Tom Geller |
Friday, October 24, 2014
A retainer agreement is when a client pays you a set amount per month, regardless of whether you do work for them. That’s essentially to reserve your time: In such a relationship, you can’t turn around and say, “Whoops, sorry, too busy.” This retainer money is applied to any work you do during that month; the client also pays you for any additional work beyond that. The retainer amount might be lower than your normal rate, although it doesn’t have to be. For example, if you normally charge $50/hour, and receive a retainer of $1,000/month, that might be applied to 20 hours of work—or 25, or 15, or whatever you agree upon. Each new month starts the clock again—so if the client only used 15 of the 20 hours it’s entitled to, the five remaining hours aren’t “carried over” to the new month.
A retainer agreement is good for you because you can plan your finances better than in a straight hourly agreement, where hours can go up and down drastically from month to month. It’s also good for the client, who gains certainty and stability in your relationship—and possibly a discount, if that’s what you negotiated. And by limiting the size of the retainer, you can avoid becoming a “captive agency” of any one client.
On the other hand, retainer agreements have their pitfalls. First, you really do have to keep those hours available, even during busy times. Some freelancers overbook retainer hours, especially when they know that clients are unlikely to use their full retainer time. But leveraging time is like leveraging debt: The risk grows the more you do it, and you’ll find yourself scrambling if those clients call in all their “debt” at once. (I personally wouldn’t overbook like this unless I had subcontractors in place to handle such a situation.) Also, clients could demand you fulfill their hours when you’re already overwhelmed with work. That’s why your agreement has to spell such things out. As always, communication is key. Finally, there are psychological dangers in a retainer agreement. If the client doesn’t take advantage of their allotted monthly hours, they might start to feel they’re not getting sufficient value from you. Or—and this is the case with me, because I’m neurotic—I start to worry that I’m not providing value, that I’m getting “money for nothing.” Then I try to remember that I am giving the client something—my availability, regardless of whether it gets used.
I’m reminded of a story about the actor Michael Caine: To someone who expressed surprise that he didn’t mind waiting for hours on a movie set, he allegedly replied, “They pay me a lot of money to wait. The acting I do for free.” If you find yourself in high demand as a freelancer, congratulations! It means your client likes you and wants you around. Just realize that the stakes get higher as your calendar fills up, and each hour is more precious. Retainer agreements can help you manage the demand, while maintaining the joyful freedom of freelancing.
Tags: Business Skills, Freelance, Freelancing, Negotiation, Time Management, Tom Geller
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