Of all the pricing methods a consultant can operate by, there's one that provides professional serenity better than any other — implementing a consulting retainer.
This model allows you to know for sure that your income will be immediate, secure, and paid in full. However this 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
- Types of Retainers
- Perks and Risks of Retainers
- Determining Retainer Fees
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.
Types of Consulting Retainers
- Pay for Work
- Pay for Access
Consultant retainers will be one of two types:
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.
What to Include in a Consulting Retainer Contract
Before you start charging for services, you’ll want to create a contract. This protects both you and the client as it outlines what’s expected of both parties.
Consulting Retainer Agreement
Here are a few items that should be included in your retainer agreement with the client.
1. Scope of Work
Clearly define the project scope and the specific services that you will provide. Chat with the client beforehand to get a feel for their pain points and what you will be tasked with solving. From there you can create a scope of work that outlines exactly what the project is set out to accomplish and the metrics used to determine success. The sooner you can get specifics from the client, the better.
2. Payment Terms
This section should outline how much you will be paid and the frequency. This may include payment schedules, invoicing details, and late payment fees. Here, you’ll outline the payment model agreed upon — whether it's pay for work or pay for access. If you are offering a discount, it should be included in this section as well.
3. Contract Duration
Specifying the length of the contract helps to ensure that both parties understand the timeline of the engagement. Like the scope of work, setting the contact duration outlines exactly how long you will be working with the client on a specific project or providing services.
This section explains what happens if either party wants to terminate the agreement before it is completed. It may include the reasons for termination, how notice must be given, and any penalties involved.
If you will be dealing with sensitive information or working with proprietary company information, a confidentiality clause should be included in the contract to protect both parties.
6. Intellectual Property
If you are creating any intellectual property or work product during the engagement, this section outlines who retains ownership of those materials.
A disclaimer helps to protect you from any unforeseen liabilities, such as changes in laws or regulations that may affect the project.
Benefits of Consulting Retainers
Predictability: A consulting retainer provides a predictable source of income for the consultant and a predictable cost for the client. The consultant knows how much work he or she will be doing over a specified period of time, and the client knows how much the consultant will be paid for that work.
- Flexibility: A retainer arrangement allows for more flexibility than traditional project-based consulting work. The client can request work as needed, and the consultant can adjust the scope of work as the client's needs change.
- Relationship Building: A consulting retainer can help to build a stronger relationship between the consultant and the client. Ongoing work provides the opportunity to build trust and rapport with the client.
- Availability: With a retainer agreement, the consultant is typically available to the client as needed throughout the retainer period, which can provide greater responsiveness and faster turnaround times.
Though the stability of a retainer model 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.
Now that you know about the different pricing models and risks of retainers, let's take a look at how to set the appropriate fees.
How to Set Retainer Fees
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.
For access pay models, you’ll want to focus on the ROI you’ll provide for the client and set prices accordingly. This may require a bit of consultative selling, but you’ll be able to provide clients with more accurate pricing once you assess what their needs are. However, 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, and using an automated retainer management tool like Accelo can provide additional benefits — like increased billable time and simplified client billing
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.
Retainers Provide Stability
Retainers offer a welcome respite from the unpredictability of working as a consultant. By establishing a clear and comprehensive consulting fee agreement, both the consultant and client can be on the same page about project scope and payment structures. Ultimately, they provide a greater opportunity for success — providing consultants with the stability they need and clients with the ongoing value they seek.
Editor's note: This article was originally published in July 2020 and has been updated for comprehensive.