The Freelancer’s Guide to Retainer Agreements

It’s a dream for many freelancers to have consistent, predictable income. Not only does it help you to plan for your business expenses, it’s necessary for that important work/life balance everyone strives for. One way to ensure that your earnings and work are at a more consistent pace is through a retainer agreement. This common practice is essential from both a financial and workflow perspective, and most all successful freelancers have used them at some point in their career.

What Is It?

A retainer agreement is simply a contract, usually over a period of several months or a year, that guarantees a freelancer will get paid a certain rate for a pre-set number of hours or projects per month.

As long as the contract is in effect, you will make yourself available to the client for work the stated number or hours, and they agree to pay you – regardless of if they actually use you for the work.

It replaces the per-word, or per-assignment, pay agreement that you may have used starting out in your business with a more general agreement that can help you plan out a month, quarter, or even year with an anticipated amount of cash flow you can expect to receive. It’s the next best thing to working for a company on salary, and it’s been useful for freelancers who are terrified of not knowing how much money they will have coming in the next month. In short, it’s a brilliant way to reduce some of the anxiety and stress that comes with the freelance life.

How to Price Retainer Agreements

Depending on the service you sell, your approach to pricing an agreement will vary. Experts recommend charging 10% of the potential value of the service as a baseline. For example, if you write email copy that will go out to 10,000 email subscribers, selling a product valued at $100, with an expected conversion rate of 1%, the value of that service would be $10,000. Your retainer for that email would be $1,000. If you did four of these emails a month, you could set your retainer at $4,000.

The agreement may read something like:

Agreement to provide up to four sets of email newsletter copy a month, at a rate of $4,000 per month for a minimum of six months.

From this one client, you would have the potential to earn $24,000 every six months or $48,000 a year!

It’s easy to see how retainer agreements can become very lucrative, especially when sales number can reflect your efforts. For other freelancers (logo designers, for example) these hard numbers are going to be more difficult to estimate. Using a case study or reports from past clients can be useful in coming up with a number that represents 10%.

Should You Use a Retainer Agreement?

For the most part, retainer agreements are a dream come true for freelancers. Being able to say, “I work on retainer” proves that you’ve gotten some work as a freelancer, and that you can expect a least one source of income each month to balance out your wages. Freelance retainers make planning easier, since they ensure you can count on the retainer fees each and every month stated in the contract.

A freelancer with one client on retainer that guarantees $1,000 a month for no more than 12 hours of work a month can know – for certain – that they will earn at least $1,000 for the month. So, they can use that as a baseline for projecting earnings and handling expenses. They also know that they will have to set aside 12 billable hours for the month to ensure that they don’t overcommit to new clients. The balance is easier on a freelance retainer schedule.

One other perk of working this way is purely financial. Retainer clients are more likely to pay the bills on time, since they are counting on you to provide future work. Freelancers aren’t having to chase down payments, and it’s also customary to require payment up front each month for work arranged under a retainer agreement. It’s also easier to hold late-paying clients accountable; if they don’t pay for your work, you have a binding agreement for a longer term.

Retainers also have the added benefit of helping with your branding. By only accepting clients who are open to retainer agreements, you can start taking on bigger, better clients and earn a reputation for taking retainer clients. This could initially scare away small, low-paying, or unserious clients, but – in the end – it’s the quickest way to building a portfolio of long-term, committed, and invested clientele who are serious about paying real money for long-term projects. (This is really what most freelancers are striving to do, anyway.) Service providers who are known to work on retainer often attract more retainer clients over time.

When Retainers May Not Be Wise

As a general rule, freelancers love retainers. To open up your planner and see that first $1,000 for the month already ensured is a good feeling. The more clients you get on retainer, the easier it is to fill in those income gaps and count yourself as successful. There are some instances, however, where retainers may fail you.

The security that a freelance retainer contract ensures can also be a trap for getting lazy with your prospecting. If you sign a contract for a year of $1,000 retainer months with one client, you may decide you don’t have to try as hard to make that money. It’s a guarantee, right?

In reality, a contract should protect you for that money, but contracts do get cancelled. Either due to a company going out of business, or a working relationship that is too uncomfortable to continue, either you or the client may decide to discontinue doing business together. That retainer will then go away, and you’re left with a prospect funnel that may have been neglected in the meantime.

Retainers also make it difficult to ramp up earnings with the same client. A company that pays you to write four articles in a month for $250 an article may decide that they want to switch to a retainer model. That $1,000 sounds nice, but what if they want more articles of you? Instead of upping your retainer fee, they may instead go with another freelancer for the additional work.

Another real danger of retainers is “scope creep.” Since many retainers are set on billable hours and not projects, it’s common to hear of freelancers working on retainer who are slowly given more work over time. Their initial agreement to do no more than 12 hours a work a month, for example, may become burdensome as they become more efficient at their job and the client wants more. This is why it is often a good idea to set your retainer agreement on projects and not hourly agreements (assuming you fully understand the work you are doing and know how long it should take you to complete each project.)

Finally, retainers can leave a bad taste in the mouths of smaller clients who are poised for growth. That one-off client who just wanted you to write a press release or design a logo may not see retainer potential in you. They could skip working with you altogether if they didn’t see the partnership as a good fit. While almost every client has the potential to be a future retainer client, while newer, small companies are getting their feet wet with a first-time freelance arrangement, the idea of a retainer may be too much for them. Pushing the idea on them can backfire and cause them to take their small projects elsewhere.

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What Happens to Unused Hours or Projects?

While retainer agreements have the upside of helping us plan our time and energy, they can sometimes go unrealized, and never get used to their full potential. A graphic designer with 30 hours a month in their retainer agreement may suddenly find themselves on the 28th day of the month with only 20 hours completed. Whether it’s because you didn’t complete the work you were assigned – or the client never reached out with enough work to fill those retainer hours – you’ll now be forced to determine how to give the client the value they’ve paid you to deliver. What should you do to make it right?

This is a very important question to answer, and it should be addressed at the time your contract is drafted – not after you start doing work. Like the old “rollover” data plan models of cell phones, many freelancers choose to track hours or projects done in a certain month and set aside any work not requested as a credit for the next month. An example of this would be a freelancer who agrees to do 12 hours of design work a month, but only does 8 during a particular month due to the holiday season. Those 4 unused hours can be rolled over to the following month to create a workload of 16 hours, but the pay for both months would stay the same.

Think carefully before offering a rollover option for retainers. While you should do your best to honor your contract and provide the hours or projects promised in your agreement, it is not your fault if a client fails to request work from you during a month or give you the resources needed to provide deliverables. Just as an attorney on freelance retainer contract will not credit you for unused hours, many freelancers don’t feel that they should cram in extra work during a later month to give the client the value of a retainer.

(This practice can be dangerous, and it makes it very hard to plan your workflow – one of the reasons you chose to do a retainer agreement in the first place! Time is finite. If a client doesn’t use their hours in a month, it doesn’t mean you’ll have that many extra hours the following month.)

To help you provide value to your client, and ensure that you are a good steward of the retainer relationship, you should always provide check-ins with your client throughout the month to help them realize the full potential of their retainer money. A quick call at the beginning of the month to set goals is common, along with a mid-month assessment of the time you have left. If a client can’t create a plan to use all of your hours in a month – before the month is out – the responsibility to come up with things to do shouldn’t fall on you.

If, however, you’ve failed to provide the amount of work allotted in your retainer agreement through a lack of effort o your part, that will need to be made right. It’s similar to missing a deadline, and everything should be done in your power to make up the work before the end of the month. If that’s not possible, communicate with the client, explain that you still have work to deliver according to the terms of the agreement, and when they can expect it.

Remember, if retainer hours aren’t finished because of your lack of planning, you should do all you can to finish your commitment and provide something extra. To keep the relationship healthy, you could offer to throw in a few extra hours the following month. (Avoid giving a discount unless absolutely necessary, however. Once you start cutting prices, it’s terribly difficult to raise them again.) Always own up to your mistakes, apologize briefly one time, then move on to getting that promised work done.

The Dangers of Playing Favorites

Another often unseen complication that can come from retainers is treating them differently based on the agreement. This can show itself in two ways. The first is putting more effort into your retainer clients because you want to please them, keep them on board, and keep counting their money. This makes sense to some degree because you should work to keep your current customers happy. It’s much easier to keep a client than to go out and find new ones. Existing clients don’t require onboarding, and building processes for them – once you get to know them – is relatively easier. They have the potential to be better earners because the overall time spent administratively can be much less.

On the other side of the coin is taking retainer clients for granted. Because they’ve signed that contract, and you are somewhat guaranteed of their business, you don’t have to court them, in the same manner, you would like a new client. If given a choice to do work during the day for a new client (who you still may have to impress) vs. a long-time retainer client (who has become familiar and likely trusts you to handle processes how you see fit), it’s easy to allocate resources to that newer client. As your business grows, however, you should strive to make retainer clients your bread and butter. Ignoring their needs can have devastating effects on this plan and can cause you to lose lucrative, long-term contracts that are vital to a growing freelance business.

Practice balance between tending to the retainer and non-retainer clients. You’ll probably always have a mix of the two, so be wise to treat them both with care and give them the service they both deserve!

Retainers Can Work for All Freelancers

Who can retainers work for? Pretty much any service freelancer can establish one. Social media managers, writers, coder, designers, and developers are all business niches that have reported success with this method. If you do work by the hour – or the project – you can make the arrangement work for both you and your client.

You can choose to approach the idea of retainers from the onset of your relationships, even mentioning it in marketing materials and prospecting calls. By presenting it as an easier way to work together (eliminating much of the administration that hourly work can require), it can be the selling point you need to land that new freelance deal. Sharing how it’s a win-win for both of you is the best way to approach it in initial conversations.)

(Just be sure you establish boundaries. A freelance retainer contract doesn’t mean you are “on call” or can do work with a quicker turnaround time. It simply ensures that you will set aside space in your workflow each month for your best and most promising clients.)

Whether you regularly do work on a project or hourly basis, retainer agreements can be a professional way to grow your business. If you already work with a client who would be a good candidate for such an arrangement, appeal to their sense of value by bringing it up. You may even explain how a freelance retainer can save them money, while ensuring you’re available even during the busiest months. Having your guaranteed attention keeps clients feeling valuable and ensures many months of work ahead!