What are Consulting Retainers?
Retainers are an excellent first step toward breaking out of the feast-or-famine cycle that haunts many beginning and mid-experience consultants. Retainers are also one of the simplest ways to start building multiple streams of income.
Retainers are contracts between you as the consultant and your client. They guarantee that you will be available to your client for either your work or for your expertise and decisions. As this article describes there are basically two types of consulting retainers.
For you as a consultant, retainers are a guaranteed income stream over time. They are usually paid month by month with contracts that may stretch over a year. For your clients, retainers mean that you are available to them when they need you. That can be critical to them for important decisions or critical skills.
As an example of how a retainer is used, at the beginning of my consulting I was one of Microsoft’s first independent consultants. At the time there were few consultants who focused on Microsoft products. Because the expertise was so skilled and experts were difficult to find, I had monthly retainers with two corporations and the largest electrical utility in Northern California, PG&E. I charged each of them $2,000 for one day per month. At the time that seemed like a lot of money.
They could use me as an instant tech support line or for a day of training or development. Usually the result was one or two phone calls a month from IT and frequently one day per month of onsite training with their finance or IT personnel. I had previously created three “classes-in-a-box” that covered most situations so it was easy for me to grab a box and present a class.
The retainer was great for the clients because it guaranteed them support in a market where there were few resources. It was great for me because the guarantee of $6,000 per month for a few hours phone time or three days of work per month gave me flex-time to write books, develop additional support courses, and manage development projects using sub-contractors.
How Do Retainers Work?
When you first start consulting it’s difficult to sign clients to a retainer.
Retainers have special client-consultant criteria. First, you need to build high trust. Your clients need to completely trust that you can quickly resolve difficult questions or handle onsite issues at a moment’s notice.
In most cases accessibility is key. I remember getting a call at 5:15 pm one afternoon and being asked if I could show up at 8 am the next morning in a city three hours away to teach an all-day class for financial professionals. Of course, I taught the class.
Retainers are almost always reserved for unique and high-value skills or experience. It’s hard, if not impossible, to get a retainer agreement for consulting where the client could find your replacement with a 20-minute search on the web. You need to have a tight relationship and an in-demand skill or decision-experience.
While retainers are great, you should use them with a few caveats. If you are guaranteeing your skilled-time or access-time you can’t fill up all your hours with other work. You can’t overbook yourself. You must build a schedule that has flextime to accommodate when you might be “On Call.” Of course, during that flextime you could be writing a book, crafting an online course, or building a Lego set with your kids.
Consultants Need Monthly Retainers
Retainers are the first and easiest step to building multiple streams of income. When you have two or three clients on retainer it gives you the income stability to dip in income.
Also, the time when you are “on call” but not onsite can be a good time to develop your consulting skills, build your marketing machine, and create additional streams of income like books and online courses.
Retainers can also cement your relationship and loyalty to a client. Saving them from a bad decision or helping on a moment’s notice gives you a real advantage over any outside consultant attempting to enter your space.
When you develop these strong internal relationships with stakeholders it also gives you the inside scoop and advantage to learn about new projects that can expand your scope and increase your value to the client. That means less time spent marketing.
Two Types of Retainers
There are two basic types of retainers, retainers for hard to find precision-skills and retainers for access to high-value experience and decision making. I’m going to name these retainers Pay for Skill and Pay for Judgement.
Pay for Skill
Pay for Skill retainers give clients ready access to your high skills, skills that are unique or difficult to find.
Skills on this type of retainer are not commodities the client can find on a freelance website. Not only are the skills unique, but the client must have a deep trust in your ability to deliver. You have demonstrated your expertise to the client so they know you will be there for them in a critical situation.
The upside for your client is knowing that they won’t have to jeopardize a critical project to find someone with untested skills. The time that takes and the risk it adds to find an alternative are just not comparable to the price of your retainer.
Pay for Skill retainers are the easiest type of retainer to sell. It’s very clear what the client is getting and the fee is easy to calculate as it is often based on an hourly standard.
The downside for you is that you need to reserve time for retainer clients. You can’t have too many retainers as they might conflict if more than one client needs you. Another downside for consultants is that this is the same as hourly work, it’s just that you are “on call.”
Pay for Skill retainers are usually contracted for a set number of hours or days per month. If those hours or days are not used up in a month or quarter, then they do not rollover into the next period. However, retainers are always unique, so you need to write a retainer agreement that fits you and your client.
The types of consulting where you might use this type of retainer could be,
Pay for Judgement
Pay for Judgement retainers give clients access to your experience and decision making. In this type of retainer you might deliver a judgement or help with a decision that takes only a few minutes on the phone, but it could save millions of dollars.
It is not the amount of time involved, it is the value of your experience and decision making and the client’s ability to access you. The value is coming from your experience, judgement, and accessibility. It cannot be commoditized.
This is the best type of retainer to have as a consultant. They give you a steady income for minimal work. They are also great for clients because they give the client peace of mind, reduced risk, and increased value.
For clients in high-risk or time-sensitive situations where they need immediate access to you, this type of retainer can be very important. A client in that situation does not want to wait for an open slot on your calendar.
This “instant accessibility” that you promise to deliver can put you in an ethical bind. You can’t overbook yourself so you are inaccessible. You can’t take off for a week hiking hut-to-hut across the Swiss Alps. You must be accessible.
While they sound great, Pay for Judgement retainers are difficult to sell and maintain over a long period of time. They require a very high level of trust and an understanding of the value and risk-control.
The retainer fee for Pay for Judgement depends upon the impact of your decisions. If it’s a potential decision that could make millions of dollars difference, then you should be charging high fees, but coincidentally you should always be available.
Pay for Judgement retainers are often set for longer periods of time, like a year or indeterminate until cancelled. These are usually at an executive or major project level. Because the impact of the decisions is less well defined than Pay for Skill retainers, they are more difficult to price and require far more trust.
If your client never calls you and never uses your decisions or experience, the client still pays for the retainer and the contract does not roll over into the next period. This type of retainer is for peace of mind for a set period, like paying for a help line or travel insurance.
Where a client might want for this type of retainer could be,