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Getting paid as a consultant can often be a balancing act, as you wait for invoices to be paid from multiple clients. And when payments are delayed, this can have a serious impact on your month-to-month cash flow. One solution is to use the retainer pricing model. But how do retainers work for consultants, and is retainer billing right for you? Here’s what you need to know.
What is a consulting retainer?
A consulting retainer is an up-front fee paid by the client for consulting work. This fixed sum is paid in full to secure the services of a consultant for a predetermined period, usually to assist with specific project deliverables. Working as a consultant on a retainer basis offers greater stability than charging for your services on an hourly or daily basis because there’s no need to wait for invoices to be paid.
How do retainers work for consultants?
There are two types of consulting retainer models to choose from, depending on professional focus and experience.
1. Pay for work is the first retainer model, often used by beginning to mid-level professionals building a long-term relationship with their clients. With a pay-for-work model, you set a recurring fee for a predetermined time. The client pays upfront and then you’re expected to work throughout that time to achieve specific deliverables. If the client likes your work, they’ll continue renewing the contract, paying upfront for each stretch of time.
2. Pay for access is the second model, usually preferred by consultants with a higher level of experience. With this type of contract, you usually won’t be working on specific projects or deliverables. Instead, you’ll be available during the contractual period to offer your professional advice upon request. The client pays for access to your authority, knowledge, and expertise – usually built up over years in the industry.
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How to set your retainer fees
The type of retainer contract you enter will depend on experience, and so will your pricing model and fees. Retainer fees are usually based on the hourly or daily rate you would normally charge under a more traditional pricing model. In the case of pay-for-access contracts, you’ll base your rate on the added market value it creates for your client. Think in terms of return on investment, depending on how you’ll help their business.
When you’re building a relationship with a new client you might wish to offer a discount to prove your value first. Some clients will be hesitant to pay full-time rates for a week or month without knowing whether it will be worth their while. This is why many consultants offer a discount for new contracts.
What to include in a consultant retainer contract?
Can you bill for a retainer on a consulting contract? Of course, provided the details are spelled out clearly. If you’re thinking about working as a consultant on a retainer basis, it’s very important to write a clear contract. It should define expectations on both sides so that there are no surprises or disputes with the client.
Be sure to include details such as:
The project scope, goals, and desired outcomes
Key financial metrics used to determine success
Description of the services you will provide
Whether you are using pay for work or pay for access model
Expected return on investment (ROI)
Responsibilities of both parties
Financial terms and conditions
Signatures and dates
Should you work as a consultant on a retainer basis?
There are pros and cons to charging retainer fees. For those just starting out, it provides a more stable income without the need to chase up outstanding invoices. The downside is that you might need to offer a discount for retainer contracts while you build up a base of steady clients.
If you determine that this pricing model works for you, GoCardless can help. Consultants can take payments automatically on their due date using our automatic invoicing, making it perfect for all your retainer billing needs.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.