What Is a Retainer Fee and How Is It Calculated?

Retainer fees used to be a thing mostly reserved for lawyers, but now every freelancer can back themselves up with one. However, calculating a retainer fee for a project can be tricky.

If you’re struggling, this article is for you — we’ll cover what retainer fees are and how to calculate them in no time.

What is a retainer fee?

Tonya is a freelance copywriter who mostly writes SEO long-form articles for corporate blogs. She didn’t earn a lot last month: one client went on vacation without approving the article first, another got sick, the third one ghosted her on the briefing stage… To protect herself from such inconveniences, Tonya introduced retainer fees.

A retainer fee is an upfront cost clients pay to freelancers before the project is finished. There are two types of retainer fees:

• Unearned retainer fee — paid before the start, ensuring that the freelancer will start working on a certain date.
• Earned retainer fee — paid when the work is in progress, ensuring that the freelancer will complete the project.

Earned or unearned, a retainer fee is a great way to protect yourself from emergencies on the project or irresponsible clients so you, well, don’t starve this month. Let’s dive deeper and explore other benefits of this payment model.

Pros and cons of having a retainer fee

A retainer fee is one of many methods to remunerate a freelancer. Like other methods, for example, hourly billing, it has its pros and cons. Let’s see how retainer fees can benefit your freelance life aside from stabilizing your income:

• More certainty for the client. You’re not the only one who has to count the money. Clients also would like to know the exact project costs upfront — especially large companies that have to calculate quarterly budgets. 
• Less burden for you. If you work for hourly pay, you have to track time. It’s one more task that eats away your mental energy, and even with time-tracking software, calculating hours is tricky. For example, should you include breaks or chatting in messengers with other people involved in the project? Switching to retainer fees sets you free from such questions.
• It’s just reasonable. Hourly rates imply that the project cost only depends on the time spent doing it. In this situation, you have zero incentives to work fast or take on more complicated tasks, which doesn’t benefit both the client and you as a professional.

From that perspective, retainer fees seem to be the perfect system — but they’re not devoid of drawbacks either. Here are the problems that may arise:

• Scope creep. Within this system, you can’t charge extra for revisions since you’ve already received the full pay for the project. That means more free work if you have a particularly fussy client or the project needs a sudden change.
• The lack of flexibility. Retainer fees are not the best option for long-term projects with a poorly predictable scope or unknown complexity.
• Calculation challenges. Let’s say, your retainer fee depends on the project’s complexity and volume. But how do you define complexity? How do you measure volume? These questions are harder than “Should I track bathroom breaks separately”!

While we can’t do anything about the scope creep on your project, we can make the calculations easier. Keep reading never to spend hours calculating retainer fees again!

Retainer fee pricing models

There are several ways to calculate your project’s retainer fee — let’s take a closer look at the pricing models you can use:

• Hourly rates. The simplest way to calculate the retainer fee is to estimate the hours and multiply them by your standard hourly rate. It’s a bit more convenient than just getting paid for hours because you don’t have to track time. The only problem is that you may underestimate the time needed to complete the project and end up working more for less money.
• Fixed monthly rates. In this case, instead of estimating hours, you can simply figure out how much money you’d want to get for the project each month. This pricing model is great because, stability-wise, it’s the closest you can get to being a staff member while maintaining the flexibility of freelance. However, it’s not suitable for short-term projects, and it will be almost impossible to convince clients to agree to these conditions.
• Project-based rates. This model is focused on the results and the value you bring to your clients — instead of hours or fixed payments, you get remuneration for each task or milestone related to the project. For example, if you’re an author writing for a corporate blog, you can get retainer fees for each new article you write. It’s a pretty convenient model: your client won’t think they’re paying you for nothing, and you still get some financial stability.

In this article, we’ll focus on the hourly rate-based retainer fee model. It’s a great fit for any industry and it’s not based on vague notions like “how hard will it be to complete the task?”.

How to calculate your retainer fee: the easiest way

Now, let’s try and calculate a retainer fee for the new project in no time — you can even do it during a coffee break!

Step 1. Estimate the hours

Start by estimating how much time you need to complete the project. Here’s how to make it easier:

• Check out your time logs. If you used time trackers before, look at your stats. The data on your previous projects will show how many hours you spend doing certain tasks on average.
• Break the project down into smaller tasks. If the project is way too big, break it down into milestones, estimate them separately, and combine the numbers.
• Think of worst-case scenarios. Overestimating the time is better than underestimating. So, think like a project manager — include a bit more hours than it will really take to complete the task, especially if it involves other people. That way, you won’t find yourself overworking or missing the deadline.

Step 2. Figure out your hourly rate

Once you’re done with the estimation, figure out how much you’ll charge for one hour of working on the project. It may be harder for inexperienced freelancers or juniors in the niche — here are some tips:

• Do research. Visit websites like Glassdoor to check out salary stats and remunerations in open vacancies. You can also read the blogs of experts in the field, ask questions in professional communities on Reddit and other online forums, or even chat with your friends and former colleagues.
• Don’t be scared of asking for more. We wrote a guide on how to price yourself as a freelancer — check this one out if you’re scared of raising the prices! The key takeaway is, if you have some experience, think of how much impact you make. If in doubt, ask your clients for feedback. Even better, get the metrics. For an SEO blog article, it can be the number of views, comments, the money it brought, you name it.
• Use more than one hourly rate. If the project is large and involves several kinds of very different tasks, you can use higher hourly rates for harder and more tedious tasks. Let’s say, you got asked to shoot a music video from start to finish. In this case, you can use different hourly rates for shooting, editing, script writing, briefing the client, etc.

Step 3. Include additional costs

Aside from multiplying the estimated hours by the hourly rates you established, you can include additional costs in your retainer fee. Here are some examples:

• Taxes. We can’t provide you with universal advice here because we don’t know every law in every country. To ease the task, use online calculators like this one on Upwork.
• Consumables. This includes disposable items needed for your job (like disposable gloves and ink for tattoo artists), rent expenses (for example, renting a studio for a photoshoot), necessary software subscriptions (like an email automation tool for freelance marketers), and whatever else you require to get the job done.
• Revisions. You don’t have to include revisions as an extra expense — you can add it to your time estimation instead. Do as you please!

Step 4. Calculate your retainer fee

Now all that’s left is to calculate your retainer fee with the formula below:

For example, Tonya usually works for $10/hour and writes one long-form article in 8 hours. As an additional cost, she includes the self-employment tax, which is 4% in her country. In her case, the 4% of $80 is $3.2. So, the retainer fee is $83.2 per article.

Wrapping up

A retainer fee is the sum of money paid upfront when the project is at the WIP stage or not even started. This kind of remuneration creates more budget certainty for both sides and it’s more rational than hourly billing — in the case of the latter, the freelancer has no incentives to work faster.

Here’s how to calculate your retainer fee for every project:

• Estimate how many hours it will take to do the job — you can calculate different tasks separately, especially for large long-term projects
• Multiply the hours by your hourly rate
• Add other expenses, like rent and consumables, taxes, the separate fee for revisions, and whatever you need

‍

‍