What Are the Advantages of a Retainer Agreement?

A retainer fee is an upfront payment made by a client to a consultant in order for them to complete a task or service. Discover the benefits of retainer fees and the various types of financial arrangements.

What Exactly Is a Retainer Fee?

Clients pay a retainer fee up front for professional legal services or freelance work. A retainer agreement acts as a down payment to guarantee the completion of a specific task.

Retainers are commonly associated with a law firm's attorney fees, but these advance payments are now part of a variety of business-client relationships, particularly in the increasingly popular gig economy. Retainer fees are frequently requested by paralegals, consultants, freelancers, and advisers.

Retainer fees can be charged on an hourly basis. The paid person will estimate how many hours a project will take. In the case of legal professionals, the firm forecasts lawyer fees over a given time period. If the work takes longer than expected, the consultant requests more money; if the job takes less time, they refund the money or apply it to future services.

Types of Retainer Fees

Access retainers and work retainers are the two main types of retainers:

1. Access retainers: An access retainer requires the consultant to bill for specific hours and only receive payment for those hours. This ensures a set schedule for the consultant as well as a firm payment from the client.

2. Work retainers: A work retainer charges the consultant for specific tasks agreed upon for service with the client. Clients pay consultants through work retainers at various project milestones until the project is completed.

What Are the Advantages of a Retainer Agreement?

A retainer fee is an agreed-upon, upfront payment that ensures the freelancer or legal representative completes the work. Both clients and consultants benefit from this arrangement. The client is aware of the going rate and is able to pay immediately, and the worker is aware that the job must be completed within that time frame.

A retainer fee agreement ensures that consultants are paid for the hours they expect the project to take. Clients can save money by foregoing insurance and benefits for the consultant. On the basis of general retainers, many clients and consultants develop a trusting working relationship. In legal cases, the client agrees to the consultant's lawyer fees and work ethic in exchange for sound legal advice.

How to Calculate a Retainer Fee

A retainer fee is typically calculated by multiplying a consultant's hourly rate by the number of hours they estimate a project will take them. However, retainer fees differ from industry to industry and from consultant to consultant.

Years of experience, company size, and geographic market are all factors that can influence a firm's legal fees in the legal world. The same considerations can apply to freelancers who assist with a project, such as copywriters, graphic designers, or human resources professionals.

Retainer Fee Example

A retainer fee is typically based on the number of hours the consultant estimates it will take to complete a project. Assume an attorney charges $200 per hour and tells a client that a court case will take forty hours to prepare. The retainer fee for the work will be $8,000, which the client will pay to the attorney up front.

When the consultant finishes their work, they may discover that it only took them thirty-eight hours to complete, so they repay the client two hours' worth of work ($400). The attorney later presents the case but loses. In this hypothetical scenario, regardless of the outcome of the case, the attorney retains the money due to the labor involved.

What Is the Difference Between an Earned and an Unearned Retainer Fee?

Earned retainer fees specify the number of working hours. The earned fee is the consultant's income, or the amount they expect to be paid based on the agreed-upon number of hours. This payment is made after the consultant has completed the work and filled the hours, thus the term "earned."

Unearned retainer fees are payments made before the consultant completes the work. As a result, the money is "unearned." If the consultant completes the job in less time than expected, they will either repay the money or bank the hours for a future project.