Retainers vs projects: how to choose, price and run agency retainers

The short answer

Sell a project when the work has a clear end. Sell a retainer when the client needs you every month and neither of you can list the work in advance. A retainer trades a lower effective rate for predictable revenue, so it only pays when you price it from what your capacity costs, agree what happens to unused hours before the first month, and report burn often enough that nobody is surprised.

Three kinds of retainer

1. Hours bank

The client pays a fixed monthly fee for a set number of hours, for example 40 hours a month. Work draws the hours down. It is easy to sell and easy to understand, and every argument is about what counts as an hour, so the contract has to say. Our billable time guide has a decision table for the grey areas: account management, meetings, reporting and rework.

The risk is on both sides. If the client under-uses, they feel they paid for nothing. If they over-use, you either bill overage or quietly give time away.

2. Deliverables or outcomes

The client pays for a defined output each month, such as a monthly performance report and four articles, whatever the hours. You carry the risk of the work taking longer, and you keep the benefit when it takes less. Track the hours anyway: they are how you find out whether the price still works.

3. Access or availability

The client pays for you to be ready: monitoring, a response time, a named team who knows the system, plus usually a small number of included hours. Care plans for websites are the common example. Price the availability separately from the hours, because the cost of being ready exists even in a month with no incidents.

Pricing a retainer from what your capacity costs

Start from cost, not from a competitor's price. You need one number from your utilisation sums: your cost per billable hour, which is fully loaded annual cost ÷ the billable hours you realistically get.

Worked example: a 40-hour hours bank

All amounts are in one currency; the method works in any. The figures are illustrative.

1. Cost per billable hour. A designer whose fully loaded cost is $142,100 a year and who bills 1,184 hours (about 70% of 1,700 available hours) costs $142,100 ÷ 1,184 = $120 per billable hour. Do the same for each role and blend them by the mix you expect on this client.
2. Standard price. 40 hours at a blended standard rate of $175 = $7,000 a month. If every hour is used, delivery costs 40 × $120 = $4,800, a margin of ($7,000 − $4,800) ÷ $7,000 = 31.4%.
3. Commitment discount. Clients expect a lower rate for committing. At 10% off, the fee is $6,300 and the margin falls to ($6,300 − $4,800) ÷ $6,300 = 23.8%. A 20% discount would leave ($5,600 − $4,800) ÷ $5,600 = 14.3%. Decide the lowest margin you will accept before the client asks for a bigger discount.
4. Overage rate. Hours beyond the allowance are billed at the standard $175, not the discounted rate. The discount is for the commitment, not for more hours.
5. Account management. Either include it in the 40 hours and say so, or charge it as a separate fixed line. Do not leave it unstated: that is how 40-hour retainers turn into 50 hours of work.

The same method works for the other kinds. For a deliverables retainer of four articles a month estimated at 6 hours each, delivery costs 24 × $120 = $2,880. A fee of $4,200 gives a 31.4% margin; if the articles start taking 8 hours each, delivery costs $3,840 and the margin falls to 8.6%. For an access retainer, price the availability (monitoring, being on call, keeping the system knowledge current) as a fixed amount, then add the included hours as above.

Our free agency rate calculator works out the hourly and day rate a retainer needs to cover its people, on-costs and overheads.

Rollover: five options, worked through

Rollover decides what happens to hours the client paid for but did not use. There is no right answer. Each option moves risk between you and the client. What matters is that you choose one before the first month and write it into the agreement.

All five options below use the same retainer: 40 hours a month for $6,300, overage at $175 an hour. The client uses 28 hours in month 1, 34 in month 2 and 52 in month 3.

1. No rollover. Unused hours lapse at the end of each month. Month 1 loses 12 hours and month 2 loses 6. Month 3 uses 52, so 12 hours are billed as overage.
2. Unlimited rollover. Unused hours carry forward and never expire. 12 carry into month 2 (52 available, 34 used, 18 carry), and month 3 has 58 available, uses 52 and carries 6.
3. Capped rollover. Up to 10 hours carry forward; the rest lapse. Month 1 carries 10 and loses 2. Month 2 has 50 available, uses 34, carries 10 and loses 6. Month 3 has 50 available and uses 52: 2 hours of overage.
4. Rollover that expires after one month. The result depends on which hours are used first.
   • 4a, oldest hours first: month 2 uses the 12 carried hours, then 22 of its own, and carries 18. Month 3 uses those 18, then 34 of its own, and carries 6 into month 4. Nothing lapses and there is no overage.
   • 4b, current month's hours first: month 2 uses 34 of its own 40, so the 12 carried hours expire and 6 carry. Month 3 has 46 available and uses 52: 6 hours of overage.
5. A quarterly pool. The client buys 120 hours a quarter, used in any month. The quarter uses 114, so 6 lapse at the end of the quarter and there is no overage.

The client used 114 hours in every case. What changed is who carried the cost of their uneven months: $2,100 of difference between the most agency-friendly option and the most client-friendly one, on one modest retainer over one quarter.

The case for rollover

• Clients trust a retainer more when unused hours are not simply lost, and they are less likely to cancel after a quiet month.
• It removes the end-of-month rush to "use up" hours on low-value work.
• It matches how agency work arrives: quiet months, then a launch.

The case against

• Rolled-over hours are work you still owe. An unlimited bank can build up into a month you cannot staff.
• You priced the retainer on reserving capacity each month. Capacity you held for the client and they did not use cannot be sold again later.
• Large carried balances make the monthly fee look like a prepayment, which affects how your accountant treats it (see the note at the end).

A common middle ground is option 3 or option 4a: a cap or a short expiry protects your capacity, and using the oldest hours first is easy to explain to a client.

Running it: the monthly burn report

A burn report tells the client how much of the allowance is used, and tells you early whether the month will run over. Send it on a fixed day, and send it in the month, not after it.

Early-warning thresholds

Compare the share of hours used with the share of the month gone. These rules are a method, not an industry statistic; tune the numbers to your clients.

• Used share more than 10 points ahead of time share: look at what is driving it. In the example, 56.5% against 47.6% is 8.9 points ahead: just under the line, so keep an eye on it.
• Forecast more than 10% over the available hours: talk to the client this week. In the example, 54.6 ÷ 46 is 18.7% over, so this is the week to agree priorities or approve overage.
• Forecast under 70% of the allowance by mid-month: suggest work from their backlog, so the client sees value from the retainer before the month ends.

When to have the conversation

Before the hours run out, never after. A client who approves 9 hours of overage on day 10 is a client who planned for it. A client who receives an overage invoice they did not expect starts reviewing whether they need the retainer.

Moving a project client onto a retainer

The best time to offer a retainer is the month before a project ends, when the client can see what they will need next. Size it from evidence:

1. Pull the hours logged on the project's change requests and support tickets in the last three months, leaving out the build itself.
2. Take the monthly average, and round up to the next sensible block. Three months of 18, 22 and 26 hours average 22, so offer 24 hours.
3. Add what the client has asked for but not yet commissioned, from your notes and their backlog.
4. Offer two sizes and an access plan, so the client chooses how much, not whether.

Contract clause checklist

Every retainer agreement should answer these questions. If it doesn't, the answer will be decided in an argument later.

• Term and notice: minimum term, how either side ends it, and the notice period.
• Scope: what the retainer covers, and what draws down the hours (meetings, account management, reporting, travel).
• Response times: how fast you respond, in whose business hours and time zone, and what counts as urgent. For clients in other time zones, see our time zone guide.
• Rollover: which option, the cap or expiry, and which hours are used first.
• Overage: the rate, and the point at which you need written approval before going over.
• Reporting: what the burn report shows and how often it is sent.
• Price review: when the rate can change and how much notice the client gets.
• Pauses: whether the client can pause, for how long, and what happens to carried hours.
• Ending: what happens to unused hours when the retainer ends, whether they lapse, are delivered or are refunded.

Have your template reviewed by a lawyer in your country before you use it. This guide is not legal advice.

Common mistakes

1. Discounting without a floor. Work out the lowest margin you will accept before the negotiation, as in the pricing example, and stop there.
2. No written rule for unused hours. The first quiet month turns into a dispute about money the client thinks they are owed.
3. Leaving account management out of scope. Calls, check-ins and reporting are real hours. If they do not draw down the retainer and are not priced separately, they are free.
4. Reporting only at month end. By then the overage has happened. Report mid-month at least.
5. Running a project inside a retainer. A large new build eats the allowance for months and leaves no room for the support the client bought the retainer for. Quote big pieces of work as separate projects.
6. Never repricing. Salaries and rates move every year. Compare the retainer's actual hours and margin with the price at least once a year, and use the price review clause.

An accounting note

Under IFRS 15, an entity "recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled" [1]. In plain terms, revenue follows delivery. A monthly fee paid for hours that roll over and are delivered later may not all be revenue in the month it is invoiced. How to treat unused, carried and lapsed hours is a question for your accountant, and the answer can change with your rollover rule.