Professional accountants, consultants, and coaches typically charge their clients a retainer fee for future work, advice, or access. This article will cover different types of retainer fees, how to accept them, and their benefits.
Do you charge retainer fees? In a retainer agreement, the client makes an upfront payment or payments in exchange for ongoing services such as consultation.
Many independent businesses — including consultants, designers, and coaches — can benefit from charging retainer fees. They can help stabilize cash flow, guarantee revenue, and build lasting relationships with loyal clients.
Clients can also benefit from retainers because they’re guaranteed a specific amount of time or access in exchange for the fee. This means that they can get the consultation, advice, or coaching they need because they’ve already paid for it.
Read on to learn more about the types of retainer fees, how to use them, and the best way to process and collect them.
- What is a retainer fee?
- Why businesses use retainer agreements
- How does a retainer fee work?
- Types of retainer fees
- How to collect retainer fees with automatic payments on an invoicing platform
What is a retainer fee agreement?
A retainer fee agreement, or retainer contract, is a legal agreement in which the client pays a set fee in exchange for your future or recurring services. Clients find details like the duration of the agreement and the fee amount in the contract.
Why businesses use retainer agreements
Many kinds of businesses can benefit from retainer fees. If your business offers ongoing services or you’re on call for emergency help, for example, you may want to set up a retainer agreement with your clients. Businesses that typically benefit from retainer agreements include:
- Graphic designers
- Other types of professionals
So why are retainer agreements so popular? Retainer fees offer a level of stability and predictability that can be crucial for the success of small, independent businesses. Retainer fees add to the business’s positive cash flow and the more retainer fees there are, the more predictable the cash flow is.
If you communicate the terms of your retainer agreement well, your clients will be on the same page as you and expect recurring fees. This leads to fewer disputes and happier clients who can expect a certain amount of service from you each billing period. Clients who have retained your services trust you. Continued services and strong referrals can lead to lasting business relationships and expanded opportunities.
How does a retainer fee work?
A retainer fee functions as a guaranteed payment for your services and sets the precedent for your client’s expectations. Retainer fees cover future expenses for some duration before paying the final invoice because clients provide funds upfront.
Like any contract clause, a retainer fee clause can protect you from not getting paid. Contracts spell out the obligations of the parties so there are clear expectations. This is especially important if there are any disputes because all the details of the agreement can be referred to, such as the precise amount of the fee and the due dates agreed upon. A retainer agreement helps the client understand what they are paying for, how often they pay, and how to pay the fees. In return, you guarantee service to your client, giving them the optimal experience.
How to implement a retainer fee
The first step is to write a retainer agreement as part of your service contract. At this point, it’s a good idea to consult a lawyer to ensure that the terms are legally binding in your location and that the contract provides sufficient protection for you and your business.
The following are some basic elements of most retainer agreements.
- Basic details: List the names, addresses, and contact information of both parties involved.
- Scope: Specifically spell out what you are going to be doing for the client. You may also want to specify what you do not include in the service.
- Duration: Set an end date if the project is not recurring. The contract does not have a termination date if the service is ongoing.
- Payment terms: Detail what kinds of payments you accept.
- Retainer fee amount: Set the retainer fee and frequency.
- Rights and obligations of parties: Include the expectations of each party.
- Other clauses: Include other clauses that you and your lawyer feel are necessary. These clauses could be dispute resolution, arbitration clauses, force majeure clauses, termination clauses, or other contract clauses.
How to structure your retainer fee
Once you have a contract with a retainer agreement, send your contract to the client securely using your online clientflow management platform. If you’re using HoneyBook, you will receive a notification that the client signed the contract.
The payment structure for a retainer depends on the details of your agreement. Clients can make monthly or quarterly payments for access-based and time-based retainer agreements. They can pay a flat fee each month for access to you and your expertise and services. You can accept payment via a variety of methods using a payment processor.
Work-based retainers are retainers for ongoing work, while project-based retainers are for the duration of a single project that will end whenever the project is completed. You can hold funds in a retainer account to pay your expenses as you incur them during the project. Payments for retainers can be recurring, such as monthly or quarterly for the duration of a project, or for continuing service, such as payments to retain a lawyer.
Be sure that your client knows what payment terms to expect so you can prevent chargebacks.
Types of retainer fees
How you structure your retainer agreement depends on the services you’re providing and the type of project you’re working on. Here are some common retainer arrangements and examples of businesses that typically use them.
A project’s scope determines a project-based retainer, and it lasts until the work is complete. The project should have a clear scope with an established deadline. An example of project-based retainers might be an SEO marketing service that charges a fee for a set amount of work, and whose services are reserved with a retainer payment.
A client can pay for a predetermined amount of time-based work over a period, such as monthly or quarterly.
You can use a time-based retainer agreement when a project’s end date is unknown. This guarantees your services to the client for the number of months they pay in advance. Some examples of this are when a public relations company charges a retainer for services a given number of months in advance, or when an attorney charges monthly for working on a court case in progress.
This type of retainer agreement involves a client paying a professional, such as an accountant, to be available to the client as needed. Clients can make monthly or quarterly payments under this kind of agreement. The details of the retainer agreement will be included in the contract with the client. The contract will include a retainer agreement clause that stipulates that the services are retained with a retainer fee.
Attorneys often enter into pay-for-access retainer agreements in exchange for being on call whenever they’re needed. This can be beneficial for clients who may need emergency services and can call on the expert for immediate help.
Unearned retainer fees
An unearned retainer fee is a fee that is paid upfront for services that haven’t yet been rendered. This fee is put into an account and secures the time and availability of the expert, such as a consultant. Depending on the contract, some or all of this fee can be refundable if no service is rendered.
If services are rendered, the fee is earned as the work is completed. An example of an unearned retainer fee could be a consultant working on a business plan who will earn the fee once the work has been completed, such as the funding being issued after a pitch.
Earned retainer fees
An earned retainer fee is the portion of a retainer that is paid to the service provider, such as a consultant, as the work is being rendered. An example could be the portion of the retainer that the consultant is paid once the work starts. The consultant in this example is entitled to some of the retainer fee as work is being completed. Earned retainer fees can be granted to the consultant in milestones. For example, a percentage of the fee can be paid to the consultant after each part of the project is completed, such as deliverable creation, pitch preparation, and so on.
What’s the difference between a retainer fee and a deposit?
Retainers and deposits are very similar. A retainer is paid to the independent in advance to secure services, whereas a deposit may reserve a service or a date, but it’s typically refunded. Retainers are non-refundable.
Collect retainer fees with automatic payments on an invoicing platform
Regardless of the type of retainer agreement that works best for your business, you’ll want to make payment collection as easy as possible. Get paid faster with a payment processing platform. With HoneyBook, you can combine every step of your clientflow—including booking, proposals, and contracts—all in one place. Get your retainer agreement set in place with a legally binding contract and collect your payments securely online.
With HoneyBook, independent businesses of all kinds have access to the tools and software they need to help with their clientflow from proposals to invoicing and more all on one platform.