How do retainer agreements work?

A retainer agreement is a contract between a client and a service provider where the client pays the service provider (a contractor or freelancer) a recurring fee (also called a retainer fee) for ongoing services during the agreed period (the retainer period). Payment is usually monthly or quarterly.
The payment can either be made in advance (as an upfront retainer fee) or when the work is completed.
Retainers are common in many industries, such as marketing and creative agencies or law firms.

How do retainer agreements work?

Unearned retainer fees are paid into an account before the service provider finishes the work. These fees guarantee full payment and are only released once the work is finished.

Benefits of using retainer agreements

Consistent income

Retainers provide contractors with a steady flow of revenue and help businesses effectively manage cash flow.

Stronger client relationships

By committing to a long-term partnership, both parties build trust and collaborate better.

Prioritized service

Businesses or contractors usually prioritize clients on retainer and provide service and more attention.

Clear expectations

Retainer agreements clearly outline the scope of work, payment terms, and deliverables, which reduces misunderstandings.

Reduced sales cycle

Once a retainer agreement is created, there’s less need to constantly pitch new clients.

Strategic planning

With a long-term commitment, service providers can develop more strategic initiatives aligned with the client’s needs.

Improved project management

Having a set budget and defined scope makes project management more easier.

Client stability

A retainer agreement ensures the client can access the service provider when needed.

Types of retainer agreements

There are several types of retainer agreements to consider:

1. Pay-for-work retainer

A pay-for-work retainer is usually based on a monthly payment schedule. It’s ideal for when starting to build a client relationship as well as short-term work.
Contractors can charge an additional fee for additional hours or take the equivalent number of hours off. This flexibility provides workers with reliable income and allows businesses to manage liquidity.

2. Pay-for-access retainer

Contractors can opt for pay-for-access retainers work to earn dependable income. This agreement provides businesses access to contractor’s expertise for a flat fee.

This agreement works work best when the business trusts the contractor’s skills and wants to keep them on as a service provider.

3. Project-based retainer

Businesses can enter into project-based retainer agreements when working with new clients on a short-term basis. One benefit to this agreement is that businesses can work with multiple suppliers at once according to their budget and needs.

4. Time-based retainer

With this type of retainer, workers write down the number of hours they’ll work each month. This agreement is usually ongoing and the contractor invoices the organization at an hourly rate.

This affords the contractor a large degree of flexibility, but could mean the business pays a higher rate for their services, especially for additional hours worked.

5. Lump sum retainer

A lump sum retainer is when businesses pay an upfront fee in exchange for a certain number of hours of work instead of paying an hourly fee for an undetermined amount of time.
This is a great way for companies to enlist contractor’s services without dealing with the hassles of a retainer payment structure.

6. Recurring retainer

The business pays a worker on a predefined pay period (e.g., monthly or quarterly) for a set number of hours. A predefined pay period helps both parties by giving the worker a steady stream of income and the business a reliable solution for their ongoing needs.

What to include in a retainer agreement

• Parties and their responsibilities
• Scope of work
• Confidentiality
• Payment terms
• Termination notice
• Services
• Intellectual property
• Duration