The Structure of Retainer Deals for UX Designers

Freelance and contract design is fraught with risk. You often find yourself in contexts that are unfamiliar, especially in business deals with business people.

You are often alone, representing your own interests, backing your skills and knowledge, and negotiating deals that represent both short-term and long-term contractual (ahem, monetary) agreements. That’s a lot of risk.

Today, I’m here to help you reduce some of that risk. Let’s talk money.

Per-project and hourly agreements

At some point, by choice or by force, we’ve experienced both per-project and hourly agreements. Those are usually the only options we know! Contract designers often find themselves in difficult negotiations. Here are a few scenarios:

Scenario ➊

Per-project budget -or- The Big Number Conundrum

Client: “Yes, we’d like for you to redesign our website. How much?”

You: “$8500.”
Client: “How do you arrive at that number?”
You: “It’s based on an estimate of my total time relative to my hourly rate plus an average rate of overage.”
Client: “And what if you don’t need to spend all that time?”
You: “I find that projects often run longer and take more time than projected. In truth, I‘m valuing the product outcome, not my time to produce it.”

This kind of conversation is healthy, but difficult. It’s based on a contradiction that people outside of our industry find difficult to understand: scope + overage.

Challenges to overcome:

The client feels like you’re overpriced. Your overall estimate is based on time, but you’re having to cover any overrun (usually somewhere around 20–30%). Unfortunately, to the client, it feels like you’re overcharging and blaming them for something they haven’t done yet. Clients usually think they’re going to be the most well-behaved, in-scope, on-budget client.

The project could still go over budget. If it doesn’t finish with the correct value, you’re left to figure out whether you should eat the overage or ask them to pony up even more to finish a project. You’re left feeling vulnerable, and they’re often left thinking you’re breaking the agreement (“But you already told us $8500!”).

That final payment could get tricky. Agreements like this are often scheduled as a portion up front and a portion on delivery. However, if delivery is held up by client delays, so is your final payment.

—Verdict: Not recommended 👎—

Scenario ➋

Hourly rates -or- The Nickle-and-Dime Time

Client: “Yes, we’d like for you to design our website. How much?”

You: “$85/hour.”
Client: “How many hours will it take you?”
You: “My rough estimate is 100 hours total.”
Client: “So it’ll take you about 2½ weeks?”
You: “No, my estimate includes facilitation, communication, and production that will take approximately 2–3 months.”
Client: “Sounds like an expensive project. I don’t want to spend any more than $8500.”
You: “I will keep you updated on hours each week and let you know if it’s trending past the total budget.”

Again, not a bad conversation. To most business people, time equals money—it may help you get a yes quicker. But especially during longer projects, it’s a risky move that you will regret later.

Challenges to overcome:

The client is looking at your hour. Hourly arrangements set you up for constant updates on exact time spent (time-consuming), and auditing the details after time has been spent (frustrating and annoying). For example, you could be asked to answer why you spent 30 hours on the project one week and just 10 hours on the project the next.

The project could stall without warning. In hourly agreements, clients hold most of the cards, including when/if they use you. Managing your workload can be pretty difficult when people use you for 80 hours one month and then 0 hours the next. Feast or famine indeed.

Billing sucks. This is always true, but more true in hourly agreements.

—Verdict: Not recommended…like ever 👎—

So what do I recommend? Retainer agreements

Before you dismiss this type of contract as a ridiculous notion, please know this: If I can do this, you can too. It doesn’t have to be amorphous and it is definitely not evil (read: lawyer). I find that both designers and clients like retainers more than any other contract. Just introduce these as the only two options you use for your contractor agreements and you’ll be shocked when almost no one says no.

I approach retainer deals in two ways.

Scenario ➌

Ongoing monthly standard rate (with flexible hours) -or- The Classic Retainer.

This is probably one you’ve heard of before. Advertising agencies were using retainer agreements in the early days, but as you likely know, lawyers have perfected it. As a freelance designer, I usually add a 20% flexibility that lowers my average hourly rate and gives the client flex time for increased need.

For example, I might say $4000 a month for approximately 44–56 hours per month. Any work in excess of those hours is billed hourly. The monthly rate is collected in advance of the month where the work exists (almost like rent on an apartment).

Client: “Yes, we’d like for you to design our website. How much?”

You: “I estimate that it will take 6 months at my retainer rate of $4000/month.”
Client: “How many hours will it take you?”
You: “Each month covers 44–56 hours.”
Client: “What if it takes less time?”
You: “Each month is billed in advance of the month where the work exists. Any unused time is sacrificed at the end of each month.”

Why this works:

The client finds it flexible and you get to schedule the time. The advantage of this agreement for the client is the flexible nature of the agreement and the guaranteed time they’ve blocked out of your schedule (you might call it a priority).

Work is no longer bound by scope or project. Even though you’re likely to begin with one project, it’s likely they’ll find more work for you. This allows you to use the time as the client needs without building new agreements. In one example, I was able to work with a client for nearly 9 months longer than anticipated. I recommend retainer agreements no less than 6 months.

—Verdict: Recommended for long-term contracts 👍—

Scenario ➍
Blocks of hours -or- The Block Retainer

The IT industry popularized this contract approach a few decades ago to reduce surprise billings from unexpected hardware and software updates. In this unique agreement, the client buys “blocks” of hours ahead of time. For example, 10 hours @ $850. Then, they use that block until the time runs out (almost like a gas tank).

Blocks are an easy and non-committal way for clients to understand your relationship.

Client: “Yes, we’d like for you to design our website. How much?”
You: “I estimate that it will take 1–2 months, and I offer blocks of my time (20 hours each) for $1700.”
Client: “How many hours will it take you?”
You: “My rough estimate is 100 hours total.”
Client: “What if it takes less time?”
You: “Each block is billed separately as it is used. Any unused time is banked for you for one year.”

Why this works:

It establishes a higher commitment. One advantage of this agreement is the ability to establish a more meaty project and avoid one-off hours or constant scoping questions. The ability to use the time over smaller projects in a short duration without quoting and reorienting saves both time and effort.

It reduces risk for both parties. Neither party have to commit to a full retainer or a full project. It’s especially useful for projects whose leadership you may have concern for or projects that may go through multiple phases or for skittish/hurt clients who might be nervous about commitments.

[Note: My lowest number of hours 10. Why? That’s the smallest project I’m willing to accept. You have to decide for yourself and keep adjusting over time.]

—Verdict: Recommended for short-term contracts 👍—

I have been running my freelance agreements as retainers for about 15 years with rare exception. Avoiding pitfalls like over-billing or surprise billing is required…but you’ll find clients are best behaved (sometimes even happy, gasp) when they are well-served and know they’re getting a fair deal. Always be checking in with them to make sure the money relationship is going as well as the design relationship.

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