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Knowing how to price a retainer fee is important for any business providing a service to another, so what is a retainer fee? In this guide on how to calculate a retainer fee in the UK, we explain exactly what retainer fees are and how to calculate them.
What is a retainer fee?
A retainer fee is a common form of payment between professionals and their clients. It involves the client paying in advance for work performed by an agency or individual on an ongoing basis. Retainer fee structures are arranged and agreed in advance according to a set number of hours to be worked or other criteria, such as a specified number of deliverables that must be completed.
Working with a retainer fee is quite common where there is an established relationship between an agency or individuals and their client. The retainer pricing model is most often implemented when there is a significant volume of work expected each month.
Here are some more details about the different types of retainer pricing models:
An hourly retainer is when the client pays an agency in advance for a number of hours to be worked on a project or other task. The agency must provide a report to the client detailing the hours worked and how they were used.
This type of retainer model involves the client paying in advance for a specified number of deliverables per month. The agency doesn’t need to report the hours they worked to complete the set of deliverables, so long as they are delivered.
With a performance retainer, the agency will be paid according to the success of their work, usually via agreed-upon performance milestones. This retainer can be lucrative, though there is an element of risk for the agency should the performance of the work not meet expectations.
Pros and cons of retainers
The pros of retainers for agencies and individuals include payment being made upfront, which in turn provides a steady income every month. The deliverables-based retainer also allows the agency to work at whatever pace suits them so long as the deliverables arrive on time. For clients, retainers can help them scale-up the business while simplifying the accounts due to the known monthly expense of paying the retainer.
The cons for clients is that retainers are often more expensive. This can also be a con for agencies, as it may be more difficult to attract new clients.
How to calculate a retainer fee in the UK
You must know how to price a retainer fee when using the hourly or deliverables retainer models. Both should be calculated with the hourly rate in mind, as even with the deliverables model you will need to know how much time the work will take to calculate the fee accurately.
You also need to factor in your costs, including overheads and any sub-contracting or staff salaries. From here you can work out your fee by comparing your costs with your desired profit margin.
Agencies and individuals should always factor in additional hours when calculating the retainer fee. This is because the project usually takes more time than initially anticipated.
Negotiating retainer contracts
Retainer contracts must contain a defined explanation of all the work the agency is required to perform, be it hours worked, deliverables or tasks completed. The contract should also include clear edit and revision expectations.
The contract should also detail any required reports and milestone re-evaluations. This will keep the relationship transparent and provide opportunities for communication regarding the best practices for both client and agency.
Finally, always establish the payment methods and terms in the contract. Include clearly defined expectations for how and when all payments should be made by the client according to the agreed-upon retainer model.
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