Updated: Apr 30, 2019
Whether you are an independent consultant or part of a firm, you have to decide which pricing model or fee structure to propose when you are doing a proposal for a client. This will define how you will be paid. You and your client need to agree on the fee structure and then write it into a contract.
The main goals of any fee structure are to:
Make sure you get paid not just for what you do but for the value of what you do for the client.
Eliminate or reduce future stress for you and your client.
Eliminate or reduce the time you spend doing things like contract amendments, which you do not get paid for!
There are 3 primary ways to charge clients.
Charging them a monthly retainer for the work you do for them.
Charging them a flat fee (fixed price) for the entire scope of work.
Charging them for every hour that you work for them and any expenses.
There’s no one best way to do it. In this blog, I’ll talk about what a retainer is, the pros and cons of using that fee structure, and when I would suggest using it.
Under a retainer fee structure, you are paid a fee at the beginning of every month for a defined period of time (e.g., 6 months or a year). In some circumstances, you may get an upfront lump payment for more than a month. A retainer is essentially an advance payment. There are different types. The two main types for consultants are:
Payment for a defined number of hours that you will work
Payment for being available as needed
Retainers Based on Hours
The first type is usually for specific projects or services. You define what the scope of work is with the client, estimate the number of hours it will take to complete the work, and then get an advance payment for those hours. Some retainer arrangements do not have a clearly defined scope ahead of time, but the client wants to know that you will be working on whatever they need for a set number of hours per month.
Retainers often include limits on the amount of time you work. For example, you and the client may agree that you will be paid an amount equal to 50 hours per month. If you work over that, then you charge more (often an hourly rate) for any time over 50 hours. Some retainer arrangements also include a stipulation that any hours that are not worked are carried over, meaning you get paid the same amount but agree to work any unused hours at another time during the engagement. Those arrangements look more like what lawyers do, that is, work off a bank of hours until the bank is depleted.
As you can see, that is very similar to charging an hourly rate with a budget cap. The difference is that that you get paid in advance. Some consultants also give clients a discount on their rates to woo a client into giving them a retainer.
Retainers Based on Availability
The other type, payment for being available, works differently. Instead of being paid for specific hours that you work, you get paid for being available to the client when they need access to assistance, expertise, advice, insights, connections, etc. If you work at a firm or as part of a team, the retainer may be for the client to have access to whatever and whoever they need from your firm or team. There is often not an allocated number of hours in these contracts although these contracts can put limits on availability (e.g., available during the hours of 8 am to 6 pm ET Monday through Friday, responding to emails and calls within 24 business hours, being onsite only 6 days per month). Of course, the more limitations you want, the harder it can be to get a client to agree to a retainer.
In some way, it is kind of like a subscription service. The client has the subscription and they can use—or not use—it as they please. Some firms also charge retainers for guaranteeing that their consultants will be available to do work if the client needs it but then charges for work on a per-project basis. The retainer only pays for the guarantee, not the actual work.
The big benefit of either type of retainer is that you have guaranteed income. Having predictable income can help with cash flow, which is critical for independent consultants and firms. A retainer can be your stable and steady income that is not dependent on a client paying you on time or maintaining the same amount or pace of work. Depending on the type of retainer or how it is structured, it may give you more flexibility each month to do what is necessary to add value to the client rather than worry about how many hours you are working.
Firms also tend to love retainers! Why wouldn’t they? If generally won’t impact your salary, but you may get rewarded or praised for securing retainers.
Clients who want to have you work for them over an extended period of time often like it because your fees are predictable, which makes their budgeting easier. Some consultants also give clients a discount on their rates in exchange for a retainer. These types of retainer arrangements may work great for clients who have ongoing needs or issues (or recurring crises) that require high-level or rare expertise or knowledge or a deep bench of assistance that they can tap into on demand.
Retainers can be difficult to get. If clients don’t already know you and value what you offer, it can be more difficult to convince them to pay you retainer, especially if it’s not clear what you will do for them ahead of time. They get what’s in it for you. You have to make the benefits to them obvious. You will have to make the case that they will get something they couldn’t get from a fixed price or hourly contract.
If you do get a retainer arrangement—and want to keep it—you have to make sure that the value you provide always exceeds the price. If it doesn’t, they might as well pay you a fixed price or hourly. That does not mean you have to work longer and harder. That means that the client has to perceive that what you offer it worth every penny. That doesn’t happen automatically! You need to deliberately ensure that they can see, touch, taste, and feel high value during the entire engagement. You’ll need to spend the time and energy to communicate and demonstrate that continually and skillfully.
The devil is also in the details for retainer arrangements. You will need to negotiate the best terms possible or live with limitations that are not ideal. For example, some clients may insist on including a stipulation in the contract that you cannot work for their competitors, which can limit your ability to secure other work in the same field.
You also will have to manage client expectations while establishing the contract and throughout the engagement, especially if a client is new to retainer arrangements or has or develops a big appetite for you and your time. For example, if the contract states that you will charge them an hourly fee for every hour you spend above the hours you agreed to, you will need alert the client and often get pre-approval to do that. They may be confused or annoyed because they think that having a retainer means that they can get you whenever they want and not have to pay you more—even if the contract says something different! You’ll have to help them understand that the ebb and flow of the work is normal and will even out over the course of the engagement.
It can also be tough to manage your time under retainer arrangements, especially if there is no limit on your hours or availability. Being at a clients’ beck and call can restrict your ability to take on more work or do the rest of your work well. It can also wreak havoc with the rest of your life!
When I Would Do It
I would do a retainer with a client in a heartbeat! Guaranteed income is a lovely thing. I especially would do a retainer based on having access to me or my team—with limits.
Not all of my clients would go for it, especially if what they need is a time-limited scope of work like a strategic plan or a series of trainings. However, I would try to negotiate a retainer for my clients who already know and value me and need ongoing help from me over an extended period of time. For example, I would do it for my clients who are going through a major reorganization or merger or if the environment in which they operate is changing around them and they need ongoing strategy support and advice. If clients aren’t sure or fully convinced, I would also suggest trying it for 6 months and then reassessing after that time. That is enough time in most circumstances to demonstrate to them the value of having me or my team on a retainer. It is also enough time, but not too much time, for me to assess whether or not I want to stay on a retainer with them.
I would also do it if my time is rare and a client wants to make sure I am working for them. For example, if I reduce my overall work hours, I become less available for client work. I would not be able to say yes to everyone who wants me to work for them. So if a client wanted to get dibs on my time for a period of time, a retainer is how they could do it.
If a client wanted help with multiple specific projects, I would lean toward a fixed-price or hourly fee structure. Managing a retainer across multiple projects is challenging to say the least. If I did do it, I would have to make sure I had the systems in place to be able to know at any given time how many hours every person has worked, the status of each project, any alterations in expectations or scope, etc. And I’d have to have someone on my team who loves tracking all those details do it for me so I can focus on the work!
Most of the time, I would not discount my rates in exchange for a retainer. Why? Because access to me and the value I bring is worth more than a chunk of hours. They are essentially taking all or a portion of me out of the market and, if I give a discount, then I make less income than I would doing something else. If I need that income, I would have to work more hours to make up the difference. And where do those hours come from? Well, often they come from other areas of my life, which can throw off the balance I want in my life.
If I did get a retainer, I would set clear expectations early and often. This would include clarifying what value means to them and how they would know they are getting their money’s worth. I would set up regular contact times with my primary contact so they never wonder what I am doing for them. This is especially important if multiple people within the organization are working with me. They may not know about all the value I am providing across their organization. I have to make sure they know what I am doing and ensure they have the opportunity to give guidance and direction to the work. I would also set clear expectations that some months will be heavy and some months lighter but that I’ll make sure it averages out and that the value will always be in their favor.
Always Get Paid for Your Value
Whatever fee structure you use, it is critical that you always make sure you get paid for all of the value you bring to the client. You are not just showing up to be a warm body for the client. You are giving them all kinds of value: your expertise, intellectual property, insights, instincts, output, and more. You are also helping them do things that they couldn’t do and would have difficulty doing without you. That value is worth a lot and you deserve to be paid accordingly.
How to Articulate Your Value and Get Clients
If you need help describing what you do in a way that shows clients how valuable you are—and demonstrates why they should pay you for your value, I’ve got a tool that can help you do that! Know Your Zone: The Consultant’s Guide to Describing What You Can Do will take you step-by-step through a process that will get you ready to win clients!
Other Fee Structures
You can get more information on other types of fee structures by clicking on the links below.