As you grow your consulting business and think about new ways to serve your clients, you may begin to wonder, “How do retainers work, anyway?” Diversifying your payment options can help onboard more clients and can help larger companies partner with you for long-term, multi-project goals.
Since 15% of consultants use this pay structure, it is important to understand what your competitors are offering and how you can jump on the (lucrative) bandwagon as well.
What are consulting retainers, and how do retainers work?
Consulting retainers are a payment structure that allows you to collaborate more in-depth with companies for a fixed amount of money and are the preferred payment method for established, successful consultants.
So, how do retainers work? They are an agreed-on amount of up-front income in exchange for you providing services for a defined period of time. Usually, both consultants and clients prefer to pay monthly (rather than weekly or quarterly), but you can establish set rules that are mutually convenient.
Some consultants prefer to charge 100% of a retainer up-front, or some may agree on defined periods of time or milestones according to their own financial needs and the structure of an individual client relationship.
How do retainers work? Two types of consulting retainers…
When considering “how do retainers work?” it is helpful to know that there are two primary types of consulting retainers that consultants use with clients. Both have pros and cons, so you should think through them carefully before deciding on a structure for your own client retainers:
Pay for work
The most commonly used type of retainer is the “pay for work” structure. This model is focused on the deliverables you provide to the client rather than the hours worked. You may run over or under on a specific amount of hours to reach your end goals for the project, but all fees are covered by the retainer.
This type of retainer is similar to being salaried at a job. It does have its downsides, as you may wind up doing more tasks for a project than you would normally do, but it does provide financial stability.
Pay for access
The second type is “pay for access,” and this is similar to the type of retainer you would expect for access to an attorney. Your client does not require specific deliverables from you but can ask questions or seek guidance on a particular topic when required. This is a good arrangement to have with a long-term client who can handle the bulk of the project themselves.
Seasoned consultants are more likely to opt for this type of retainer, as it allows more freedom and control in their day-to-day lives. Often, when consultants ask, “how do retainers work?” it is because they are trying to figure out how to market these types of retainer agreements to their clients.
Why working on retainer is great for consultants
As anyone who has been a freelancer or consultant knows, income is not always steady or predictable. When first starting, many people choose to slowly transition from a company position into independent consultancy as they increase their client load.
When researching “how do retainers work?” it is important to understand that this is a method that can help you achieve reliable monthly income, increase your financial stability, and give you the ability to budget like a salaried employee without the demands of a full-time job working for an outside employer.
This pay structure, in particular pay-for-access agreements, can allow you to collaborate with more clients for less output and can really help you scale your company. Moving past an hourly or project-based rate will also help you increase the longevity of your client partnerships.
Another benefit of the retainer structure is that they will help you free up a significant amount of time. Project-based fees leave you scrambling and spending time searching for new projects and landing new contracts. If you have a steady income from a retainer agreement, you are able to throw yourself into working for that client without the distraction of worrying about where your next paycheck will come from.
How to sign clients up on retainer
The next step in understanding “how do retainers work?” is understanding how to sign your clients up on retainer agreements. Once you have chosen to focus on retainers, you first must figure out how much to charge your customers. You can use this calculator to help you figure out your income goals and overhead costs to determine what you need to charge and how many clientele you need to sign.
If you are working with a larger client, they may already have a set policy for consulting retainers. Smaller clients may not understand “how do retainers work?” so you may need to have a conversation with your company contact to help them understand the process and the benefits of hiring you on a retainer basis.
Once you have established your rate, discuss it with your client. If they are agreeable to the amount, you can get them to sign a contract. If you need help figuring out a what a good consulting contract or proposal looks like, check out this free template from consulting guru Alan Weiss.
After that, it is time to get started! Retainers will allow you to enjoy a more stable income while you collaborate with clients on projects that you love.
Choosing to utilize a retainer structure requires planning and full comprehension of the scope of the project. Do not jump into a retainer contract with a new client. You may find that you do not jive well together or that they expect too much from you for the agreed-upon price. A long-term retainer is best left to clients you have previous experience with and is an easier sell for those clients as well. That being said, working on retainer can provide you with a steadier income and peace of mind as you fill your client pipeline… and your clients will enjoy ready access to your wisdom and expertise.