Wear your retainer

May 25, 2012 2:57 PM

Freelancer filter: I'm a graphic designer / creative consultant. I've been at it for 15 years. I like the freedom, but have never been particularly good at invoicing etc. I have a client wanting to work out some sort of "retainer" situation but, frankly, I'm not even sure what this could be like, how it would be structured, and why it would be better for me than my current status. I'm all for regular paychecks... So there's one. Anyone have experience with similar arrangements?
posted by ecorrocio to work & money (5 answers total)

The first thing is determining what their expectations of the retainer entails. Does this mean you're available to work on call within a certain time frame (even if you're swamped with other projects), or a reasonable rate for a minimum number of hours per week or month, whether or not they need them?

For a retainer based contract, be very specific with what you're agreeing to, for how much, AND what the rate will be if the number of hours or expectations go beyond what was agreed to. Additionally, the retainer may also include some sort of exclusivity/non-compete clause that keeps you from also working with a client's competitor.

As you mention, it may not be in your best interest to be on a retainer, so be sure to clarify why they prefer one over a contract situation.

That said... I've done these before simply by finding a reasonable rate to work a set, low number of hours per week for a client, to maintain a website and social media presence. I was tasked with checking in occasionally to make sure the site hadn't crashed, create social media content, monitor social media mentions and responses, etc. This wasn't nearly as high as the rate to setup the site or social media accounts, and I could do the work pretty much casually on my own time, so it worked out well.
posted by Unsomnambulist at 3:26 PM on May 25, 2012

Retainers are probably most common in the legal profession, and somewhat common in consulting and IT support services.

Most commonly, retainer agreements cover time-based services. A lawyer will be retained 8 hours a month (1 day) for $xxx price. The client pays that retainer in advance, and then as time it required, it first comes from that pre-paid pool. After 8 hours, each additional hour is billed at an agreed rate, which may be different from the retainer rate.

As an example, Maxwell is a lawyer retained by Joan. Maxwell's standard rate is $125 per hour. Joan has used Maxwell for several months, and sees that on average, she pays Maxwell for 12 hours per month. The average month, Joan pays Maxwell for 9 hours. Thus, Maxwell gives Joan a retained agreement, where the first 8 hours are $800 per month – $100 per hour, a 20% discount. In return, Joan pays in advance. Most months, Maxwell bills Joan $800 (retainer) + $125 (overage) = $925.

Previously, Joan would have paid Maxwell $1125 for the same service. The advantage to Maxwell is that he is paid a fixed fee at the beginning of the month. The advantage to Joan is that she receives a discount on the rate, and has 8 hours of Maxwell's time guaranteed. The latter is important for in a strict contractual arrangement, each piece of work is technically an independent contract. Thus, if Maxwell has a large piece of work come through, Joan may have to wait, or pay a higher 'premium' rate to take is attention immediately.

In the retained agreement, often the retained client will have a high priority, simply because it's regular cash flow and it is in the contract that the supplier will provide services upon demand, as technically those hours have already been paid.

In terms of how it is structured, so long as you are on time-based assignments it's relatively straightforward. If your client wants you to produce a newsletter each month, and that newsletter takes you on average three days, you set the retainer for three days a month. Key to successful retainer agreements are the boundaries – how time is communicated, who approves overages, if there is a cap to the overage, etc. You will need everything in writing, especially if you have multiple contact points on the other side.

If your results are output-based, rather than time-based, it gets a bit more difficult, as different assignments are of differing complexity and make take different amounts of time. For example, if you are a sales consultant for a foreign company, some months you may have 10 leads to follow up on, and some months you may have 2. What is the correct retainer agreement in that case? Thus, it doesn't apply to everything.

In terms of entering into a retainer agreement, independent professionals often like to have a blend of retained clients and non-retained clients. Retained clients provide cash at the beginning of the month, however the rate is lower. Also, the contracts will leverage back slightly toward the client, in terms of they are now a routine cash-flow stream, and thus must be treated as such. They will expect that you give them a greater degree of attention, as they have already paid you for that attention.

Overall, if it fits, it's usually a great engagement as there are numerous soft factors. A retained consultant has a greater degree of trust with the client, and thus more opportunities to sell in additional work. Also, clients are more likely to give additional work to retained suppliers first. On the client side, it turns a variable cost in a fixed cost, which helps from a cash-flow planning perspective, guarantees a minimal level of attention, and most importantly, secures the relationship. Taking a new project and having to choose or find a supplier to service it is infinitely more stressful than simply handing it off to a trusted party.

The downside is that clients can try and abuse the agreement. If your level of trust in the client is low, you can go for short-term (3 months) contracts to start, or have a mutual exit clause, where the contract is rolling, however either party can exit the agreement. There's lots of variations. The best contracts will see that if the other party terminates or violates the contract, they are liable for the rest of the contractual payments. Sounds like it would be hard sell to push through, but it seems to happen quite often.
posted by nickrussell at 3:39 PM on May 25, 2012 [6 favorites]

There are some good bits in Design is a Job about invoicing and working with contracts, but I don't remember if it covers this particular situation.
posted by fifteen schnitzengruben is my limit at 7:44 PM on May 25, 2012 [1 favorite]

Thanks folks... Brilliant.
posted by ecorrocio at 9:43 PM on May 25, 2012

My retainer agreements also stipulate that if you pay up front for 8 hours a month but don't use 8 hours of my time, the remaining paid for time rolls over for one month and then is forfeited. So if a client signs a generous retainer and then has a few slow months, I still make the same amount.
posted by TallulahBankhead at 4:54 AM on May 26, 2012