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.
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. 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 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.
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 retainer 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.)
What Happens to Unused Hours or Projects?
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 retainer 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.
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.
(Just be sure you establish boundaries. A retainer 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 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!
Originally published at www.hellobonsai.com.
