Setting up a retainer agreement is a critical step for professionals providing ongoing services to clients. A well-structured retainer agreement not only establishes the terms of the engagement but also ensures a clear understanding between the service provider and the client. In this step-by-step tutorial, we’ll guide you through the process of setting up a retainer agreement, covering key components and considerations.
Define the Scope of Services:
Clearly outline the scope of services that will be covered under the retainer agreement. Specify the tasks, responsibilities, and deliverables that the service provider will undertake for the client. This sets the foundation for a clear understanding of what is expected from both parties.
Benefits of a retainer agreement
There are two main benefits to a retainer agreement:
Guaranteed income. A retainer gives you a regular pay schedule, providing a level of stability freelancers often lack. This makes it easier to pay your bills, enjoy your day-to-day life, and plan for the future.
More reliable clients. Companies willing to sign a retainer are more likely to pay on time, every time. A retainer agreement will also often scare away low-paying and/or unscrupulous clients.
A retainer can also help you earn more money over the long term. After all, if a client is already paying you, they’re not going to use someone else for the same service.
Who to target with a retainer agreement
A retainer agreement is a big commitment. You probably won’t convince a small company with a highly variable budget to sign one. Likewise, a company working with you for the first time will probably be hesitant to agree to a retainer.
The people who will agree to a retainer are the ones who already serve as your “bread and butter” clients. They already know you do good work. They’ve proven that they have the budget to pay for your services on a regular basis. They’re probably also the clients who are most pleasant to work with.
As a more specific example, if one client has hired you for $2,500 worth of work every month for three months in a row, you can consider pitching a $2,200/month retainer to them – more on the specifics a bit later.
How to set up a retainer agreement
The next thing to consider is how you’ll structure the agreement. Specifically, how you’ll structure your work offering.
There are three main ways to do this:
- Hourly. Offer the client a specific number of hours of work per month. You also need to establish what happens to hours that are not used. For example, you might offer ten hours of work per month and be willing to carry up to two unused hours over to the next month.
- By deliverable. Promise to deliver a set number of “products” or “services” per month. The agreement also spells out if additional work will be accepted and, if so, how that work will be priced.
- For access. In some instances, a client might pay a monthly fee for access to your services. This serves as a base pay, and hourly fees are also charged. This is common practice for law firms, but most freelancers can’t get away with charging this way.
To increase the chances of your retainer being accepted, base the scope of work on what you’re already doing for the client.
Consult Legal Professionals:
Seek legal advice or have the document reviewed by legal professionals to ensure compliance with applicable laws and regulations. Legal professionals can provide valuable insights and help avoid potential legal pitfalls.
Signature Section:
Conclude the retainer agreement with a signature section. Ensure that both parties carefully read and understand the terms before signing. Each party should retain a copy of the fully executed agreement for their records.
Regular Review and Updates:
Regularly review and update the retainer agreement to ensure it remains current and reflective of the evolving nature of the engagement. This is especially important if the scope of services or other terms may change over time.
FAQs about retainer agreements
What is a retainer agreement?
A retainer agreement is a legal contract between a client and a professional service provider (such as a lawyer, consultant, or freelancer) that outlines the terms and conditions of the services to be provided and the fees associated with those services.
How does a retainer agreement work?
In a retainer agreement, the client pays an upfront fee (the retainer) to secure the services of the professional. The professional then provides the agreed-upon services, and the retainer is typically applied against the hourly or project-based fees as the services are rendered.
What types of professionals use retainer agreements?
Retainer agreements are commonly used by lawyers, consultants, marketing professionals, accountants, and other service providers who offer ongoing or specialized services to clients.
What is the purpose of a retainer fee?
The retainer fee serves as a commitment from the client to retain the services of the professional. It is paid upfront and is usually used to cover the initial costs of providing the services.
How is a retainer fee different from regular fees?
A retainer fee is paid upfront to secure the professional’s services and is typically applied against future fees. Regular fees are the ongoing charges for the actual services provided and are billed as the work progresses.
What services are covered in a retainer agreement?
The retainer agreement specifies the scope of services that the professional will provide. It may include ongoing consultation, legal advice, project-specific tasks, or any other agreed-upon services.
Can a retainer agreement be for a fixed term or ongoing?
Retainer agreements can be for a fixed term, where services are provided for a specific duration, or ongoing, where the client retains the professional’s services on an ongoing basis.
How are additional services handled in a retainer agreement?
The retainer agreement typically outlines how additional services beyond the agreed-upon scope will be addressed. This may involve negotiating additional fees or entering into a separate agreement for the extra services.
Conclusion:
In conclusion, setting up a retainer agreement involves careful consideration of various factors to ensure a clear and legally sound document. By following this step-by-step tutorial and addressing key components such as scope of services, fees, termination, and legal aspects, you can create a comprehensive and effective retainer agreement. Consultation with legal professionals adds an extra layer of protection, ensuring that the agreement complies with relevant laws and regulations. With a well-structured retainer agreement, both service providers and clients can engage in professional relationships with clarity, confidence, and legal certainty.