How to price a retainer for your agency from tracked hours
To price an agency retainer, average the client's tracked hours over the last three months and multiply by a target hourly rate that covers costs and profit. In the sample, 42 hours a month at $110 an hour becomes a monthly fee of about $4,600. Check the effective hourly rate each month by dividing the fee by actual hours, then use the latest three-month average at the next price review.
How many hours does the client really use?
Pull at least three months of tracked time for the client and take the average. One month is too noisy to price on: a launch, a holiday or a slow start can move it a long way in either direction. Three months shows the normal level and how far it swings.
Count all time spent on the client, including calls, status emails, planning and internal briefings. These tasks may not produce a deliverable, but they still use the team's time and belong in the price.
Here is a sample client, tracked by type of work over three months:
| Type of work (sample) | Month 1 | Month 2 | Month 3 | Three-month total |
|---|---|---|---|---|
| Design | 15 | 18 | 15 | 48 |
| Development | 11 | 15 | 13 | 39 |
| Content updates | 5 | 5 | 5 | 15 |
| Meetings and calls | 4.5 | 4.5 | 5 | 14 |
| Account management | 3 | 3.5 | 3.5 | 10 |
| Total | 38.5 | 46 | 41.5 | 126 |
The average is 42 hours a month. Meetings and account management account for 24 of the 126 hours, almost a fifth of the work. Leave them out and the average falls to 34 hours, underpricing the retainer by eight hours a month. Monthly totals range from 38.5 to 46 hours, so use the average rather than the quietest month.
If you have not been tracking the client, track every hour for a month or two before you commit to a number. The other honest option is to sell the first three months as a trial, with a review date written into the agreement.
What does an hour actually cost you?
Divide everything the business spends in a month by the hours it bills in a month. The trap is dividing by hours paid instead. Nobody bills 40 hours a week: there are sales calls, admin, internal projects and the gaps between jobs, so the cost of the whole week has to be carried by the billable part of it.
| Four-person agency (sample) | Per month |
|---|---|
| Salaries and payroll taxes, including the owner's pay | $24,000 |
| Overhead: software, rent, insurance, accountant | $6,000 |
| Total cost | $30,000 |
| Hours paid (4 people × 160) | 640 |
| Billable hours at a 62.5% team average | 400 |
| Cost per billable hour | $75.00 |
Divided by the 640 hours paid, the same costs come to $46.88 an hour. That figure is $28 too low, and every retainer priced from it starts out losing money on hours the team cannot bill. The 62.5% is a sample figure, and the utilization rate formula shows how to work out your own from tracked time.
Include the owner's pay. If it is left out, the price only works while the owner works for free. A freelancer does the same sum with a target income: $80,000 a year plus $8,000 of costs, over 46 working weeks of 22 billable hours, is 1,012 hours and $86.96 an hour. People in one popular freelance thread put realistic billable time at 20 to 25 hours a week, which is why 22 is used here rather than 40.
How do you turn hours into a retainer price?
Multiply the expected monthly hours by a target hourly rate, and set that rate as your cost per billable hour divided by one minus the margin you want. With a $75 cost and a 30% margin, the rate is $75 ÷ 0.7 = $107.14, rounded to $110. Forty-two hours at $110 is $4,620, which the sample agency rounds to a $4,600 monthly fee.
Margin here means what is left after every cost, overhead included. Some agencies quote far higher targets: one agency owner mentioned aiming for 70% gross margin. Gross margin usually counts only the cost of delivering the work, so overhead and owner time still have to come out of what remains. Either way of counting works, as long as the monthly check later uses the same one.
Set the overage rate before signing, and calculate the break-even point for your own monthly review:
- The overage rate: the hourly rate for work beyond the included hours. Use the target rate, $110 in the sample. Discounting overage teaches the client that extra work is cheap.
- The break-even point: the fee divided by your cost per hour. At $4,600 and $75, that is about 61.3 hours. Past that, each extra hour the client uses costs you money unless it is billed.
Retainers are often sold with a small discount in return for the steady monthly commitment, and that can be fair. Run it through the same numbers first. A 10% discount takes the sample fee to $4,140, which is $98.57 an hour at the planned 42 hours and a 23.9% margin. That is still healthy on paper, but there is less room to absorb the first month the client runs over.
Which retainer pricing model fits the client?
Choose a bank of hours when the client wants a set monthly allowance, fixed deliverables when they want named outputs, or an access retainer when they want priority availability. A base fee plus hourly billing suits work that varies month to month. For most small agencies, a bank of hours with an agreed overage rate is the easiest model to price and explain.
| Model | What the client buys | Where it goes wrong | What tracked hours show |
|---|---|---|---|
| Bank of hours | A set number of hours each month for a fixed fee | Unused hours piling up as rollover, arguments about overage | Whether the included hours still match the client's average |
| Fixed deliverables | A list of outputs each month, such as four articles and one landing page | Each deliverable quietly takes longer as revisions creep in | Hours per deliverable, so the drift is visible month by month |
| Access or availability | Priority time and a response promise, with no hours number | No ceiling on what the client can ask for | Whether the fee still covers what the client actually uses |
| Base fee plus hourly | A smaller fixed fee, with hours billed as they are used | Invoices that change every month, which some clients dislike | How much of the month the base fee really covers |
Whatever the model, put a limit on rollover. A common rule is that unused hours carry into the next month and then expire. Without a cap, a client who uses 30 hours a month for half a year has a stack of 72 prepaid hours waiting, and they tend to ask for them at the worst possible time.
How do you check the retainer's margin each month?
Divide the monthly fee by the hours tracked for that client that month. The result is your effective hourly rate. Compare it with the target rate to see whether the plan is holding, and with your cost per hour to see whether you are making money at all.
| Hours tracked in the month | Effective hourly rate on $4,600 | Margin after all costs |
|---|---|---|
| 38 | $121.05 | 38.0% |
| 42 (the plan) | $109.52 | 31.5% |
| 50 | $92.00 | 18.5% |
| 61 | $75.41 | 0.5% |
One agency owner said they discovered they had effectively been earning about $30 an hour on their retainers. It does not take a dramatic overrun to get there. A $1,500 retainer that quietly absorbs 50 hours a month is exactly $30 an hour, and nobody notices until someone divides one number by the other.
Read a three-month average rather than reacting to one month. A single heavy month is what the agreed overage rate is for. Three heavy months in a row mean the plan number is wrong, and the effective rate tells you by how much.
What should you do when a client runs over or under?
Use the agreed overage or rollover rule for a single month. If the client runs over or under for a whole quarter, review the fee and included work against the latest tracked hours.
- Over, once: bill the extra hours at the agreed overage rate. If you decide to absorb a small overrun, show it in the report anyway, so the client sees the work was done.
- Over, three months running: reprice at the next review on the new average. The three monthly reports are the evidence, and a client who has been reading them will not be surprised.
- Under, now and then: let the capped rollover take it.
- Under, for months: offer a smaller plan before the client works out that they are paying for 42 hours and using 30. A smaller retainer still beats a cancelled one.
- A new kind of work appears: quote it separately. The price was built on the work in the three-month history, and something new is not in it.
What should a monthly retainer hours report show?
A monthly retainer hours report should show planned and tracked hours by type of work, what was completed, and how any overage or unused time will be handled. Attach the one-page summary to the invoice so the client can see what the fee covered.
| Type of work (sample month) | Plan | Tracked | What got done |
|---|---|---|---|
| Design | 16 | 17.5 | Homepage banner refresh, two ad sets |
| Development | 13 | 13 | Booking form fix, plugin updates |
| Content updates | 5 | 5.5 | Three product pages |
| Meetings and calls | 5 | 4.5 | Monthly review, two check-ins |
| Account management | 3 | 3.5 | Planning, email, reporting |
| Total | 42 | 44 | 2 hours over plan, billed at $110 |
Above the table, one sentence does most of the work: "44 of 42 hours used this month; the 2 extra hours are on this invoice at $110." Below it, two or three lines on next month's priorities, so the report also sets up the next conversation.
Keep it at the level of tasks. In one agency thread about proving the hours behind a retainer invoice, an owner said that clients who start asking for 5- or 15-minute itemisation are usually on their way out. Minute-level detail does not fix that kind of distrust. What helps is a plan agreed at the start of the month and a report that compares against it. Keep the detailed entries ready in case a client asks, but do not lead with them.
Leave out your cost per hour, your margin and the effective rate. Those numbers are for your monthly check, not for the client.
How do you produce the report and invoice each month?
Tag each entry by type of work, then run a monthly client report grouped by tag. Use those totals for the client's summary and your separate margin calculation.
- Set up once: one client, one project for the retainer, and tags for the types of work in your plan: Design, Development, Content updates, Meetings and calls, Account management.
- Log as you go: every entry for the client gets the project and one tag, including the 15-minute call. Untagged time cannot be reported by type.
- Review at month end: read the client's entries in the detailed report and fix anything logged to the wrong project or tag.
- Run the summary: filter to the client and the month, group by tag, and export it as a PDF. Add the plan column and the notes in the email or cover page that goes with it.
- Invoice: one line for the retainer fee and one for any overage hours at the agreed rate.
Timen covers this routine and is free with unlimited users. Each entry carries a client, a project, tags and a billable switch. The client hours report filters by client and date range and groups by tag, with a second level such as person underneath, and exports to PDF or CSV. On the client invoice, a manual line with a quantity of 1 at $4,600 carries the retainer fee and a second line of 2 hours at $110 carries the overage; the invoice then goes out as a PDF or straight to QuickBooks Online, Xero, FreshBooks or Wave.
Timen does not hold the retainer itself. There is no hours balance, no rollover counter, no alert as a client nears the plan, no cost rates or margin, and no recurring invoice. Keep the plan, your cost per hour and the rollover in a small spreadsheet, and use the tracked hours from the report to fill it in each month. For a team view of client work across several retainers, see agency time records.
What else should a retainer agreement cover?
- How many hours should a retainer include?
- Use the client's average from the last three months of tracked time, including calls, email and account management, and round it to a number you can explain. Pricing on the lightest month leaves you short every time the work is normal.
- What if you have no tracked hours for the client yet?
- Track every hour for the client for one or two months before you fix the price, or sell the first three months as a trial with a review date written into the agreement. A price set from memory usually misses the calls and small requests.
- Should unused retainer hours roll over?
- Unused retainer hours should roll over only with a cap. A common rule lets unused hours carry into the next month and then expire. Unlimited rollover builds a debt of hours that tends to come due in your busiest month.
- Should a retainer be cheaper per hour than project work?
- A small retainer discount for a steady monthly commitment is common, but check it against your cost per billable hour. In the sample, a 10% discount on a $4,600 fee leaves a 23.9% margin at 42 hours and a $75 hourly cost. Extra hours reduce that margin.
- How often should you review a retainer price?
- Review a retainer price every three months using the latest three months of tracked hours. Put the review date in the agreement so the client knows when the fee may change.
What should you do before the next retainer starts?
Build the price from three months of tracked hours and your cost per billable hour, not from 40-hour weeks. Agree the overage rate, rollover cap and review date. Timen is free with unlimited users for recording those hours and producing the client report; keep the margin and rollover calculations in your spreadsheet.