July 7, 2022
Hourly billing can be an appealing business model because it means that you’re being paid to work on whatever you want to, whenever you want to. However, it also has its downsides. There are many great benefits of retainer fees, which may be a better option if you’re looking to grow your firm or move away from hourly billing once and for all.
A retainer fee is an agreed-upon amount you pay on a regular basis to ensure access to a specific set of services for a certain number of hours. One common example is an attorney that charges an annual retainer, say $5,000. This means you can call them anytime and get advice or legal services on any matters related to your business or personal life. This also translates over into the financial and accounting realm and offering a retainer fee for advice, bookkeeping, financial services, etc.
When you work with a client on a retainer basis, you have more predictable income. For example, let’s say one month you do $20,000 worth of work for Client X. If you charge hourly, your income is all over the place depending on how much time you put in for that client—maybe it was 20 hours or maybe it was 60 hours; there’s no way to tell. With retainers, you know what to expect at the end of every month. It's also easier for you as a professional because it means less time spent tracking down clients and billing them; instead, you can focus on your work for that particular client.
One major disadvantage of using retainers is that some customers don’t want to commit to a monthly service payment, preferring instead to pay only for their time as they go. With hourly billing, they get exactly what they want—flexibility in payment options. Another drawback to retainer fees is the lack of flexibility with finances for your client. If they are unable to pay for the retainer up front or on a monthly basis instead of paying for services as needed, it may not be a good fit for your business. Also, not to mention that some months won't be as profitable as others because there will be times where more work is required than other months.
Retainers should be used when there is an opportunity to provide a good service for a client on an ongoing basis. For example, if a client simply wishes to have a fixed amount that they regular pay to have access to advice or services, this makes sense. Retainers can also work well in certain cases where the client has many issues which require attention from the same professional. When it comes to hourly billing, you want to use it when you are providing one-time services such as consultation or reviewing documents. It can also work well in cases where a project must be completed within a specific time frame with deadlines.
With retainer fees, you charge a certain amount each month, no matter how many hours you work. This gives your business stability and can give you more freedom to go after larger contracts because your income is guaranteed. Also, don’t underestimate how valuable it is to have a steady paycheck every month.
In our fee-based model, we’re able to provide better service at a lower cost. By setting one flat fee for a predetermined amount of work, our clients know exactly what they’re paying for. When it comes time to assess invoices, there are no surprises because both parties are on board with expectations from day one.
Retainers are not a catch-all, a one-size-fits-all solution. While they may help you save money, they won’t solve every problem. If your firm is cash poor but time rich, then it probably makes sense to keep working with clients on an hourly basis. If you don’t yet have enough expertise or contacts to bring in work on retainer, it also doesn’t make sense to switch right away—wait until you do.
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