How Do Retainer Agreements Work?

January 7, 2009 4:22 PM

Are retainer fees common outside of the field of law? How do they differ in other professions?

I'm not looking for legal advice, but I am interested in how the concept of a retainer fee works. I'm particularly interested in variations on this theme from other professions. It doesn't necessarily need to be called a retainer but something in between a full-time salary and a discrete project-based payment.

What other professions use retainers successfully? At the corporate level (not the individual freelancer level). What are the advantages/disadvantages?

posted by Jeff Howard to work & money (13 answers total)

Rock musicians I know who play occasionally for successful bands but have their own musical careers and projects are paid healthy retainers to re-join tours or recording sessions on demand.
posted by lottie at 4:27 PM on January 7, 2009

The most obvious advantage is that it ensures you'll get paid in a timely manner, since you can essentially pay yourself by moving funds from the trust account to your own account as the money is earned and statements are provided the client.
posted by moxiedoll at 4:30 PM on January 7, 2009

Doctors looking to really amp up their rent-seeking do this.
posted by troy at 5:02 PM on January 7, 2009

I'm a freelance copywriter and brand strategist currently working with two clients on retainer.

They pay me a fee equal to 15 hours per week, less a 10% discount. I do whatever they need me to do for up to 15 hours a week.

Additional hours are billed at an agreed-upon rate. Unused hours typically don't roll over (although I made an exception for the client who paid me three months' worth in advance).

They get an on-tap resource without the overhead of having to scope and negotiate each project. I get steady work without having to go out and chase it down. Everybody's happy so far.
posted by ottereroticist at 5:13 PM on January 7, 2009

I'm a freelance software engineer.

When a client knows they need my services, but cannot define the scope or requirements of the project beforehand, and want me to sit by the phone and respond to their situations immediately, I charge a retainer. It's essentially for situations where they want me to twiddle my thumbs until they know what they want and then have me snap into action.

My basic retainer fee is $250/week (or $1000/month). This doesn't buy them anything other than my undivided attention--no hours of work, and certainly no discounted hours. It's money to keep me from taking other work, and thereby being unable to immediately begin work on their emergent problems. They're paying my opportunity cost for turning down other paying work on the chance that they'll need me during that time. I have to do this, because my deadline guarantees are solid, and most people want their shit done yesterday (especially the ones who're going to give me their requirements tomorrow).

Mind you, it's intentionally expensive. It's mostly designed so that people will figure out what the fuck they want. I'm happy to discount or waive it if they don't need immediate action from me. And it's worked very well, as nobody has ever paid my retainer. All of them have heard my fee, gone bug-eyed, and said something along the lines of, "Listen, we'll just get back to you when we have the project scoped and we know when we'd like to start," or (more commonly), "Actually, we just realized that when we know what we want, we can probably still wait a couple weeks while you finish up anything else you've taken on."

I'm just waiting for the sucker who actually wants to pay me to sit by the phone. They'll be paying me to play video games.
posted by Netzapper at 5:43 PM on January 7, 2009 [1 favorite]

An architecture firm I used to work for would start jobs off by obtaining a retainer, but would start billing anyway, typically at an hourly rate. The retainer was more of an insurance policy, and we would start crediting it back to the client as the project neared completion.
posted by LionIndex at 6:10 PM on January 7, 2009

Many service contracts have this effect, but it's not called a retainer. For X$ per month, we will provide these services, with a response time of y.
posted by gjc at 6:15 PM on January 7, 2009

There is also a beast called the "evergreen" retainer. It's a lump sum paid into escrow/trust and has to be maintained at the specified level throughout the duration of the work. For example, the retainer is specified to be $5,000 and during month one, you bill $1,500 worth of work. You draw the $1,500 down and pay it to yourself; client then must "refill" the retainer account back with the same amount ($1,500) to get the balance back to $5,000.

This excerpt from a bankruptcy court decision gives a short explanation of the several types of retainers and what purpose each is designed to serve. Once you have the terminology down, some googling on specific types should get you what you need:

--snip--

There are essentially two general categories of retainers: “classic” and “special” retainers. The classic retainer is when “a client agrees to pay a fixed sum in exchange for the attorney’s promised availability to perform legal services that may arise during a specific period of time.”

The special retainer is divided into two categories: a security retainer and an advanced fee retainer. The security retainer allows the attorney to hold the
retainer to secure payment of fees for future services. The funds in a security retainer “do not constitute a present payment but instead remain the property of the debtor until the attorney applies it to charges for services actually rendered, normally after the submission and approval of an application for compensation.” An advance fee retainer is similar to the security retainer, except that ownership passes at the time of payment to the attorney. The evergreen retainer is similar to a security retainer in that it is to secure payment of fees for future services. But in the case of an evergreen retainer, the funds are not intended to be used to pay approved fees until approval of the final fee application. Instead, the holder of an
evergreen retainer intends to be paid its interim fees and expenses out of operating cash. Such a position is designed to minimize a professional’s risk of non-payment if a debtor’s financial
position deteriorates, an estate becomes illiquid and does not have sufficient cash flow to pay
professional fees.

--snip--

Substitute "employer" for "debtor" in the above and you can easily apply the principles to your situation.
posted by webhund at 6:26 PM on January 7, 2009 [1 favorite]

I have my snow-clearing crew on retainer for four months of the year. They have to have ready expensive seasonal equipment and drivers. Any hours they use get drawn down from the retainer, any over the retainer amount we pay at an agreed rate. No snow in the month? They keep the retainer.
posted by scruss at 7:05 PM on January 7, 2009

I am a Web designer for a variety of small businesses. Several of my clients pay me a monthly retainer to ensure that I set aside X number of hours to complete work for them, and respond quickly to requests.
posted by lgandme0717 at 7:34 PM on January 7, 2009

Lily Sans (link NSFW) is an Australian sex worker that has a retainer option under "Special Arrangements".
posted by divabat at 9:11 PM on January 7, 2009

I used to work for a boutique management consulting firm that occasionally worked off retainers for regular clients for periods of 6-12 months. Rather than giving the client a lower rate in exchange for a consistent business, it usually was more expensive than normal rates because it meant reserving certain key talent at the firm for exclusive availability for a certain amount of time each month. I think both parties viewed it as a win-win. The client felt secure knowing that they reserved the talent of consultants who were in high demand, and the firm got the benefit of predictable, guaranteed income and an increased level of fees.
posted by amusebuche at 10:03 PM on January 7, 2009

Retainers are common in investment banking. They may well be similar to those used in law. Can be creditable or non creditable (i.e. could go towards reducing transaction fees). Structures vary, but the garden variety are flat upfront fees charged to "keep the lights on." The retainer ensures that the client has an incentive to stay committed to their banker, and the banker gets paid whether or not the deal gets done.
posted by xiaolongbao at 7:42 AM on January 8, 2009