One of the biggest challenges you’ll face in your consulting business is creating a stable income. The earlier you are in your business, the more this challenge will be at the forefront.
The “feast-or-famine” — or consulting roller-coaster — are two cycles common to the consultant in the early and mid-stages of their business.
One month, your schedule is booked full of project work. You know the client you’re working with, what you’re doing for them, and when your next cheque is coming in.
The next month, you’re scrambling.
You’re asking everyone you know for an introduction to a potential client. You’re going out and networking and trying to meet as many people as possible. All with the hopes of booking your next client.
When you’re working, you’re working. You don’t have time to market and sell your services, right?
And when you don’t have any more work, it becomes time to hunt. You have to “hustle” and do nothing but promote yourself so that you can land your next client and begin working on a project again.
Setting up consulting retainers with your clients will help you break out of this cycle.
What Is A Retainer Fee?
A retainer fee is when you bill your client every month. You bill them for hours worked (Pay for Work retainer) or for access to your expertise (Pay for Access retainer).
Consulting retainers are favorable because they help you earn predictable recurring cash flow.
They are also beneficial for your client because you have the time to focus on doing your best work for them — not spending your valuable energy grinding to find that next project.
Consulting retainers are one of the most effective pricing models you can use.
I’ve used them extensively in my own consulting business, and at Consulting Success®, we advise many of our coaching clients to use them as well.
But selling them to your clients successfully requires a strategy — and the right mindset.
In this video, I share the 2 types of consulting retainers and how to use them effectively with clients.
What you’ll learn in this video:
- The two types of retainers consultants use
- Why retainers are one of the most effective ways to model your consulting fees
- Why ONE of the two retainers is far superior to the other
- How to structure consulting retainers with clients.
No matter what stage of business you’re in, consulting retainers can be the perfect value add for your clients and a fantastic source of predictable work for you.
With this article, you’ll be able to set up the perfect consulting retainer and add more revenue to your consulting business.
2 Pricing Models For Your Consulting Retainers
There are two types of consulting retainers that you can offer your clients. They are Pay for Work retainers and Pay for Access retainers.
The one that’s right for you depends on your relationship with your client and their level of trust in you and your expertise.
The more common of the two (especially for novice and mid-level consultants) is the Pay for Work model.
Before we actually get into the retainers and what they mean and how to use them, let’s actually explore what consulting retainers are.
A lot of people have the idea that starting a consulting business is unstable. That when you work a 9 to 5 job and you’re in ‘general employment’ that that is real stability.
As we’ve all seen, that is not stability. You can lose your job at any time.
You are the only person who can control your destiny. When you start and run your own business, you have control, the power to achieve what you want. Something that few employers actually offer you.
Consulting retainers are one of the most effective ways to create a stable income because you get paid monthly on an ongoing, recurring basis. And that can often be for months if not years when you’re delivering great value for your clients.
Having a relationship with your client that is based on trust is critical to make the retainer work as a consultant.
Consulting retainers can help you to achieve consistent income, which is extraordinarily helpful when you’re starting your consulting business. This allows you to create a base level of income and then continue to add additional recurring income on top of that.
Pay for Work Retainer
Now, in terms of the two types of consulting retainers, the first one is called Pay for Work. This is what a lot of people think about when they think about retainers and when they consider the concept of receiving ongoing payments on a monthly basis from their clients.
The Pay for Work model is really where you provide ongoing work for your clients and you get paid for it. Whether you’re receiving $1000 a month or $3000 a month or $10,000 a month, the work that you’re doing on that monthly basis is what you’re getting paid for. That’s why that model and that approach is called Pay for Work.
Really, it’s almost exactly the same as a contract or a project. The only difference is that you’re providing and delivering that work on an ongoing basis. If you’re using this model, you want to set it up at the start with your client and show them what it looks like.
Some questions buyers of consulting services want to know:
- What will you be working on, month to month?
- What will you be covering?
- How will this work benefit them?
- What’s the value you’ll be creating for them as a result of this ongoing work?
The better you can answer these questions and focus on the value you’re creating for your client, the more likely they’ll accept it.
Pay for Access Retainer
The second approach to consulting retainers is called Pay for Access. Pay for Access is the model that I prefer. It’s the model that the most advanced and seasoned consultants use because it doesn’t rely on you actually providing work.
With the Pay for Work model, really you’re still trading hours for dollars. When you spend half a day or a few hours on a monthly basis for that client, you’re getting paid for the time you spend. The time that you put in is directly connected to the money that you’re making.
The Pay for Access model works differently. Here you’re getting paid on a monthly basis, or sometimes for 6 or 12 months upfront. The key difference however is that your client isn’t paying you for specific deliverables and work that you’re going to be providing them with. Rather, they’re paying to be able to access you – your knowledge, experience and expertise.
This is why the Pay for Access model works best when you already have an existing relationship with your client. Meaning that you’ve already worked on at least one project with them so that they really feel that the trust is there and you both know that you enjoy working together. That’s the basis for the Pay for Access.
It’s uncommon and I wouldn’t recommend getting right into a Pay for Access model or situation with someone that you’ve never worked with before. It’s really hard to sell that to a client.
It’s a beautiful and natural transition after you’ve done some initial work for that client, they’ve seen the results that you can generate for them and the value that you can bring, and they want to be able to access you.
So why would they do that? Why would they pay you on an ongoing basis where you’re not necessarily providing them with specific work and deliverables?
Access to Your Expertise
They’re doing that because they know that accessing you – accessing your knowledge, your expertise, maybe even your network – is of value to them, and it provides them with peace of mind.
They do it because they know that – and this is the way that you position it – is that if they don’t lock you down, if they don’t have that retainer set up with you, then your schedule could get very busy working with other clients.
When an issue comes up where they need or really want your assistance and help, they don’t want to have to get in line.
They want to be able to access you right away.
By having you on retainer, they have the peace of mind that any time that something comes up they can give you a quick call, send you an email, and you’ll respond to them as quickly as possible.
Ideally, your response will be within a few hours or whatever you set as being a reasonable amount of time. They know that you are their adviser, that you’re on their side, that you’re there to consistently support the growth of their business or to help them with any of the challenges that might come up.
The Pay for Access model is powerful because you’re not trading time for dollars anymore.
You might have one month or two months, sometimes several months, that go by where the client doesn’t call you or need your help. But then all of a sudden, whenever it happens, they give you a call and they know that you will be there to support them, that you will help them to find a solution to the problem or challenge that they’re having. That the value you deliver to them is far greater than the investment they are making to pay for your retainer.
The Perfect Time to Offer a Consulting Retainer
You don’t ask someone to marry you on the first date — and you (usually) don’t offer a consulting retainer on the first project, either.
It can be a big first step for you and your client.
Instead, you want to offer your consulting retainer at the right time.
The perfect time to offer a consulting retainer is following a successful consulting project.
You’ve recently wrapped up a project, or getting close to doing so, with a client you enjoyed working with, and who enjoyed working with you.
The project was a success — you’ve written a case study for how you’ve solved an expensive problem in your client’s business, and you have the numbers to prove it.
You’ve either helped save — or made — your client more money. You’re responsible for adding to their bottom line (or whatever metric is meaningful to them) in one way or another.
And since you employed ROI-based pricing, the project was a no-brainer for your client. It didn’t make sense for them not to hire you at the price you offered.
Now, why wouldn’t this client not want to work with you longer? Or for as long as they can?
They know you can provide results. You’ve established a relationship with your client. They’re interested in other ways that you can support and counsel them.
This is when it makes sense to offer your consulting retainer. You’ll have a much higher success rate when you offer your retainers in this “sweet spot.”
Successfully Selling Your Consulting Retainer
Now that you know a bit more about the types of retainers and how they work — how do you actually sell one to your client?
The sales process for a consulting retainer is very much like selling your first consulting project.
The major difference will be your focus on providing ongoing value to your client. Because this isn’t a one-time project, your client has to believe that their monthly investment will be warranted.
How do you do that?
You ensure that you’ve delivered great results in your first project. Next, you begin to seed the idea with your client that you can help them in other areas of their business, or to provide ongoing support to ensure the project you’ve initially delivered on continues to be a success.
The next consideration is whether your retainer is Pay for Work or Pay for Access.
Selling a Pay for Work retainer requires laying out a clear monthly plan for your client. They should be able to see what you’ll be doing for them as each month goes by.
Selling a Pay for Access retainer requires a deep trusting connection with your client. You must identify with them how you can support them and establish together why it warrants you to be an ongoing advisor to them.
You’ll want to consider:
- What type of issues may come up that they’ll want your help with?
- How will you be able to add value in those situations?
- Is the retainer model best for this situation or would another one-time project be more suitable?
Once you and your client have clarity on those questions you’ll find reaching an agreement to be faster and easier.
Pricing Your Retainers
In terms of pricing your retainers, especially if we’re talking about Pay for Access, it should be based on the value that you’re providing.
If you’re charging $5000 a month ($60,000 a year), as an example, then it needs to be clear to the buyer – to your client – that the access they will get to you will provide them with significantly more value than their investment.
The decision for your client becomes much easier, when for example, paying you $5K per month gives your client a return of $20K or $25K each month. Your job, when pricing your retainer, is to spell this ROI out to them as clearly as possible.
As your learning about the project, you want to ask your client the right questions which will help you both determine the economic outcome of this project.
Once you’ve learned how much financial upside and value you can create for your client, you want to price your retainer as a percentage of this upside.
A fast and easy way to price your consulting retainer is as follows:
You should aim to create 5X the value for your client through your retainer.
So if you’re charging them $1.5K per month, you want your work to help them create $7500 in new or saved revenue per month.
If you’re charging them $10K per month, you want your work to help them create or $50K in new or saved revenue per month.
“5X” is a great rule of thumb for pricing any of your projects, including retainers.
The better you’re able to show your client how your work or your expertise will help them generate 5X the ROI, the more likely they are to accept your consulting retainer price.
Retainers vs Equity vs Performance Deals
Consulting retainers are often compared to other types of less common ways to price your work. The two other types are equity and performance deals.
Although technically they are not retainers, they do often involve ongoing work, and are related to the time in which you’re paid for that work (or not).
Here are two other compensation models that consultants encounter:
Consulting Performance Deals
Performance deals are where you’re paid based on a variable connected to the project you’re doing for your client.
For example, let’s say you’re a sales consultant. You help a business’s sales team improve their performance.
A performance deal for you would result in your compensation being tied to the improvement in the team’s performance that can be attributed and valued to you.
If you’re paid 10% of the sales team’s improvement in profit, and you help them net an extra $1M a year, you’re paid $100K.
Instead of being paid by the hour, you’re paid a percentage of the results you’re helping your client generate.
Some clients like this because they don’t have to pay you any money in advance.
That’s a bad idea for the consultant. I always suggest that you receive at least a base monthly payment in addition to the performance component you receive.
For performance deals to be valuable for you and your client, you must be extremely confident in your skills and your relationship with your client for this to work out well. Always work with a client for a project or two before engaging in this type of deal.
Consultants who have superb relationships with their clients can earn incredible fees with this approach — but it does involve more complexity and moving parts and may not be as stable and predictable as a consulting retainer.
Consulting for Equity
Maybe you’ve been offered shares of a company instead of a paycheck for your consulting work. Whenever this happens, proceed with caution.
As a consultant, there are two types of equity deals you’ll come across. Equity deals with public companies, and equity deals with private companies.
If the company that offers you equity is traded publicly, then the shares they are offering have cash value. You can sell them.
However, if the value of those shares drop, the value of your ‘money’ drops. If they skyrocket, then so does your potential fee.
Whenever you’re dealing with equity, you’re dealing with risk. Sure, the rewards can be enormous — but they can also drop to $0 and be worthless.
If the company that offers you equity is a private company, they’re offering you a piece of paper. Of course, there’s a chance that the company goes public or is sold — but until then, you’re taking on a tremendous amount of risk.
Back in my early years, I once took on an equity deal with a private company. I had 500K shares. It looked like they were going public.
All I needed was for those shares to reach $2 apiece — and I would have made millions from that one deal.
The company fell into some trouble a year later. Today, the shares are worth $0.
The company is gone. I learned my lesson.
Don’t be fooled by a nice piece of paper with lots of big numbers in it. As a consultant, stand your ground and demand cash. If they’re only offering you shares, move on.
In the rare case that you truly believe the company has strong growth potential, you can split your payment between cash and stock options.
But equity deals with private companies are a gamble. Tread carefully.
Consulting Retainer Agreement
A consulting retainer agreement looks very simple to a typical consulting agreement.
Your consulting retainer agreement should cover:
- Overview of the situation, why the client wants to engage you.
- Goals for the project, what will you help them accomplish.
- Success Metrics, how will you and your client judge the success of the engagement.
- Service description, this will depend on what services you are offering and should describe the nature of the engagement and what the client will get in terms of value if it’s Pay for Work or Pay for Access.
- ROI, make a quick case for the value that will be delivered based on the conversation you’ve already had on this topic with your client.
- Investment, what is the investment and how will it be paid.
- Responsibilities, so both parties understand what is required of them to make the engagement a success.
- Terms, any other important terms that should be included about the engagement and to protect from scope creep.
- Signatures, to make it official.
Want 1-on-1 Guidance For Your Consulting Retainers?
At Consulting Success®, retainers are one of our favorite pricing models.
And for good reason.
They provide more predictable income, scale well, and don’t take a lot of your time — meaning they give you more freedom and more time. More time to work on your business. More time to spend time on your hobbies. More time to spend with your family and friends.
With your consulting retainers set up properly, you’ll have more money coming into your business — without spending late nights in the office.
But this requires you to set them up the right way.
If you’re serious about implementing high-value, high-profit consulting retainers in your business where your clients can’t wait for the proposal, we can help.
(And if you enjoyed this article and video please let me know and click the share button to share with your social networks!)