availability for a certain amount of time each month. I think both parties viewed it as a win-win. The client felt secure knowing that they reserved the talent of consultants who were in high demand, and the firm got the benefit of predictable, guaranteed income and an increased level of fees.
