What Is a Retainer Fee?
A retainer fee is an amount of money paid upfront to secure the services of a consultant, freelancer, lawyer, or other professional. A retainer fee is most commonly paid to third parties that the payer has engaged to perform a specific action on their behalf.
These fees, almost always paid upfront, only ensure the receiver's commitment. In addition, retainer fees usually do not represent the total final cost of the services provided.
Key Takeaways:
- A retainer fee is a payment made to a professional, often a lawyer, by a client for future services.
- Retainer fees do not guarantee an outcome or final product.
- Portions of retainer fees can be refunded if services cost less than initially planned.
Understanding Retainer Fees
A retainer fee is an advance payment a client makes to a professional, and it is considered a down payment on the future services rendered by that professional. Regardless of occupation, the retainer fee funds the initial expenses of the working relationship. For this reason, these fees usually remain separate from the hourly wages of the consultant, freelancer, or lawyer. This ensures that money is not used for personal purposes before fully performing services.
The most common form of retainer fee applies to lawyers who, in most cases, require potential clients to provide an upfront retainer fee.
Retainer fees do not guarantee an outcome or final product.
Example of a Retainer Fee
A lawyer may charge a $500 retainer fee. If the lawyer charges $100 an hour, the retainer covers all services up to the five-hour limit. The lawyer then bills the client for the cost of any additional hours they invest on behalf of the client.
So, if a trial case takes 10 hours, the lawyer charges the client an additional $500, which comes to $1,000 when including the retainer. If the client's case is resolved before reaching the five-hour limit, the lawyer refunds the remaining portion of the retainer to the client.
Earned Retainer Fees vs. Unearned Retainer Fees
An unearned retainer fee refers to the initial payment held in a retainer account before any services are provided. Retainer fees are earned once services have been fully rendered.
In the example above, the retainer is considered unearned until the court case is closed and finalized. These unearned fees do not belong to the person performing the tasks—in this case, the lawyer—until work begins. Any unearned retainer fees that are not used can be returned to the client.
Earned retainer fees are the portion of the retainer that the lawyer is entitled to after work begins. Earned retainer fees may be granted to the lawyer bit by bit, depending on the number of hours worked. Retainer fees can also be distributed based on tasks or milestones. For instance, a lawyer may receive 25% of the retainer fee after completing the pre-trial process.
How Much Should a Retainer Fee Be?
It depends on the industry of the professional you're retaining the services of and their compensation expectations. Generally, it should be close to the professional's hourly rate multiplied by the hours they expect to work.
How Do You Calculate a Retainer Fee?
Retainer fees can be calculated by estimating the hours needed to complete or maintain the project the professional is hired for and multiplying it by their hourly rate. Some professionals might charge an amount per expected service.
How Much Is a Lawyer Retainer Fee in the US?
Retainer fees vary by specialty, ranging from hundreds to thousands of dollars depending on what they are retained for.
The Bottom Line
A retainer fee is a down payment on a professional's services to ensure you have priority. Retainer fees are usually charged by lawyers, accountants, and consultants to maintain their continued services.
