One of the biggest challenges most agency owners need to overcome is finding sources of steady, streamlined income.
One month, you could be netting thousands in recurring revenue; the next, your projects might dry up. Naturally, this can hinder your agency’s growth.
Consistent cash flow allows you to take a proactive approach to your business, rather than constantly reacting to challenges. That’s why agency owners should focus on generating steady monthly income—monthly retainers, in particular, can be a game changer for how you approach client relationships and long-term planning.
To prevent major dips in revenue, it is important that you focus on selling your clients on monthly retainers. It can also help you boost profits considerably. There’s a lot you need to learn before you start selling your clients on monthly retainers, so let’s get started!
How Does a Retainer Fee Model Work?
Retainer contracts are actually quite prevalent in many industries, especially the legal industry. A client will pay a retainer fee in advance to ensure that your services are available to them for a specific period of time.
For instance, if you sell a client web development services, you can sign them onto a retainer contract for monthly website maintenance. This will turn into a recurring payment, and ensure that you have consistent streams of revenue flowing in from different clients.
For larger agencies, monthly retainer contracts provide the freedom to invest in value-added services and improve operations. For smaller agencies that are looking to grow, monthly retainer contracts provide a sense of stability. For startups that are looking to survive, monthly retainers allow for valuable funds that can be invested back into the agency.
How to Calculate Monthly Retainer Fee?
If you devise a fantastic retainer for your clients, but don’t charge them an appropriate amount, you are essentially losing money by the hour. There are several different ways for you to bill clients effectively. These include charging a commission for each project or billing by the hour.
Clients also prefer retainers for their predictability. The client has a definitive figure each month that they have to pay, and they can budget it in accordingly. Everything is paid upfront, and this makes matters quite easy for both them and the agency owners.
Here’s how you calculate the monthly retainer fee.
Calculate Your Annual Salary
How much are you going to pay yourself and your workers? The figure is obviously going to be an estimation, but it should be properly calculated, and you should create pay stubs to document these payments accurately. You can select an amount that you have earned doing similar work for another client, or you can look for industry estimations.
Let’s take an example. If you want to earn around $90,000, you need to first calculate your annual overhead. Add this to the salary. The fixed overheads are essentially the expenses that you incur for conducting business, like business electricity costs, rent for the office, insurance, fixed salaries, and phone bills.
If your overheads are around $30,000, you can add them to your salary of $120,000. Now, you add a profit margin to this figure. It could be however much you want. But, it’s important to keep in line with the industry figures.
Ideally, most people prefer profit margins between 20% and 50%. The average is usually 30%.
30% of $120,000 is $36,000. Add the two figures together, and your total comes out to $156,000.
Jan Koch, CEO, Virtual Summit Mastery, explains how to start selling a WordPress retainer contract as a WordPress webdev agency
Estimate the Amount of Time You Will Spend on One Client
The amount of time you spend on a particular client depends on the nature of the services you’re providing them. For instance, if you are going to spend around 3 hours a day on that particular client, the calculations will be as follows , and using an agency time tracking software can make this process much more accurate and easier to manage.
Let’s assume a standard year, where you work eight hours a day for five days a week. Let’s also assume that you take two weeks off a year. This way, you have 2,000 hours in a year to work. Out of this figure, you will spend 750 hours working for one particular client.
You can look at it in this way 3 hours per day x 5 days a week x 50 weeks in a year = 750 billable hours in a year.
Now, you can just divide the annual figure calculated in the previous section of $156,000 by 750 hours, and you get your answer. In this case, the hourly rate will be $208 per hour.
Obviously, you will have to compare the hourly rate with other agencies in your industry and adjust it accordingly.
How to Negotiate a Retainer Contract with Clients?
To successfully negotiate a monthly retainer contract, it’s essential to position yourself as a highly valuable resource that clients want to retain. Demonstrate your expertise and the consistent results you’ve delivered to previous clients.
By framing the retainer as a solution to the client’s ongoing needs, you can show how they will benefit from having you on standby, ensuring that your services are always accessible when required.
Remember to:
- Demonstrate your value: Showcase your unique skills and past successes.
- Highlight ongoing needs: Position the retainer as a solution to the client’s continuous requirements.
- Secure loyalty: Stress the benefits of having guaranteed access to your services.
When negotiating with new clients, it can be intimidating to propose a retainer fee, as they may not have yet seen the value you offer.
To overcome this, start by emphasizing the benefits of the retainer agreement. Make sure the client understands that the retainer secures both their access to your services and your commitment to their ongoing needs.
Additionally, suggest a trial period or initial smaller commitments to ease them into the arrangement, ensuring that they feel comfortable committing to a long-term contract.
Don’t forget to:
- Articulate the benefits: Explain how a retainer offers consistent access and priority service.
- Start small: Offer trial periods or initial smaller commitments to build trust.
- Easily accessible services: Highlight that the retainer ensures they won’t have to search for new providers every time a need arises.
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Examples of Monthly Retainer Fee Agreement
To better understand how retainers work across different industries, here are a few real-world-style examples of how monthly retainer agreements are structured.
Full-Service Marketing Retainer (Digital Agency)
Imagine you have a client who needs full marketing services, including social media management, SEO, content creation, and PPC campaigns. As a digital marketing agency, you can offer a monthly retainer of $5,000, which will cover up to 50 hours of work. This includes content creation, managing social media accounts, running paid ad campaigns, and optimizing their website for search engines.
If you only use 45 hours of work during the month, you may refund $500 for the unused hours. However, if you exceed the 50-hour limit due to the need for additional campaigns or extra content creation, you may charge $150 per additional hour.
Legal Retainer (Law Firm)
Let’s assume you are talking to a client who requires ongoing legal services, including contract review, legal consultations, and compliance checks. As a law firm, you charge a $7,000 monthly retainer fee, which covers up to 25 hours of legal services.
This retainer includes reviewing contracts, providing advice on ongoing legal matters, and assisting with compliance-related concerns. If you only use 20 hours in a month, you can refund the remaining $500. However, if the legal work exceeds 25 hours due to increased demand or unexpected issues, you can charge $200 per additional hour. The retainer ensures that your client has immediate access to legal expertise whenever needed, without having to worry about fluctuating costs.
Consulting Retainer (Business Consulting Agency)
Next, let’s say you have a client who needs ongoing business consulting, including market research, strategic planning, and process improvements. As a consulting agency, you charge a $10,000 monthly retainer fee, which covers up to 40 hours of consulting services.
This retainer includes market analysis, creating strategic plans, and advising on operational efficiency. If you only use 35 hours of consulting work, you must refund $500. If additional work is required beyond 40 hours, such as a major pivot in the client’s business plan, you can charge $250 per extra hour. This retainer ensures that your client has continuous access to strategic advice to grow their business, without the need for constant contract renegotiation.
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According to Jan Koch:
“If you have a growth marketing retainer and you continue to deliver results, guess what? The clients will stay with you. They see the tangible outcome. They see a direct ROI from investing in your business. And that is of course a very good thing because you can then ramp up and stack client on client on client on client, on the retainer, so that you increase that monthly recurring revenue. You can also use them to set yourself apart from the competition. Whereas competition A might just offer WordPress development, you can also offer the PPC aspect or the conversion rate optimization or other services that you can stack on top of what you already do to increase client retention and to set yourself apart.”
The 7 Best Practices for Creating a Monthly Retainer Contract
Simply calculating the fee for your monthly retainer isn’t going to cut it. There are several important things that you have to care for as well. Here are some best practices to follow when devising a monthly retainer contract.
1. Create an Airtight Contract
Scope creep is a serious problem for many owners, and it usually happens when your contracts aren’t airtight and ironclad. Many experts have weighed in on how to create effective agency contracts, and one rule keeps popping up: you need to have a clear scope of work.
Clients are always going to approach you for “minor” revisions or changes from time to time. To make sure you’re not taken advantage of here, properly define the extent of changes that you can make without additional charges in the retainer contract. Then stipulate the fee for any further changes outside the defined scope.
Start with a contract template as your basis. Describe the terms you use in the contract in detail, like “fixing bugs” or “testing new features”. All terms and references need to be properly defined. Experts at LegalOn recommend professional contract review to identify ambiguous language, significantly reducing scope disputes in retainer agreements. This way, when a client asks for something that falls out of the scope of work highlighted in the contract, you can easily outline the process and discuss the additional fee with them.
2. Making Provisions
Structure the agreement in a way that there are appropriate provisions for future events that might arise.
For instance, what if your client gives you work that exceeds the amount of time stipulated in the contract?
Your contract should have a proviso outlining the calculation of additional payments in this regard. Since your client will already be signed to a retainer, you can throw in a discount for additional services.
More importantly, what if the number of hours are underutilized? You might want to add a provision about whether the hours are going to roll over to the next month, or if the client will “lose them.”
3. Set Tiers
Building a retainer proposal with different tiers will make it easy for you to scale your existing contracts. By defining tiers and different levels of pay for different amounts of work, your client can easily choose a higher tier when they want to scale.
Keep in mind that there is a difference between a retainer proposal and a retainer contract. The proposal can be amended without any issue, but amending the contract is not going to be easy.
It’s best to contact a lawyer when drafting a tiered retainer contract to ensure it doesn’t expose your agency to any legal difficulties.
4. Define Payment Terms
When creating the retainer, outline the terms and conditions for payment. Payments are made in advance for retainer contracts, but it’s important that you highlight the modes of payment, and how you are going to receive the amount.
Will you charge the client’s credit card, or will they set up a standing order? Will the client offer a lump sum fee upfront for a year, or will you stick to a monthly payment schedule?
Clearly define the base fee, as well as the additional amounts that can be received for any additional services rendered to the client. To streamline this process, many businesses rely on the Zintego Invoices and Receipt templates. These templates make it quite easy to customize the information and ensure payment flexibility. There is no defined structure for stipulating the payment terms; they can vary based on the kind of services that you offer to your clients.
It’s important that you discuss everything in detail with your client when adding this section in your monthly retainer contract.
5. Reports
You need to maintain transparency between your client. The best way to do that is by offering comprehensive reports on the work that you have done for them, the hours that you have billed, and the progress you’ve made.
This shows that you value the contract and are willing to prove every month why you deserve the payment. It also communicates that you do not take your client’s business for granted and are willing to provide them with extensive details about the work done.
Even if the client doesn’t meticulously scrutinize the report, simply receiving a notification at a set time each month will give them peace of mind. A professional approach like this highly increases the chance that your clients will renew their contracts with you.
6. Re-Evaluate
You also need to review and adapt regularly. For instance, if your client has been working with you on a higher tier for a few months, you can propose amendments to the contract that increase the amount of work and the fee accordingly.
Track the work and make adjustments when you deem fit. Retainer contracts are not set in stone. You can always submit a retainer proposal to your client if you feel that some changes are necessary to the work.
Sit down with your client at set intervals to discuss work-related details with your client. You can hold a meeting at the end of each quarter and get valuable input from your client, and also offer your advice.
7. Establish an Offboarding Strategy
Your clients must never get the feeling that ending the retainer is difficult. Have a dedicated offboarding strategy in place, and touch upon this when signing the monthly retainer with a client.
Clients should not feel like it’s an issue to get out of the contract. So it’s important that you create a proper offboarding strategy that is easy to implement and doesn’t use a lot of resources.
If your agency only focuses on onboarding new clients and doesn’t have a dedicated offboarding strategy, it could be a problem.
Very few agencies actually have a dedicated offboarding process. Instead of just finalizing the deliverables and sending an invoice, you should consider looking at ways to improve the process and educate your clients about the importance of monthly retainers, too.
Be Open to Change
Lastly, I’d just like to say one thing: be open to change and adapt accordingly. Instead of upselling a retainer to a client, you should try to sell this from the start. It will bring stability to your business and allow you to invest your money in growing your agency quickly.
By following the practices given above, you will be able to draft excellent retainer contracts that mitigate risks and also minimize exposure. More importantly, you won’t have to worry about scope creep either!
Abdul Rehman
Abdul is a tech-savvy, coffee-fueled, and creatively driven marketer who loves keeping up with the latest software updates and tech gadgets. He's also a skilled technical writer who can explain complex concepts simply for a broad audience. Abdul enjoys sharing his knowledge of the Cloud industry through user manuals, documentation, and blog posts.
