What is a retainer agreement?
Many businesses require ongoing professional services, but they often don’t know exactly how long they’ll need them for or when they might need to call on them.
If this sounds familiar, a retainer agreement might be the solution for you.
In this guide, we’ll explore the ins and outs of retainer agreements and how they can benefit both parties.
So, whether you’re a client or a professional, keep reading to learn everything you need to know and how you can make the most of them.
What is a retainer agreement?
A retainer agreement is a legal contract between a client and a professional (perhaps a law firm or other service provider).
Let’s take a lawyer, for example.
The client pays a retainer fee in advance to secure the professional’s legal services for a set number of hours rather than paying an hourly rate.
The idea of this advance payment is that the client “retains” these services on an ongoing basis and can then call on them as needed.
This type of retainer contract is particularly useful for those with dynamic client needs, who require the ongoing services of a professional but don’t know precisely when or for how long.
Benefits of retainer agreements
Retainer agreements offer many advantages for both the client and the professional.
Here are a few.
Predictable income stream for the professional
With a retainer contract in place, the professional can rely on a steady cash flow, even if they don’t have specific projects or tasks lined up.
Assurance that the professional will be available for the client’s projects
The client can rest easy knowing that the professional will be available to work on their projects as needed.
Flexibility for both parties
The client doesn’t have to worry about finding a new professional every time they need work done, and the professional doesn’t have to worry so much about finding new clients.
Tip: Check out our blog on ten things to include in an employee contract for more information on creating a comprehensive and legally-binding employee contract.
Types of retainer agreements
Just as there are different types of employment contracts, there are also different types of retainer agreements.
Understanding the difference can help you decide which type of agreement is best for your specific needs.
So, let’s look at the two most common types of retainer agreements:
The client pays for specific work to be done.
The scope of work and the fee are agreed upon in advance.
The advantage of this type of retainer is that the client knows exactly how much they’ll be paying for the work.
However, the disadvantage is that if the scope of the work changes, the fee may also need to be renegotiated.
The client pays a flat fee for the professional’s time, regardless of the amount of work done.
This type of retainer provides the client with access to the professional’s time and expertise on a continuous basis, even if the client doesn’t have specific projects or tasks lined up.
The disadvantage is that the client may end up paying for services they don’t use.
So, which type of retainer is right for you?
It depends on your specific needs and the nature of your relationship with the professional.
If you have certain projects or tasks that need to be done, a pay-for-work retainer might be the way to go.
But a pay-for-access retainer might be the better option if you’re looking for more flexibility and want to build a long-term professional-client relationship.
How does a retainer work?
If you’re working on a retainer agreement, it’s essential to understand the steps involved in creating one.
First, you’ll need to decide on the scope of the services to be provided.
This should be clearly outlined in the retainer agreement so both parties understand what’s expected.
Next, you’ll need to decide on the length of the agreement. This could be for a specific period of time or open-ended.
Then, you’ll need to decide on the terms of payment.
This should also be clearly outlined in the retainer agreement, including the amount of money to be paid, the frequency of payments, and any penalties for late or missed payments.
After that, you can use a retainer agreement template to create the document.
This is helpful in ensuring all relevant information is included and that the agreement is legally binding.
Finally, it’s important to get a legal review of the retainer agreement.
To make sure it complies with all relevant laws and regulations.
Do the fees vary in retainer agreements?
The short answer is yes. Fees do vary.
This is because they’re based on many factors that can differ from one retainer agreement to another.
For example, a consulting retainer agreement may differ in price from one in advertising or the legal profession.
Other factors may include the retainer services provided, the professional’s level of expertise, the location, and the duration of the agreement.
When deciding on the fee, it’s important to consider what’s fair and reasonable for both parties.
It’s a good idea to negotiate the cost and to have open and honest communication between the client and the professional.
The client should ensure they understand the professional’s fee structure, and the professional should understand the client’s budget.
Build professional relationships with retainer agreements
Retainer agreements can foster trust and long-term partnerships between clients and professionals.
When both parties have a clear understanding of the scope of services, the terms of payment, and other details, it can help build trust and a sense of reliability.
Additionally, retainer agreements provide a consistent and predictable income stream for the professional, which helps them plan for the future.
Retainer agreements also allow both parties to get to know each other’s work styles and preferences, which can help create a more efficient working relationship.
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