What is a retainer and how does it work? (+types and benefits)

Retainer agreements provide predictable cash flow and offer multiple benefits for both agencies and clients.

But what exactly is a retainer, and which type is best for your agency? 

In this article, we’ll define what a retainer is, why retainers are important, the three benefits of using a retainer, and how you can write your retainer agreement. 

We’ll also provide five best practices for managing retainers and introduce you to Rocketlane — a professional services automation (PSA) platform to optimize your retainer client communication.

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What is a retainer?

Retainers are common in many industries, especially marketing and creative agencies or law firms. A retainer agreement is an ongoing payment agreement between an agency and its client. 

Under the retainer model, the client agrees to pay a recurring fee (known as a retainer fee) for professional services during the agreed period (the retainer period). The payment can either be made in advance (as an upfront retainer fee) or when the work is completed.

For marketing and creative businesses, the retainer fee is usually paid monthly or quarterly. For a law firm, the retainer fee is paid upfront as a down payment to reserve employment or compensate a lawyer for future services like legal advice or legal representation. 

Typically, retainer fees are paid out through a retainer account. It works as follows: 

1. Unearned retainer fees are paid into a retainer account before any services have been rendered. These fees guarantee full payment for the completion of the services and are only released once work has concluded. 
2. Earned retainer fees are paid out after completion of the service. 

Sometimes, additional fees are paid by a client for the successful completion of the service. This is a contingency fee and is separate from the earned retainer fee.

Depending on the type of agreement, there may also be additional provisions that outline the roles and responsibilities of both parties and further define a retainer agreement. This isn’t very different from a project or contract. The only difference is that the agency or lawyer must continuously deliver services to the client during the retainer period.

Let’s take a closer look at the different kinds of retainers. 

Retainer agreements for consulting firms, agencies and freelancers

It's pretty typical for agencies and their clients to enter into a retainer agreement after the completion of a major project (like, say, a website overhaul). 

Typically, unused retainer time runs out, so the client can't get their money back or carry it over to the following month. By entering into a retainer, they can get the agency to put that money to use.

Agreement periods usually run up to five years, but initial retainer agreements are often reviewed and renewed annually—usually at the end of the financial year.

Retainer hours are usually spent on recurring tasks that aren’t major projects but are important to the client. 

Tasks could include maintaining and monitoring your network, upgrading software, assisting with accounts, updating content, analyzing data, and making minor changes or fixing bugs. 

However, when it comes to legal firms or the services of a lawyer, the retainer work often includes a major service. For example, hiring a divorce attorney for legal counsel in a family law case usually involves spending general retainer hours determining and arguing the specifics of major issues such as child support and child custody. 

But why is a retainer for professional services, like a marketing agency or law firm, so indispensable? Let’s explore how this type of agreement benefits both parties.

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3 Benefits of using retainer agreements

The goal of a retainer is to provide your clients with ongoing access to your agency’s services. 

Furthermore, with a retainer agreement, agencies can offer their services at discounted prices to improve client retention. Exactly how much depends on the type of retainer you offer—which we will discuss further.

Here are some more advantages to using retainer agreements in your business. 

1. Predictable cash flow  

For marketing and creative agencies, retainer agreements are a great way to set expectations, ensure regular income, and demonstrate the value of your services.

This is also the case for legal professionals. The initial retainer fees help guarantee a minimum amount of legal services from a lawyer in exchange for a steady income. However, as an attorney, you may charge an additional legal fee not covered by the retainer funds. 

When managing your cash flow, retainers are helpful as there's a set retaining fee you agree to pay for an extended period of time. You can also relax knowing that your money is secure. Since the client pays upfront, you don't have to stress about chasing payments. 

They also provide visibility into a client's budget, helping you adjust services as needed. 

Essentially, retainers offer income stability that allows agencies to plan for their future and avoid scrambling around for new clients when contracts near the end of their term. 

2. Better client relationships

Retainers are a great tool to create a long-term bond with your client that could bring in more projects and referrals. When you work periodically with the same business or client, you can develop a great connection from which both parties can benefit. 

Likewise, when clients acquire a legal service, it’s beneficial for both parties if there is a pre-existing attorney-client relationship. The attorney will likely be familiar with the client’s past, and the client will have an established retainer account, which makes payment of the attorney fees much more efficient.  

Companies that decide to go for a retainer agreement are usually prompt on their payments, and it also helps to keep away low-paying or untrustworthy clients.

3. Predictable value for clients

Working with clients on a retainer basis is great for marketing and creative agencies since it gives them time to get to know the client better – their pain points, industry, and emerging struggles. 

With this understanding, they can propose more innovative solutions tailored to their client’s needs, providing more value in the long run. Having a pre-existing understanding of client needs saves time and effort compared to finding and familiarizing yourself with a new contractor for every project. 

However, making the most of a retainer agreement largely depends on the type of retainer agreement you choose. 

Let’s look at the most common types and find out which suits your firm or agency the best. 

6 Types of retainer agreements

Here are 6 types of retainer agreements to consider: 

1. Pay-for-work retainer

A pay-for-work retainer agreement stipulates a monthly rate the client pays for the agency’s work. It's ideal for when you're in the process of building a client relationship, as it works well for short-term work.

Additional hours worked can be billed at an additional fee or deducted from the monthly retainer time. This flexibility ensures reliable income for agencies while giving their clients some leeway regarding their budgets.

One of the drawbacks of pay-for-work retainers is that agencies aren't rewarded for being efficient; payments are based on the number of hours rather than a great job done. 

2. Pay-for-access retainer

If you're an agency looking for a steady income stream and want to offer your services in a package, a pay-for-access retainer may be the answer. Essentially, it provides your clients access to your expertise regularly for a flat fee, similar to a full-time commitment.

Such retainers work best when the client trusts your skills and wants to retain you as a service provider. A pay-for-access retainer offers more predictability and an equal degree of control over income from the agencies' point of view.

An example of work offered under pay-for-access retainers is when a client needs ongoing support from an agency, such as help with website maintenance, creatives for their marketing campaigns, or SEO-related articles to boost website traffic. 

The retainer agreement should outline the Sk so that anything outside of the work agreed upon incurs an additional fee.

To successfully sell one of these retainers, you should emphasize the value they'll get upfront. 

Of course, starting with such an agreement is not always easy, but if you know your clients and they trust you, it's worth a shot.

3. Project-based retainer

Project-based retainers are a great way for marketing and creative agencies to take on new clients without getting bogged down in an ongoing relationship. Working on a project-to-project basis can also be beneficial if you are a freelancer.

This flexibility allows the agency to take on multiple projects and clients simultaneously. Furthermore, it provides a clear understanding of the expectations and costs associated with a project, making it easier for everyone involved to manage the work.

For an attorney, accepting work on a case-by-case basis functions similarly to a project-based retainer, meaning that a “case” is paid for like a “project.”  

For example, a divorce lawyer charges specific legal fees for each case. Once the case concludes, the divorce retainer is paid, and the partnership ends. 

4. Time-based retainer

With this type of retainer, you outline the number of hours of work you'll perform each month. As opposed to a pay-for-work retainer, the scope of the time-based retainer project is usually open-ended, but you'll invoice the client at an hourly rate. 

This can be beneficial if you need lots of flexibility regarding your services. For example, a certified consultant may need the flexibility to take on several clients to ensure a stable income, and charging for a predefined time may help achieve this. 

But it could result in a higher bill for the client at the end of the month, especially if there are additional costs for extra hours.

5. Lump sum retainer

A lump sum retainer agreement is a great way for marketing and creative agencies to streamline payments from clients. Essentially, it's a pay-as-you-go arrangement — the client pays an upfront fee to the agency in exchange for a certain number of hours of work rather than charging an hourly fee for an undetermined amount of time.

It's an excellent solution for clients and agencies alike, as it takes the hassle out of managing the retainer payment process.

6. Recurring retainer

Here, the client pays the agency on a predefined pay period (e.g., monthly or quarterly) for a certain number of work hours. Having a predefined pay period helps both parties by providing the agency with a steady stream of income and the client with a reliable team to handle their ongoing needs.

While many retainers tend to involve ongoing agreements, they don’t always have to be. That's why recurring retainers specify the number of hours over a set period.

Regardless of the type of retainer agreement your firm and clients choose, ensure you cover all your bases when writing them. 

We’ll show you exactly what to include in a retainer agreement, in the next section. 

How to write a retainer agreement

Writing retainer contracts can seem intimidating, but it doesn't have to be! 

First, ensure you and the client are on the same page about the project goals and timeline. 

From there, you should create a detailed description of the services, the duration of the agreement, the compensation, and any other details.

When you have a first version, review the agreement with the client to ensure all parties agree and understand the services provided.

Take a look at these five steps that guide you through the process of drafting a retainer agreement. 

1. Introduction

Start by including the names and details (company name, registered address) of the parties involved — the agency and the client. Include the date when this agreement will be effective.

For example: “This retainer agreement, which comes into effect from (date), is between (agency's details) and (client's details).”

2. Description of service

Now that you have put the service provider and the customer in the picture, it is time to explain what services the professional/agency will provide. 

For example, a description of a marketing agency's services could include creating and uploading social media posts, monitoring posts for engagement, optimizing the client’s website, and executing email campaigns.

Make sure to indicate when the retainer contract will end and specify how many days' notice is required for either party to terminate the retainer agreement.

3. Method of compensation/terms of payment

When writing the retainer agreement, clearly describe the retainer fee. 

Include: 

1. What you will be paid for 
2. If you'll receive payment by the hour or for each project. 

Additionally, specify the frequency of payments in the agreement. 

Will you charge a quarterly or monthly retainer fee? 

Knowing this will help ensure you get paid the retainer amount promptly and avoid a fee dispute. 

Lastly, specify the method of payment used. Ideally, offering your client several payment platforms is a good idea. You can also integrate your payment and billing methods with a PSA platform like Rocketlane. 

Don’t forget to create a retainer invoice template you can use with each retainer client. 

While you’re at it, check out our related articles on how Rocketlane forms can make client onboarding smoother through efficient data collection and organization. 

Also, consider our related post on using data to digitize your client onboarding processes. 

4. Dispute resolution

Even the most solid retainer agreements can lead to disputes and conflicts. Including a dispute resolution clause that outlines where and how the dispute will be resolved is important. 

The goal should be to settle the contract disputes amicably and quickly, as this will help ensure a positive outcome and a smooth working relationship.

5. Signature

To formally accept the conditions outlined in the retainer agreement, both parties must sign the agreement and enter the current date alongside their signature. Once the signatures are in place, both parties are legally bound to the terms of the agreement. 

And that’s it. You've finally done it. You’ve learned how to create a stellar retainer agreement. Congratulations on taking the initiative and mastering this important task!

From here, just follow a few basic guidelines to ensure the project goes off without a hitch.  

5 Best practices for managing retainers

Crafting a fair and mutually beneficial retainer agreement ensures everyone is happy at the end of the project. You'll make the right amount of money while providing your client with the value they deserve.

Here are some best practices to help you set yourself up for success when managing a retainer:

1. Pitch value and outcomes

When pitching your professional services, focus on the benefits of working on a retainer basis. Understand the client's pain points and the problems they're trying to solve. 

For instance, your pitch can be that by hiring your marketing agency, the client can access your expertise at any time and won't have to worry about the performance of marketing campaigns. 

Your agency will closely monitor performance and make adjustments where required, plus they won't have to find someone else when a campaign is finished. 

You can also provide your clients with the opportunity for creative input through Rocketlane’s PSA software. Consider it a unified workspace for you and your client to engage in collective brainstorming and problem-solving. 

2. Define the scope of work

Setting a clear scope of work when you’re managing retainer projects is essential. Have a conversation with your client to determine what they expect from you and establish specific goals, such as “providing five social media creatives per working day”, so they understand what to expect.

Setting expectations will prevent scope creep, meaning your profits remain intact. So start with a conversation and set a clear scope of work before any retainer project begins. 

Ideally, you should use a collaborative PSA platform like Rocketlane to create checklists of goals and tasks to perform. You can then share these tasks with your client and effortlessly provide updates on their completion. 

3. Go into detail and leave nothing up to interpretation

There are bound to be situations where a client requests work beyond what was stated in the retainer agreement. Therefore, it's essential to specify the cost of the extra work clearly. 

This ensures the client is aware of these charges and also protects you from any legal complications.

4. Use a time tracking tool

As a service provider, it's important to monitor the time you spend on client projects. This helps you stay within your agency's budget and guarantees you are compensated for all your work. 

Fortunately, Rocketlane’s PSA platform has a time tracking module for a seamless, transparent experience. 

5. Regular check-ins for progress

Transparency is key when you have a retainer relationship with your client. When they pay upfront for your services, it's important to gain their trust by setting up tracking systems that monitor the tasks and hours your employees work.

You should also provide regular reports that let your clients know what you have accomplished. Scheduling check-ins to review progress and exchange feedback will create an even greater degree of accountability.

While regular check-ins and reports are essential, conducting and creating them can be time-consuming. That’s why you should use a PSA software like Rocketlane. You and your clients can view all your projects in one convenient place without the need for frequent calls and emails. 

Let’s look closer at what makes Rocketlane software so useful for professional service providers. 

Optimize retainer client communication with Rocketlane

Rocketlane is a specialized client onboarding and PSA tool that allows for seamless collaboration and communication. 

Essentially, you get a global view of all your projects, where you can edit documents, automate email notifications, and create effective walkthroughs for your clients on a customizable portal. 

Rocketlane’s PSA software can help in several ways:

1. Time tracking: Save time by taking the guesswork out of creating timesheets. Manage your bandwidth and increase trust with clients by providing reliable project plans and forecasts.
2. ‍Document sharing: Enable your team and clients to access all project documents from a single space. You can also save time by using templates for documents that are common to all projects.
3. ‍Project management and collaboration: Keep your clients up to date through Rocketlane’s streamlined collaboration and communication tools. Whether it’s tasks, completion statuses, or document editing, your clients and team won’t have any trouble staying on the same page. You can also use the built-in proofing capabilities to seamlessly review and iterate on creatives.‍
4. Resource management: When it comes to providing reliable services to your clients, Rocketlane’s resource management will give you the visibility to accurately predict project timelines and maximize your resources. What’s more, you even have the option to automate resource allocation based on project requirements and timelines!
5. ‍Integrations for billing: Rocketlane integrates with popular tools that ensure friction-free billing processes. 

Not only will Rocketlane save your team time, but it’ll also ensure you always start off on the right foot. You’ll be able to guarantee efficient and professional service delivery for your clients from start to finish!

Rocketlane for long-lasting retainer relationships

For marketing and creative agencies, retainer agreements are great for ensuring that both parties have a clear understanding of expectations, rights, and obligations. Plus, they provide important financial protection and help avoid legal issues. 

But at times, retainers can be challenging to manage. That’s why you need a PSA platform like Rocketlane to synthesize all of your retainer processes. 

Rocketlane provides greater visibility on all your retainer projects and brings your clients along for the ride with exceptional project transparency. 

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