A retainer is an arrangement between the firm and service provider wherein the service provider is paid an advance for the services that are likely to be taken at some future period. Retainers are commonly used in areas like Law, Accounting, HR etc.
Retainer fees are the upfront cost paid to the retainers. They are of two types: Unearned and the earned fees.
- An Unearned fee is paid before the start of any work.
- An earned fees are exactly opposite and are paid after the work starts.
There is no guarantee that the fee will ensure the successful final output. Many times, the fees are deposited in a different account than the receiver’s existing account to ensure that the funds are not used for the other purposes.
Retainer are paid upfront in general scenarios, i.e. consultants ask for the entire 100% fees in advance. However, in some cases, based on the type of work to be performed, consultants may change their structure of fees and can change their billing cycle based on monthly, weekly, quarterly or semi-annually.
Generally, the retainer fees are calculated on an hourly basis i.e. an hourly rate times the number of hours of work. For example, the per hour rate of work to be given is $60 and the retainer is expected to provide the assignment which involves 100 hours of work monthly. So, the monthly fees will be calculated as $60*100 = $6000 per month.
The fee is calculated well in advance to determine whether they are earning reasonable profit in an assignment or not.
The Retainer Agreement is a contract between the consultant and the person who is taking the services of the consultant. In the agreement, all the terms and conditions related to the service are mentioned and agreed on by both the parties. Also, the payment details like fees, payment cycle, percentage of fees, etc. are all mentioned in the retainer agreement. The agreement provides the safety and guarantees to both the parties in terms of the guarantee of payment to the consultant and the guarantee of the work to be done to the person taking the services of the consultant. Both parties need to sign the retainer agreement before the work gets started.
- The Retainer services provide the flexibility of work and freedom along with the different options and the variety in a particular area of work.
- They provide “multi-channel” or integrated approach and are most appropriate for the companies who are looking for the same.
- It provides the opportunity to reach multiple audiences through various channels like advertising, direct mail, radio, television, and payroll.
- The retainers provide the strategic approach using all the above channels and creativity of designs. Because of this, results are easier to track, increasing the chances of success more efficiently and reducing the chances of failure.
This has been a guide to Retainer and its meaning. Here we discuss its agreement, payments, and how to calculate its fees along with importance. You may learn more about financing from the following articles –