Everything You Need to Know About Freelance Retainers
July 26th, 2022 | Contractor Resources
More Americans than ever are freelancing. A recent Upwork study showed that 59 million Americans performed freelance work in 2021—36% of the entire U.S. workforce.
According to freelancermap’s 2021 survey, the top three challenges freelancers face are project acquisition, irregular income, and late payments. A retainer contract can remedy all three of these issues for freelancers.
Freelance retainers provide you with financial stability and even help manage your workload more easily. Still, they’re not always the best option for freelancers.
Gauge whether retainers are right for you by learning the basics in this post. And if you decide that freelance retainers are right for you, we’ve got you covered with tips for setting up these agreements.
What is a freelance retainer contract?
A retainer contract is an agreement signed between a freelancer and a client that establishes a steady working arrangement over a specified period. The contract should define the essential terms of your working relationship—how much work they expect you to deliver over a fixed amount of time and how much these services will cost your client.
The amount of work is most commonly defined in hours or deliverables:
- Hours: How many hours a week or month you’re available to work for your client
- Deliverables: The number of specific tasks you have agreed to complete
When you sign a freelance retainer, it’s a written guarantee that you are going to get paid in advance for work you have agreed to deliver. Without a retainer, getting paid as a freelancer usually means having to wait until after you have delivered the work to get paid.
Why use a freelance retainer contract
If you’ve ?become a freelancer, you most likely enjoy the sense of freedom and flexibility that doesn’t come with working as a salaried employee. The biggest sacrifice you’ve made for that independence is the lack of a regular paycheck.
Retainers allow freelancers to reintroduce a bit of financial stability into their working situations, along with a few other benefits.
A stable income
As a freelancer, your income probably fluctuates from week to week or month to month, depending on when you deliver work and when your clients pay you for the work.
Retainer fees provide a bit of relief. They set up a guaranteed amount of income that you know you’ll receive periodically, making it easier to plan and track your finances.
Even though a retainer might not cover all of your living expenses, it can provide some relief from the practice of having to hunt down new clients every month and chase them down to pay you for one-off projects.
A work schedule that’s easier to manage
When working on a retainer, you have a better idea of what your workload will look like day-to-day or month-to-month because you know how much work you must deliver.
When your work obligations are more predictable, it’s easier to schedule other projects around your stable workload.
The longer you work with a client on a retainer, the easier it is to gauge how long work will take to complete—helping you improve your work-life balance.
Ability to build comfortable work relationships
Retainers allow you to build familiarity and comfort by setting up long-term work arrangements.
The more you work with a client, the easier keeping them happy becomes. You get a feel for what they like, so you can deliver work that meets or even exceeds their expectations. As you build their trust, clients will likely give you more of a say in their projects.
What are the potential cons of retainer contracts?
Despite the common benefits of freelance retainers that make them so attractive to independent contractors, there are also potential challenges you should be ready for.
You might make less money for the same amount of work
It’s common for clients to ask for a discount on your rates when negotiating a freelance retainer contract. If this occurs, it’s up to you to decide whether the promise of steady pay and work is worth the pay cut.
Keep in mind that it can be hard to ask for a raise down the line when you’re on retainer. Once clients get used to a recurring fee, they’re often unwilling to renegotiate.
The best way to keep your freelance retainer rates growing is by proving your worth regularly. Use your exceptional work to justify periodic raises and remind clients that you would be difficult to replace.
You could become too dependent on one client
Retainers provide security and stability, but they’re not guaranteed to last forever. The loss of a significant retainer could force you to scramble to fill the financial hole left by that client until you can find more steady work.
Create a safety net by finding as many retainer clients as possible so that each represents a less significant percentage of your regular earnings.
It could be hard to say “no” to extra work
Comfortable client relationships with retainers can also have their downsides. Clients might want to take advantage of this familiarity and ask you to do more work than you have agreed to. And since you’re on good terms with the client and don’t want your relationship to sour, it might be difficult to say “no” to these requests.
Your best defense against this situation is to have the terms of your working relationship ?clearly outlined in your retainer agreement before you start working with the client.
How to price a retainer agreement and set your fee
There isn’t an absolute formula for calculating retainer rates. However, there are certain things you absolutely must consider when pricing your retainer agreement and setting your fees, including:
- A client’s willingness to pay for your services: Gauge the value you offer your clients in order to determine your worth. Why is putting you on a retainer a better option for your client’s needs than using multiple freelancers? Consider the rarity and complexity of your skill set, your knowledge of the client and their service/product, your experience, and your past work portfolio.
- Market freelancer rates: Browse popular freelancer platforms and job boards (Fiverr, FlexJobs) to get an idea of what people with your skill level are charging for services you offer.
- Your expenses: Consider your monthly costs and whether this fee and your other freelancer work will cover these expenses.
For a more detailed dive into how to go about setting your freelance rates when negotiating your retainer, check out this guide by Upwork.
Terms to focus on when creating a retainer contract
To protect yourself and your work properly, be very detailed when putting together your retainer work agreement. Clearly define the most important aspects of the contract so they aren’t left up to interpretation.
The retainer’s duration
Define how long the retainer will be in effect. When setting the retainer period, think about when you might want to try negotiating a higher rate. Don’t sign on for a year if you want to negotiate a raise every six months.
Consider including a notice period that the client must give if they want to cancel the retainer to avoid being blindsided. You can also protect yourself by including a trial period and break clause that allows you to void the agreement if the working relationship is not meeting your expectations.
The definition of work
There are two main ways you can define the scope of your services: pay-for-work or pay-for-access.
- Pay-for-work: You agree to deliverables. For example, you promise to create three blog posts or 30 social media posts per month.
- Pay-for-access: You are being paid for your time instead of the tasks you perform. Define your hourly rate or how many days per month you will be available to work for the client.
The definition of extra work
Be ready for the possibility of being asked to submit additional work outside the scope of your agreement. With these terms in writing, you can either refuse the work or bill your client for the extra work accordingly. For example, you can stipulate that any extra work performed can either be charged to next month’s retainer or billed separately on top of the existing agreement.
Retainers should guarantee that you are getting paid a set amount, on time, for work you are going to perform over a set period. Bill up front for each month and state the day that payments must be made.
To keep your clients on schedule, you can include additional fees for late payments or add a clause in the contract that says that you are not obligated to continue working until the balance hits your account.
Is a retainer agreement right for your business?
Freelance retainers are not for everyone. According to a recent Statista survey, 66% of freelancers say they do it because they want to be their own boss.
If financial stability is what’s most important to you, working on a retainer makes sense. You might want to avoid retainers if you’re more interested in expanding your freelance business’s client base, exposing yourself to different types of work, learning new skills, and diversifying your portfolio.
In the end, it’s all about priorities.
Manage your freelance earnings with the right bookkeeping software
No matter how you’re charging your clients for your freelance services, you’re going to need an easy way to keep track of your freelance earnings. Neat’s all-in-one bookkeeping software provides just that.
Simple yet robust, Neat makes it easy for freelancers to create and send invoices, make online payments, and securely store well-organized financial records.
Start a free trial today to see why freelancers and small business owners prefer doing their bookkeeping with Neat.
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