Retainer Fee

Retainer Fee — an advance payment for service to secure the deal. Such a payment is effectuated when two individuals have concluded an agreement for a certain action and defined the price for it. Retainer fees are paid to ensure that a professional will fulfill the indicated amount of work. The rest is paid when the service is provided.

Meaning of Retainer Fee

A retainer fee is an amount of money paid before the performed service. Such payments are common in the work of lawyers, consultants, and freelancers. This fee shows that the working relationship has started. The goal of the retainer fee is to secure both the customer and the performer. The customer is ensured that the worker will provide the service to receive the rest of the payment. This is especially important when it comes to remote jobs and freelancers. A performer knows that the customer will pay for the service. Often, the retainer fee doesn’t guarantee a successful outcome. For example, if the lawyer is paid for service, it doesn’t guarantee that they will win the case. 

It is necessary to sign the contract before rendering a service to avoid fraud. Also, the parties can cooperate via a special electronic platform where individuals can hire a freelancer for a service. In this case, all payments go via the platform. These platforms take a small commission for intermediary services, that’s why the final price can be higher. If the client has approved the effectuated work, the performer can withdraw the money. 

Next, the parties conclude a retainer agreement. A retainer agreement describes the duties of parties and terms of payment. This document is something in between the one-time and full-time contracts. According to this contract, the customer pays in advance for the work that will be done later.  

There are two types of retainer fees — earned and unearned. Unearned retainer fees are money paid before the termination of work. The earned retainer fee is the money paid after the termination of work or during several periods of work. The ratio of payments, in this case, is 25% and 75%, or 30% and 70%. In most cases, the unearned retainer fee is smaller than the earned one. 

Retainer fees are implicated in different spheres. The type of payment is defined according to the agreement and arrangements for works. 

Classification of Retainer Fees

General retainer. This type of fee is usually used to pay for legal services. The client pays a certain sum every month and the lawyer makes themselves available for a certain time. A schedule of payment is described in the general retainer agreement. This type of payment is convenient for clients because they cover only the time of service supply and don’t need to hire a full-time performer.  

Subscription retainer. In this case, the client pays for work during the predefined amount of time. If the performer has worked during this time, they stop contacting the client. Such a structure is used in various subscription services.

Deposit retainer. A client pays a lump sum and the performer provides the services that can be covered by this sum. As they reach this amount, they stop performing their work. 

How to Determine Retainer Fee 

If you decide to pay for a service in advance, you should understand how to define the sum for the service and how to conclude an agreement properly.

1. Calculate the number of working hours. Often, a retainer fee is paid per hour. That’s why it is necessary to know the amount of time for payment.
2. Calculate the hourly rate. You can take an hourly rate of a specific performer, and multiply it based on the number of working hours, or take the average sum paid for service in a certain field.
3. Calculate the retainer fee. Multiply the number of working hours on the hourly rate and add the taxes if necessary.
4. Define the sum. The minor sum is paid in advance and the rest is paid after the completion of work. The sum should cover the necessary expenditures of the performer.   
5. Indicate the sums for payment. The order of payment should be described with an indication of days. Indicate the dates of payment and necessary sums. Also, it is necessary to describe the sequence of activities in case of poor quality of service delivery.
6. Define the options for payment. This can be cash, bank transfer, paycheck, cryptocurrency, or electronic money. 

A sample of the retainer agreement can be found on the internet. Sometimes the performer offers their sample. Such an agreement should describe the scope of work and duties of the parties. Also, it is necessary to indicate the legal fees, effective date, force majeure, and procedure for the acceptance of work. 

A retainer agreement can be quite attractive for the performers but not all of them can receive such an offer. Involving potential clients requires self-advertisement, time management, and the ability to communicate and understand their needs. In some cases, the performer can make a retainer discount. Freelancers should have a portfolio and the comments of previous clients to prove their qualifications.