If you’ve never worked with an agency or consultant before, the prospect of signing a retainer agreement can be a bit daunting. After all, retainers are typically long-term contracts that commit you to working with an agency on an ongoing basis. And agencies aren’t cheap!
But don’t let that scare you off. Retainers can be a great way to ensure you have a reliable, experienced partner to help you meet your goals — often for a little less cost, provided you negotiate a good contract. And from a service provider perspective, securing a retainer agreement can ensure consistent income and less time spent pitching for work. It’s a win-win situation!
In this article, we’ll cover everything you need to know about retainers, including what they are, how they work, and what you should look for in a good retainer agreement.
What is a retainer agreement?
A retainer agreement is a continuous contract between a company and a service provider, such as an advertising, public relations, or marketing agency. The retainer sets forth the terms of the relationship between the parties, including the scope of work, the length of the contract, and the fee structure.
Retainers are typically long-term agreements, lasting anywhere from six months to several years. They’re usually structured as monthly or quarterly payments, with the agency billing the client in advance for its services.
How do agency retainers work?
Under a typical retainer agreement, the client pays the agency a fixed fee for a specified period of time, usually on a monthly or quarterly basis. In exchange, the agency agrees to provide the client with a certain minimum level of service each month. For instance, this could include a specific number of hours of strategic consulting, a specific scope of creative work, or a specific number of media placements.
For an additional fee, the agency may also provide the client with supplemental services that go beyond the retainer agreement. Typically, the client has the option to cancel the contract at any time, subject to certain notice and penalty provisions.
The benefits of a retainer agreement for businesses
A long-term arrangement offers several advantages to businesses. First, retainers help businesses to achieve their strategic goals by working with a consistent, reliable partner. Building familiarity between the client and the agency/consultant is invaluable for projects that require deeper knowledge of how the company operates. Meanwhile, this incentivizes the agency to provide the best possible service, since future payments depend on results.
Second, retainers can save money in the long run. By locking in a fixed monthly or quarterly fee, you can budget for your marketing expenses more effectively and avoid unexpected changes in cost.
Third, retainers can give you more bang for your buck by allowing you to take advantage of bulk discounts on services. When agencies on retainer know they have a guaranteed stream of income from a client, they can offer discounts on additional services the client may need.
The benefits of retainer agreements for the service provider
Service providers can also leverage the advantages of retainer agreements. First, they provide a predictable stream of income that can help an agency to better manage its cash flow. And especially for independent contractors and consultants, retainers allow them to price their services based on the value they deliver, rather than piecemeal work.
Second, retainers can help an agency staff more efficiently based on a predictable workload each month. Setting up multiple retainer agreements is one of the best ways to create stability. Even if one client cancels a contract unexpectedly, the agency will still have guaranteed income from several other clients.
Third, retainers reduce the time it takes to sell your work. You can simply sign a contract and get started, rather than pitching your services to a potential client each time.
Finally, retainers facilitate a more long-term, strategic relationship with a client, which can lead to additional work down the road. And, surprise, surprise! Having successful contracts with one client can attract more business. An agency portfolio or consulting resume that shows long-term work with established businesses sends the message that a service provider is reputable and worth hiring.
Types of retainer agreements
Retainer agreements come in all varieties. Here are some terms you need to know.
Project-based retainers are structured around a specific project or goal, such as planning and executing a new product launch. Both the agency and the service provider agree on the project scope and fee upfront.
Time-based retainers outline the number of work hours performed each month. Project scope is typically open-ended, and the agency bills the client for its services on an hourly basis. Time-based retainers offer more flexibility than project-based retainers, but they can also be more expensive.
In this type of retainer, the client pays the agency for each project. It’s common when an agency handles a one-time project, such as a website redesign. Both agree on the scope of work and the fee upfront, and the client usually pays a substantial deposit before work begins.
In this type of retainer, the client pays the agency for access to its services. Scope is typically open-ended, and the agency bills the client for its services on an hourly basis. This type of retainer is common when a client needs ongoing support from an agency, such as help with marketing campaigns or public relations.
Lump sum retainer
In this type of retainer, the client pays the agency a lump sum upfront for a certain number of hours of work. Think of it as a pay-as-you-go arrangement, where the agency works for as many hours as that lump sum covers.
In this type of retainer, the client pays the agency on a recurring basis (monthly, quarterly, etc.) for a certain number of hours of work per pay period.
Tips for business owners: what should you look for in a retainer agreement?
Here are some things to keep in mind as you compare service providers.
First, clearly define the project scope. Going in without a plan could lead to scope creep, and you may end up paying for services you don’t need. You also don’t want the agency to be able to arbitrarily increase the scope of work without your approval — nor do you want to sour a good working relationship through misunderstanding.
Second, make sure the fee structure is reasonable. Compare the agency’s hourly rates to other service providers, including independent contractors. However, different providers may offer integrated service features that others don’t, so don’t focus on price alone
Always asks for a cost breakdown that clearly explains the fee for each part of the service. Make sure the agency isn’t charging you for anything you aren’t comfortable with, such as excessive travel expenses (although, they may be necessary and fair for some projects. It’s a case-by-case basis).
Third, review the agency’s invoices carefully, and query any charges you don’t understand. Don’t be afraid to ask for a reduction in the monthly fee if you feel that the agency isn’t delivering on its promises.
Finally, make sure the contract includes a provision allowing you to cancel the agreement at any time, with reasonable notice. If you’re unhappy with the services provided, you’ll have the flexibility to end the relationship without paying a penalty.
Retainers: 3 red flags to watch out for as a business owner
Like any business arrangement, retainer contracts can occasionally go wrong. Here are a few things that should set off alarm bells when you’re considering a retainer agreement.
- Be wary of any agency that requires you to sign a long-term contract without allowing you to cancel it.
- Be suspicious of any agency that insists on full payment upfront without signing off on scope and having proof of work done for other businesses. You can simply choose not to move forward or submit your own contract terms to the agency. Negotiate down to partial payment, with the rest delivered on receipt of completed work.
- Watch out for poor communication during the negotiation process. If the agency takes days to get back to you without prior warning, it could be a sign of things to come – not ideal when you’re paying someone to be available to you.
- And finally, be cautious of any agency that refuses to put its fee structure in writing or explain what an ambiguous fee means.
These are all red flags that indicate an agency is not looking out for your best interests. So, if you see any of these warning signs, beware!
Tips for service providers: what should you look for in a retainer agreement?
Similar to business owners, service providers should steer clear of arrangements that are disadvantageous in the long run. A retainer should be a mutually beneficial arrangement. Essentially, it’s all about getting things in writing, knowing your worth, and being flexible.
First, clearly plan the project, and get the approved scope in writing. You don’t want to end up being pressured into doing more work than agreed upon or repeatedly telling an agency “no.” To avoid scope creep, ask a lot of questions upfront to ensure you understand client needs (and any constraints).
Second, make sure the fee reflects the value of what you’re delivering. Compare your rates with those of other service providers in the area, and see where you fit in. Don’t be afraid to ask for more; it’s harder to negotiate up once you’re already working together. And don’t forget to factor in resources and travel when setting your fee.
Finally, make sure the contract includes a clause that lets you cancel at any time, with reasonable notice. That way, you can end the arrangement if it’s really not working for you. The cancelation policy should require clients to pay for any work already completed, unless you mutually agree on a different resolution.
Retainers: 3 red flags to watch out for as a service provider
- Beware of businesses that refuse to pay a deposit upfront to secure the work. The business could be low on funds, which means your retainer won’t be reliable. And if it turns out a client doesn’t have good intentions, they may reject good work on flimsy grounds with the goal of getting it for free.
- Watch out for businesses with poor communication. You’re going to be working with these people over the long term, providing everything goes to plan. You need to make sure it’s a pleasant and productive working relationship.
- Stay away from businesses with poor reviews. Agencies and freelancers talk, so tap into that whisper network and get the lowdown on your prospective client. Chances are, if they’re a non-payer or difficult to work with, their reputation will precede them.
How to negotiate a retainer as a service provider
Proving your value is the first step to getting a business to agree to a retainer. Clients need to know you’ll be able to do the work — and do it well. They also want to know you’re reliable. Show prospective clients you’re an expert in your field and have a track record of success.
Once you’ve established your value, it’s time to start negotiating. Here are some tips.
1. Offer a discount
Some businesses will be happy to pre-pay. Others — especially those unused to working on retainer — might be a bit more skeptical. Offering a discount is one way to sweeten the deal; 10-15% is usually a good starting point.
2. Offer a trial period
If the business is really unsure about working on retainer, offer them a trial period. That way, both parties have the opportunity to walk away early in the relationship with less at stake. A trial period gives them a chance to see how well you work and whether or not it’s worth their investment.
3. Focus on value and benefits
When you’re pitching your services, be sure to focus on the benefits of working with you on a retainer basis. Try to understand the client’s pain points, and directly address the problems they’re trying to solve.
For example, you might say something like, “By hiring me on a retainer basis, you’ll have access to my expertise whenever you need it. You won’t have to worry about micromanaging all your ad spend because our agency will closely monitor performance and make adjustments as needed. And, you won’t have to worry about finding someone else when this campaign is complete.”
4. Negotiate the terms
Be sure to negotiate the terms of your retainer agreement upfront. Include terms like the length of the contract, the scope of work, and, of course, the price. And, get it all in writing!
5. Ask for a time-bound retainer
If you’re worried about getting stuck in a long-term contract, ask for a time-bound retainer. In other words, the contract will automatically renew after a certain period of time — typically six months or one year. This gives both you and the client the opportunity to reevaluate the situation and decide if you want to continue working together.
6. Know your worth
It’s important to know your worth — and to believe in it. If you don’t think you’re worth the fee you’re asking for, the client will be able to sense it. Believe in your value, and don’t be afraid to ask for more if you have the experience.
7. Be flexible
Be prepared to negotiate the terms of the retainer agreement. If the client is resistant to agreeing to a retainer, try offering a lower fee in exchange for a longer contract term. Or, propose a trial period to start off the relationship.
Working with a retainer: best practice for business owners and service providers
Here are some tips to keep everyone happy.
1. Get everything in writing
Make sure you get a copy of the contract, as well as any other relevant documentation, such as the scope of work or the fee structure. This will help to avoid any misunderstandings about the terms of your agreement.
2. Review your progress regularly
Schedule regular check-ins so that you can review progress and give each other feedback. Check-ins create more accountability, ensuring both parties meet expectations and continue to agree on the project scope.
3. Be clear about what you both want
The more specific you can be about your objectives, the better. Project briefs should thoroughly set out the project goals. Don’t be afraid to give each other constructive suggestions along the way, so you can course-correct if necessary.
4. Be prepared to walk away
If you’re not happy with the way things are going, don’t be afraid to cancel the agreement. Remember, you’re both in control of the relationship, and you shouldn’t hesitate to end it if it isn’t working out.
5. Use time-tracking tools
As a service provider, make sure you’re tracking your time so that you can bill the agency accurately. Time-tracking will help the agency budget and ensure you’re paid for all the work you’re doing.
The benefits of using project management software
Whether you’re a business owner working with an agency or a service provider on retainer, project management software is a must.
With Backlog, our own project management tool, you can set tasks, track progress, add and share documents and files, and get real-time updates on project activity. The client is never left puzzling over what’s going on, and the service provider doesn’t waste time on progress updates. Transparency is high, everyone’s on the same page, and all parties understand the point of the retainer.
What’s more, our software integrates with a number of other tools, such as Google Drive, Dropbox, and Slack, so you can easily access everything you need in one central hub. The more flexible you can be, the happier everyone is — and that includes the tools you use to communicate and work day to day.