A business owner's guide to retainer agreements

When you’re providing professional services like consulting or a law firm completing contracted work, it can be challenging to ensure the pay for your work is fair. A retainer agreement is a tool that helps you establish terms for the services you’ll provide and payment for those services. Having retainer agreements in place with your clients can improve your income security and workload consistency.

As a business owner, of course you want those things, but implementing new measures can be complicated. With this guide, you can set up your own retainer agreements and achieve greater stability for your business. Use the links below to jump to a specific section, or read this post from start to finish for everything you need to know.

• What is a retainer agreement?
• How do retainer agreements work?
• What types of industries typically use retainer agreements?

• The benefits of retainer agreements
• For businesses
• For customers

• Types of retainer agreements
• How to start a retainer agreement
• Tips for retainer agreements

What is a retainer agreement?

A retainer agreement is a contract that sets terms for how much time a service provider will reserve to work for a client each month. It also details how much the client pays for that work. With a retainer agreement, you’re agreeing to a specific workload and the client is agreeing to pay for that work.

How do retainer agreements work?

Retainer agreements might sound like any ordinary contract at first glance. However, they’re different because retainer agreements center on the give-and-take of your relationship. Retainer agreements go beyond a work arrangement and establish a monthly commitment for time you set aside to work for a particular client. On the client’s end of the agreement, they’re committing to a flat fee for the amount of hours “retained” in their service each month.

These terms are established by deciding on the:

• Scope of work
• Number of hours of work
• Payment rate
• Invoice date
• Payment due date

Generally, payment is issued before work starts—for instance, at the beginning of the month. In other cases, you may agree to an upfront retainer fee and the rest as a lump-sum payment after delivery. A retainer fee is virtually the same thing as a deposit. How you choose to handle your retainer agreement is up to you—just make sure you’re comfortable with the terms you propose.

Additionally, having contingency measures for additional work outside of the agreed-upon scope or hours will help you both uphold your end of the agreement. On the other hand, if they don’t have enough work for you that month to fill the retained hours, you still receive full payment.

What types of industries typically use retainer agreements?

Retainer agreements are typically the most useful for services that are provided on a per-project or hourly rate basis, such as law firms or paralegals. Some industries that commonly use retainer agreements include:

• Legal services performed
• Marketing
• Construction
• Psychological care
• Creative freelancing

Of course, retainer agreements aren’t exclusive to providers in these industries. If you believe that a retainer agreement would be useful for the type of services you provide, it could be worth trying out. Start with one or two clients to see whether the arrangement suits your situation.

The benefits of retainer agreements

It may seem that using retainer agreements is an extra step in the workflow process, adding complexity that might even scare off some clients. However, there are many benefits to using retainer agreements—both for your business and your clients.

For businesses

Some of the benefits you can look forward to if you decide to use retainer agreements include:

• Stable income: With a retainer agreement, your client is obligated to pay you the specified amount for the agreed-upon time. That means you can rely on monthly income, much as if you were getting regular paychecks.
• Predictable cash flow: Having a retainer agreement means that you have a reliable source of incoming cash to look forward to every month. This allows you to better forecast and plan business spending.
• Spend less time sourcing new business: By establishing ongoing agreements with your clients, you have them essentially locked in for the foreseeable future. By building up a reliable list of clients who you know you’ll be working with each month, you’ll have less pressure to constantly bring on new clients.
• Clear expectations:  Often, clients can take advantage of small businesses. Partially, this is because businesses want to impress clients by going above and beyond, and partially it’s because they haven’t established boundaries with the client. With a retainer agreement, you have a set scope and hours for the project or workload for the month. If clients want anything outside of what you’ve agreed upon, you’ll both understand that it will cost extra. This gives you more control over your work and ensures that you’re compensated fairly.

For customers

Your clients can also benefit from this arrangement in several ways:

• Continued quality service: With a retainer agreement, your client knows they’re a priority to you and that the work will get done. This gives them peace of mind that they can rely on you to complete high-quality work and deliver it within the agreed-upon timeframe.
• Guaranteed hours: By having hours scheduled for them each month, clients know they’re going to make progress on their goals. Additionally, knowing how much progress you’ll make on a project helps clients plan accordingly. If you’re a consultant, having preset hours guarantees that if they need your assistance, they can expect you to be available to them.

Types of retainer agreements

In essence, all retainer agreements are the same—an agreed-upon exchange of services and payment for a monthly obligation. However, above and beyond that, there are different ways to set them up based on your services and preferences. There are several types of retainer agreements—we’ll give you a brief introduction to the options:

1.Retainers based on work in exchange for pay, which will likely apply to most situations.

• Unearned retainer agreement: These agreements require advance payment for the services you’ll provide that month.
• Earned retainer agreement: These agreements require you to provide the deliverable before payment is processed for the month.

2.Retainers based on work in exchange for access, which is often used by consultants like lawyers. In these cases, a retainer is paid for the reassurance that if the client needs your help, you’ll be available to them.

As you can see, there is flexibility in how you set up your retainer agreement, which means it can work for almost any service-oriented business.

How to start a retainer agreement

1. Approach important clients

When you’re getting familiar with how retainer agreements work, you’re going to take it slow. Choose a few important clients to extend the option to so you can test how this new approach works for you. Monthly retainers are a useful tool in client retention, which is another reason you want to focus on your key clients first.

2. Create a detailed proposal

When it comes to reaching out to your clients about switching to a retainer agreement, you want to be strategic about it. Mainly, you want the proposal to look professional, answer questions they might have about the arrangement, and sell them on the benefits.

While you can establish a process and even a template for your retainer agreement proposals, you want to make sure it’s tailored to the client. After all, you’re trying to sell them on this arrangement and how it can work in their best interests.

What should be included in a retainer agreement? Start with these key aspects:

• Outline a clear scope of work. With a well-defined scope of work, both you and the client will be on the same page about what to expect each month. A scope of work will also help you determine your pricing and prevent you from being taken advantage of, because what’s included is in writing. Make sure to note what’s expressly not included and what will be an additional fee.
• Develop a timeline with set milestones. Providing a timeline for the final deliverable can help clients plan on their end. Having milestones for intermittent deliverables will help set expectations for progress and approval along the way. Doing so will also reduce how much ongoing communication is needed for status updates.
• Set payment terms. The main purpose of establishing a retainer agreement is to provide a reliable source of income. To accomplish that goal, you will need to set clear payment terms. Make sure to state how much they need to pay monthly, when the payment deadline is, and when to expect an invoice.

Before you show it to the client, make sure you’ve double-checked for any errors and thought through all the terms. You want to make sure your retainment agreement is something you can realistically manage and financially benefit from.

3. Ask the client to review and sign agreement documentation

Once you’ve created a well-defined retainment proposal, it’s time to have the client review it.

Clients may want to negotiate specifics before agreeing to a retainer, and doing so can help you reach an agreement that suits both parties. You might have to revise the agreement to come to terms you’re both happy with. Just make sure you maintain fair terms and compensation when negotiating your retainer contract.

Once everything is agreed upon, make sure the client signs it. Provide them with a copy and keep a copy on file for yourself in case there’s any confusion or disagreements in the future.

Tips for retainer agreements

• Offer a retainer discount. You may consider extending a discount to clients who enter into a retainer agreement with you. This may be a worthwhile incentive to get them to renew their agreement once the original expires. It might seem counterintuitive, but if you have more consistent income, you’ll be making more off the client. Of course, whether this is a smart business decision depends on your circumstances.
• Focus on proving your value.  A retainer agreement is a big commitment for your client, so you need to show them it’s a worthwhile investment. From the proposal through each deliverable, you want to consistently put your best foot forward.
• Opt for time-bound retainers where possible. Instead of just having them switch over to a retainer agreement for an open-ended amount of time, set a length for the agreement. For example, this could be six months or even a year. Having them locked into the agreement will give you the most benefit because you’ll know you can rely on that income for the foreseeable future. However, you don’t want to set the agreement length for too long because you’ll want to be able to renegotiate your fee agreement.

Use QuickBooks Payments to easily create and send invoices to your clients to help ensure your retainer agreement is met each month. With QuickBooks Payments, you will also be able to accept payments from your clients—they can even pay directly through the invoice. Once they pay, the transaction will be categorized and recorded for you, streamlining the entire process. And, if your client fails to pay on time, you can send payment reminders—but hopefully, that won’t happen with your new agreement.

Final notes

Retainer agreements are an excellent way for businesses and freelancers to create loyal clients and consistent business income. If you think retainer agreements will work for the services you provide, try implementing them sooner rather than later. With retainers in place, you’ll be able to focus more time on your core business and less time chasing leads and new customers. And with QuickBooks Payments in your business toolkit, it’s that much easier to implement and maintain retainer agreements with little effort on your end.