Retainage is something that is commonly used in construction, but can also be utilized for many, many professions in the creative space, such as in:
- Graphic design
- UX design
- App development
- SaaS development
- Book printing
- Graphic Design
- Kitchen repair
Not everybody in the creative or contract services world uses it, but we do it often. It is an important and useful tool that could help you in your next project.
Retainage is simple.
Retainage is a term that means you’re going to take a set percentage out of every payment milestone in a project. Then, after the client has completely signed off on that project, they’re going to pay you that percentage. Very commonly, this percentage is 10%.
Why do this?
This is valuable because it enables you to run the project as you normally would, and your client still has a safety net.
For every milestone we reach, we take 10% out of the agreed-upon billable amount. For example, if we have four milestones on a $10,000 project, each milestone would normally bill $2,500 to the client. Instead, we bill the $2,500 minus 10%, which is $250 withheld for each milestone. The client gets a bill for $2,250 for each milestone instead of the full $2,500.
Then, at the end of the project, or agreed upon deliver completion, when the client says, “Yep, I feel great. This is tested. It’s debugging. It’s working. It’s got all the things in it,” — that’s when they get that last $1,000 invoice.
Contract Security, Built In
This gives us enough money to get the project done and paid along the way, and our client feels like they’ve got the final say on when the project is up to their standards. They can effectively put their seal of approval on the finished product by sending that final payment.
This allows you to secure 90% of the payment and only that last small payment is left hanging waiting for the client’s final approval.
Personally, I like this technique so much that it’s built into the contracts management area of BrainLeaf.
We highly recommend taking a look at retainage. It’s a useful tool to add to your contracts. All of the contract jargon is in BrainLeaf, so have a look at it and let us know if you need any help!