Working as a consultant can be a tricky, uncertain game at points. It can be exhausting to bounce from client to client, charging an hourly rate without any guarantee of where your next payday is coming from. And even when business is going well, the peace of mind that comes with knowing you're set financially for an extended period of time can be an attractive prospect.
Of all the pricing methods a consultant can operate by, there's one that provides that kind of professional serenity better than any other — implementing a consulting retainer.
That model allows you to know for sure that your income will be immediate, secure, and paid in full. But the method comes with its share of drawbacks, so it's important to thoroughly understand the concept before deciding whether to implement it.
Here, we'll get some perspective on what a consulting retainer is, the perks and risks that come with one, the different forms the overarching concept takes, and how to determine an appropriate fee if you opt to go that road.
What is a consulting retainer?
A consulting retainer is a fixed sum of money paid in full, upfront to hire a consultant for an allotted period of time. It's a pricing model that covers a consultant's assistance with specific deliverables or expertise to guide more general operations.
In many — if not most — cases, consultants charge on an hourly, daily, or project-based basis. But those conventional avenues aren't necessarily the be-all, end-all of potential consultative pricing models. Though those options can be particularly lucrative and offer some degree of flexibility, they're often not as stable as some consultants would like.
Operating on a short-term or project-to-project basis can often be unpredictable, unreliable, and exhausting. Retainers offer an element of security to consultants' financial wellbeing. And being able to charge clients upfront in exchange for work can be a more even, less stressful alternative to handling issues as they arise and charging as you go.
Though the stability of a retainer model offers is attractive in its own right, the pricing structure comes with its share of drawbacks.
The Risks of Charging Retainer Fees
One of the primary pitfalls of charging retainer fees has to do with approachability. Paying a lump sum upfront for a consulting retainer can be imposing to prospects — particularly if they've never worked with you before.
The idea of paying a nonrefundable deposit in exchange for what might be mediocre consulting might undermine your potential to consistently land gigs with new clients.
That natural apprehension towards paying a massive advance also lends itself to another one of consulting retainers' most common pitfalls: discounts. It's a lot to ask potential clients to put enough faith in your services to pay in full before you've even started working with them.
That's why many consultants who charge retainer fees offer their services at a discount. Ideally, that kind of deal amounts to a mutually beneficial arrangement — customers get a bargain, and consultants get a stable source of income.
Your experience, esteem, and familiarity with clients will usually dictate the degree to which those drawbacks impact your business. Those qualities will also typically guide the type of consulting retainer you offer.
Types of Consulting Retainers
Pay for Work
Pay for Access
1. Pay for Work
Pay for work is the more conventional of the two consulting retainer models. It's the structure that most people think of when they hear the word "retainer." It's the method typically employed by novice to mid-level consultants, and in most cases, it provides the first step toward building a long, productive relationship with a client.
The concept is relatively straightforward. Shockingly enough, the pay for work model is strictly based on being paid for the work you do. The process typically involves setting a recurring retainer fee for allotted stretches of time and working to earn those charges on an ongoing basis — generally through making good on specific deliverables.
If you build rapport with your clients and consistently earn their business, the pay for work model winds up being something like an indefinite string of contracts that clients pay for in exchange for your effort and assistance.
2. Pay for Access
Pay for Access is a consulting retainer typically leveraged by more experienced consultants. This model is rooted less in actual work and more in insight and expertise.
With this model, you're generally not expected to work on deliverables or finish specific projects. Instead, you're paid a retainer to offer your advice on a specific topic on an ongoing basis. In all likelihood, you won't be able to use a pay for access model as a relatively new consultant.
Generally, consultants who can leverage the pay for access method are either authorities in their industries or have previously worked with the clients they're serving. As I alluded to earlier, the pay for work model provides something of a starting point for charging consulting retainers.
Once you're more established — either as a prominent voice in your field or a reliable, diligent worker for a specific customer — you'll have the necessary clout to charge a retainer for your expertise.
How to Determine an Appropriate Retainer Fee
Retainer fees are often based on the rates you would charge under other payment models. For instance, if you charge $100 per hour for your services and typically work 40 hours per week for clients, you would likely look to charge a $4,000 monthly retainer. But as I mentioned earlier, a full-priced retainer might seem imposing to some prospects.
In many cases, consultants charging retainer fees will offer some sort of discount. If you choose to take that road, be careful, and ensure that your business remains profitable enough to stay afloat long term.
Ultimately, implementing a consulting retainer has its pros and cons. As a consultant, your income sources might not always be consistent, reliable, or secure. With a retainer, you can ensure that you'll get paid for your efforts over a specific period of time.
That's an attractive option, but that kind of stability comes with a price. In many cases, your retainer might seem too imposing to prospects unless you offer a considerable discount for your services overall.
Still, as a consultant, leveraging a consulting retainer is a potential pricing avenue that's worth understanding and bearing in mind.
Originally published Jul 22, 2020 8:00:00 AM, updated July 22 2020