Retainer agreement: Is it right for your agency?

How do you create long-term relationships with clients? 

You want to provide enough value to keep clients coming back for more, but this is tough when you don't know if the client will stick around. That’s why many agencies use retainer agreements: to ensure reliable relationships and revenue.

But (like everything else in the business world), retainer agreements come with both benefits and drawbacks. Below, we'll cover everything you need to know about retainer contracts so you can decide if this solution is the right way for your agency to go.

What is a retainer agreement?

A retainer agreement is a work-for-hire contract between a client and a service provider. With a retainer agreement, the client agrees to pay upfront for ongoing services. In other words, your client pays your agency a monthly fee to secure your professional services on a continuous basis.

The purpose of retainer agreements

Like any contract, the primary purpose of a retainer agreement is to make sure that your agency actually gets paid for your services. By requiring clients to pay in advance, retainer agreements eliminate the potential for non-payment disputes.

Where retainer agreements differ from other work contracts is that they establish long-term relationships and ongoing payment. This allows clients to lock in your services for a specified period of time and ensures a long-term client relationship and stable cash flow for your agency.

Who uses retainer agreements?

When you think of retainer agreements, attorney's fees are probably the first thing that comes to mind. It's normal for law firms to use retainer agreements, with clients paying in advance for ongoing legal services. However, there are plenty of other businesses that can benefit from retainer agreements.

Any business or individual that provides ongoing services — whether it's a large agency, an independent contractor, or anything in-between — can use retainer agreements to establish reliable client relationships and guarantee consistent income.

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Types of retainer agreements

Retainer contracts come in a few different flavors, which we’ll cover in the sections below to help you decide which best fits your agency’s services. 

Pay-for-work retainers

The most common type of retainer agreement is a pay-for-work retainer. Pay-for-work retainers aren't that much different from a standard contract. But instead of a flat fee for a one-time service, pay-for-work retainers structure payments and services on an ongoing basis. For example, a client may pay a monthly fee to a marketing agency for continuing marketing services.

Pay-for-access retainers

Pay-for-access retainers are a little rarer than pay-for-work retainers, and companies or individuals use these contracts when they are offering their knowledge or expertise, rather than actual labor or services. 

Consultants and consultancy firms often use pay-for-access retainers, requiring clients to pay an ongoing fee in order to have the consultant on call and ready to provide their expertise whenever it’s needed.

Advantages and disadvantages of a retainer agreement

Now, you’re probably thinking: “Wow! Reliable clients and steady pay? Who wouldn’t want to use a retainer agreement?” And on the surface, retainers are pretty sweet. But there are several pros and cons of retainer agreements that you need to consider before deciding if they’re the right approach for a particular client.

Advantages

We’ve already mentioned some of the main benefits of retainer agreements. But if you’re still not convinced of their merits, let’s take a deeper look at what these contracts can do for your agency.

Improved planning and strategy

Predictability is the biggest benefit of retainer agreements, and this consistency can come in handy in several different ways. When your agency knows the exact workload and deliverables that the client expects to receive over a predetermined period of time, it makes it a lot easier to plan and strategize in advance.

It can be difficult to build a long-term strategy for a client when you aren't sure if they’re going to churn or not. With the commitment that a retainer agreement creates, long-term planning becomes a lot more straightforward.

Stable cash flow

With a retainer agreement, you’ll know exactly how much and when your clients will pay — on a reliable, ongoing basis.

Anyone who has ever owned a business knows the importance of a stable cash flow. With retainer agreements, you can establish a steady, predictable, and reliable cash flow for your agency and ensure you always have enough cash coming in to keep the lights on.

Building ongoing value for clients

Talking about the importance of delivering value to clients, Bernard Kelvin Clive once said: "To get them hooked and booked for life, you must consistently feed them — value!" 

Retainer agreements establish stable, long-term relationships with clients. If you do your job right, this means the opportunity to enhance quality, impact, or desirability for those clients (and create new revenue streams for your agency). 

They’re not permanent contracts. However, they do give you the ability to create value for your clients over long periods of time. If you’re successful, you can expect them to keep signing your retainer contracts.

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Better client commitment

Once a client has paid in advance for services, you can consider them hooked. Any client that is willing to enter a retainer agreement with your agency is going to be serious about the partnership and committed to seeing it through. This allows your agency to be equally committed to the partnership, without having to worry about the client getting cold feet.

Disadvantages

Retainer agreements may sound great so far, but they do have a few drawbacks. Let’s examine a few cons for your agency should keep in mind before taking the dive into this contract model.

Scope creep

In case you can't tell by the ominous-sounding name, scope creep isn't a good thing for service providers. Scope creep refers to the gradual expansion of project requirements and deliverables beyond what you and the client originally agreed upon in the contract. As you might imagine, it can result in your agency doing a lot of unpaid work and tank your profitability.

Since retainer agreements establish long-term working relationships, scope creep is an issue that agencies using these contracts commonly encounter. The scope of a project can easily change over time, and minor task additions add up. So a few months down the road, you might find yourself doing twice the work for the same pay. 

Limited flexibility

Scope creep is just one symptom of the larger issue with retainer agreements: limited flexibility. Like we said earlier, the biggest benefit of retainer agreements is predictability. However, predictability and flexibility don't always go hand-in-hand.

When you pre-define the project scope and the client pays upfront, there's not a lot of room for adjustments without some form of renegotiation. This makes it essential for agencies using retainer agreements to thoroughly and accurately plan out the project, so this lack of flexibility doesn’t become an issue later on.

Difficulty terminating the agreement

Once a client has signed a contract and held up their end of the bargain by paying the amount owed, it's a little too late for your agency to back out. While agencies don’t often choose to terminate an agreement with a client, there are some cases where you simply can't deliver what was promised or a client/project has become more trouble than it’s worth.

Normally, terminating a client relationship is a quick and simple process — there may be hard feelings, but there shouldn't be any legal disputes. If you've entered into a retainer contract with a client, however, terminating the agreement is a little less cut and dried.

How retainer agreements are structured

Retainer agreements are custom documents that you will have to create for each client you take on. But the basic structure of your retainer agreements will usually stay the same.

Here are the sections that most retainer agreements should include and the important details covered in each section:

1. Introduction

This section is a brief overview of the retainer agreement and includes the names and contact information of the service provider and the client. It may also include the effective date of the agreement and other background information relevant to the working agreement.

2. Scope of work and services

Here is where we get into the meat of a retainer agreement. The scope of work and services section of a retainer contract outlines the specific services and deliverables that your agency will provide. This section clarifies the responsibilities of both your agency and the client by detailing the objectives, timelines, deliverables, and limitations/exclusions that define the scope of the work you're agreeing to complete.

3. Retainer fee and payment terms

Now that you've nailed down what you are promising to deliver to the client, it's time to talk turkey. This section outlines how much the client will pay, when payment is due, and how payments will be submitted. 

4. Intellectual property and confidentiality

When working with a client, your agency may end up either creating or sharing intellectual property. This section of a retainer agreement covers intellectual property rights, defining the ownership of intellectual property, in addition to covering concerns such as confidentiality and the handling of sensitive information.

5. Dispute resolution

In case there's trouble in paradise, this section details how your agency and the client agree to handle disputes. Typically, this means defining whether the parties agree to seek mediation, arbitration, or legal action in the case of unresolved disputes.

6. Termination

This section outlines the conditions and procedures for terminating the retainer agreement. The termination section of a retainer agreement commonly covers considerations such as termination notice periods, grounds for termination, and any obligations that remain once the contract is terminated.

7. Signatures

If you and your client both agree to everything included in the retainer agreement, the final step is to sign the dotted line. At the end of a retainer agreement, you will find a space for both parties to sign and date, indicating their agreement with all of the contract's terms and conditions.

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Creating a retainer agreement can be a great way to establish reliable, long-term relationships with clients. Once a retainer agreement is signed, that’s when the real work begins!

To manage long-term retainer agreements that deliver the kind of value clients expect, your agency needs to use the right project management tools. Teamwork helps agencies thrive by providing everything you need to manage the full lifecycle of client work in one place.

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