Are there any disadvantages of taking work based on a retainer?

Question

I normally just charge an hourly rate of time and materials. A potential client has asked to perform work on a retainer basis.

I'm slightly concerned that since my business is mostly based cash upon receipt (I own a home and it goes directly to my mortgage company) it would cause a cash flow issue. E.g. if they don't ask for me to used up all the retainer hours; they'd need the money returned. Thus, each parties would lose-lose.

I don't ever work with a retainer arrangement. Are there any disadvantages of a retainer?

Answer 1

You are not informed properly, retainer money is not returned! This is true in the IT industry, especially programming, and some other industries like legal. In other industries, companies don't usually use the term "retainer" as they don't want to return unused money. That is why you will more often see them sell premium support or similar service which are not refundable. Take note that I am not capable of listing all services which return or not return retainer. I can only talk for my field of expertise - programming.

They are paying you to save your time for them and act on their requests immediately, not tomorrow, not when you have time, but right now.

For example, you save 5 or 10 hours a week for this client. If there is work, you work every day. If not, you can drink coffee or do other work in his time, but you are obliged to work on his tasks immediately upon they come!

So he bought your time for the period of 1 month or 3 months or 1 year and you are not obliged to compensate anything.

Just check a few of my last questions about retainer since I got great advises there.

And about disadvantages, the largest is that you are bound to this client and you have to work for him, regardless how interesting project you have aside. He bought you time and you have to serve him firstly and always, even if you planned to have casual Friday :).

Answer 2

Peter is absolutely correct. Retainers are NOT refunded if the time is not used. Retainers are to ensure that if something comes up that's urgent, you will drop everything possible to see to their needs first. Since this arrangement potentially results in an "opportunity cost" to you, the money is yours to keep even if no work needs to be done that month. So if your client is expecting their retainer returned each month, you need to set them straight on that pretty quickly.

Btw, one way to make sure you don't lose a lot of money on a retainer job is to decide beforehand how many hours the retainer should reasonably cover before you revert back to a per-hour billing - and write that into your contract. For example, you could say that the monthly retainer is good for up to 10 hours of work, but if they run into problems that will take longer than that to fix, after that 10 hours the work will be billed at $xx.xx per hour. This keeps you from losing money if the client decides that having you on retainer means they can call you up all month long at all hours for absolutely anything, no matter what, and their bill will never go up. I'm sure you know what the result of that situation could be...

Answer 3

A good alternative to a 'retainer' is a 'monthly maintenance' package.

So for example, a monthly maintenance package could include

1) Regular ongoing updates to the site software (i.e. especially important if you are using software packages such as Joomla! or Wordpress);

2) Regular back-ups (off-site and tested);

3) A set amount of hours for available phone and/or email support per month; and

4) Security response (you have to be careful with this one - if you offer it, you have to be competent and have a process to handle security issues (i.e. a DDoS attack and so many others)).

If you can effectively communicate the value proposition to the client for a monthly maintenance package (and there is enormous value in such a package), you can then discount 6 months or or annual packages - in order to get bulk payments upfront.

Not only will you be better serving your client, you will help them to budget and you will also improve your cash-flow.

In a sense, this is a type of retainer for your services - just not one for 'hourly design/development.'

Putting the shoe on the other foot - the only time, as a client, I would consider paying a 'retainer' to an I.T. Freelancer is if a) I knew that I would have at least a set amount of ongoing work for that Freelancer; and b) it would be difficult, if not impossible, to secure those particular expertise when required.

That said, if a client is willing to pay you a retainer, it is likely because they want to ensure your availability and dedication to their projects. If that's the case, it is one of the highest compliments you can get as a freelancer and if you like the work, the client and the compensation - take the retainer and pat yourself on the back!!!