Professional services
Legal Retainer Calculator
Sizes a retainer, where unearned fees are client money and must be held as such.
Result
Agreements often earn little on the fee alone. They are worth having for the access, the retention and the work members buy without shopping around, so judging them on the fee margin alone undervalues them.
Get a Free Business AuditHow the calculation works
Expected hours times rate gives the fee the retainer should cover, with the replenishment point set so funds do not run out mid-matter. The accounting point is fundamental: an unearned retainer is the client's money, held in a client trust account, and transferred to the firm only as fees are earned and billed.
What moves the number
- Expected hours for the stage being covered.
- Whether the retainer is a deposit against fees or an engagement fee.
- Replenishment trigger and how it is communicated.
- Disbursements expected during the period.
Where this one goes wrong
Unearned funds must be held separately from the firm's own money under the conduct rules every state has adopted, and transferred only as earned against a bill. Treating a retainer as revenue on receipt is a serious violation regardless of whether the work is eventually done. The practical design point is replenishment: a retainer exhausted mid-matter leaves the practice working on credit at the least convenient moment, so set the trigger above zero and state it in the engagement letter.
Before you quote
- Hold unearned retainers in a client trust account.
- Transfer to the firm only as fees are earned and billed.
- Set a replenishment trigger above zero, in writing.
Where the rules come from
Questions
About this calculator
Is a retainer the firm's money when received?
Not while it is unearned. It is the client's money, held in a client trust account and transferred to the firm as fees are earned and billed. Treating it as revenue on receipt is a serious conduct violation irrespective of whether the work gets done.
How large should a retainer be?
Enough to cover the stage of work being undertaken, with a replenishment trigger set above zero so funds do not run out mid-matter. A retainer exhausted at a critical point leaves the practice working on credit at the worst moment.
What happens to unused retainer funds?
They are returned to the client. Unearned funds remain client property throughout, and refunding the balance at the end of the engagement is a requirement rather than a gesture. Keeping them is both a conduct violation and a dispute waiting to happen.
The formula
recurring revenue = members x annual fee; total profit adds the margin on pull-through work
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How to use this calculator
- Agreements in force. Enter your own figure; the page starts at 180.
- Annual fee ($). Enter your own figure; the page starts at $0.
- Cost to deliver one ($). Enter your own figure; the page starts at $0.
- Renewal rate (%). Enter your own figure; the page starts at 76%.
- Extra work per member per year ($). Repairs and replacements members buy because you are already there.
- Margin on that work (%). Enter your own figure; the page starts at 58%.
The result updates as you type, so you can try a figure, see what it does to recurring revenue, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Agreements in force | 180 |
| Annual fee | $0 |
| Cost to deliver one | $0 |
| Renewal rate | 76% |
| Extra work per member per year | $190 |
| Margin on that work | 58% |
What comes out
| Result | Value |
|---|---|
| Recurring revenue main result | $0 |
| Profit on the agreements | $0 |
| Profit on pull-through work | $19,836 |
| Total gross profit | $19,836 |
| Members still there next year | 137 |
$0 of recurring revenue, earning $0 on the agreements themselves and $19,836 on the work members bring back. The second number is usually the reason to sell them.
What each figure means
- Agreements in force
- A number, between 0 and 100000, starting at 180.
- Annual fee ($)
- A money amount, starting at $0.
- Cost to deliver one ($)
- A money amount, starting at $0.
- Renewal rate (%)
- A percentage, between 0 and 100, starting at 76%.
- Extra work per member per year ($)
- Repairs and replacements members buy because you are already there.
- Margin on that work (%)
- A percentage, between 0 and 95, starting at 58%.
What the results tell you
| Result | What it is |
|---|---|
| Recurring revenue | The headline result. A money figure. |
| Profit on the agreements | A money figure. |
| Profit on pull-through work | A money figure. |
| Total gross profit | A money figure. |
| Members still there next year | A number. |
Estimating is the easy part
The jobs you never hear about cost more than the ones you mis-measure. BDEVY builds the marketing, systems and automation that bring them in.