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Retainer Fee Explained: Example & How It Works

Last updated 05/16/2023 by

SuperMoney Team

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Summary:
A retainer fee is a type of upfront payment made to a professional service provider in exchange for their availability and expertise. It is often used by lawyers, consultants, and other professionals who work on a project or provide ongoing services to clients. In this article, we’ll discuss the different types of retainer fees, how they work, and the benefits they offer.

What is a retainer fee?

A retainer fee is an upfront payment made to a professional service provider for their availability and expertise. This payment ensures that the service provider will be available to the client for a set period of time or until the completion of a project.
Retainer fees are often used by lawyers, consultants, and other professionals who work on a project or provide ongoing services to clients. They are also used in other industries, such as marketing and advertising, where clients may need access to a team of professionals.

Understanding retainer fees

Retainer fees are designed to provide a sense of security to both the service provider and the client. By paying a retainer fee, the client is guaranteed access to the service provider’s expertise and time. In return, the service provider is guaranteed payment for their services.
Retainer fees are typically non-refundable, as they are paid to secure the service provider’s time and availability. However, some service providers may offer a refund or credit if the client cancels the project or terminates the relationship early.
Paying a retainer fee does not ensure a definite result or end product.

Earned retainer fees vs. unearned retainer fees

Earned

Earned retainer fees are payments made for services that have already been performed. For example, a lawyer may require an upfront payment before beginning work on a case. As the lawyer performs work on the case, they bill against the retainer fee until it is exhausted. At that point, the client will be billed for any additional work.

Unearned

Unearned retainer fees, on the other hand, are payments made for services that have not yet been performed. For example, a consultant may require an upfront payment to secure their availability for a set period of time. The consultant will bill against the retainer fee as they perform work for the client.

What are the benefits of retainer fees?

There are several benefits to using retainer fees, including:
  • Predictable income for the service provider
  • A sense of security for the client
  • Access to the service provider’s expertise and time
  • A simplified billing process

Retainer fee structures

It’s important to note that retainer fees can be structured in a variety of ways, depending on the needs and preferences of the client and service provider. Some common structures include:
  • Monthly retainers: The client pays a set amount each month for ongoing services.
  • Project-based retainers: The client pays a set fee for a specific project or period of time.
  • Task-based retainers: The client pays a set fee for a specific set of tasks or deliverables.
Regardless of the structure, it’s important to clearly outline the terms of the retainer agreement in a written contract. This should include details such as the scope of services, the duration of the agreement, the amount of the retainer fee, and any other relevant terms and conditions.

Retainer fee example

Here’s an example of how a retainer fee might work:
A marketing agency requires an upfront retainer fee of $5,000 to secure their services for a six-month period. Over the course of the six months, the agency provides ongoing marketing services to the client. As they perform work for the client, they bill against the retainer fee. At the end of the six months, if the retainer fee has not been exhausted, the client will receive a refund or credit for any unused portion.

Key takeaways

  • A retainer fee is an upfront payment made to a professional service provider for their availability and expertise.
  • Retainer fees can be structured in a variety of ways, depending on the needs and preferences of the client and service provider.
  • It’s important to clearly outline the terms of a retainer agreement in a written contract.

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