Retainer burn: how to tell when a retainer is underwater

A retainer is underwater when the hours it takes to deliver cost more than the fee was priced to cover. Most agencies find out at month-end, when the timesheet total is already fixed and the only choice left is to absorb it.

You can see it much earlier. This guide covers the four numbers that describe a retainer, how to read them by the end of week 2, how to check the people carrying the work, and what to do once a retainer is over.

The four numbers that describe a retainer

Included hours. The hours the fee is priced to cover. If the contract says "up to 40 hours a month", the number is 40. If it lists deliverables instead of hours, write down the hours you priced it on. Without that number you cannot measure burn at all.

Used hours. Every hour logged against the client in the period, by everyone. That includes account management, status calls, internal reviews and revision rounds. Leaving calls and admin out is the most common reason used hours look fine when they aren't.

Burn rate. Used hours as a share of included hours, compared with how much of the period has passed. Using 50% of the hours at the halfway mark is on pace. Using 70% at the halfway mark is 140% of pace.

Headroom. Included hours minus used hours: what is left for the rest of the period. Divide headroom by recent weekly usage to see how many weeks it will cover.

Two formulas do most of the work:

Pace          = (used hours / included hours) / (working days elapsed / working days in period)
Month-end use = used hours / working days elapsed * working days in period

A pace of 100% means the retainer will land on its included hours. Anything above your chosen threshold, such as 115%, is worth a closer look.

Why week 2 is the checkpoint

Week 1 is noisy. Monthly planning, kickoff calls and reporting often land in the first few days, so a fast start doesn't always mean a problem.

By the end of week 2 you have half a month of data and half a month left to act. You can still move a deliverable, ask for approval of extra hours, or pull a person onto other work. At week 4 the hours are spent.

Some retainers are front-loaded by design. If a monthly report is always due on the 5th, set your expected curve to match, for example 35% of hours in week 1, rather than using a straight line. A straight line is the sensible default when you have no pattern yet.

A worked example

Fictional example. A content retainer bills US$6,000 a month for up to 40 hours. The month has four working weeks. The agency's internal cost rate for the people on the account is US$70 an hour.

Week	Hours this week	Used to date	On-pace hours	Pace	Headroom
1	14	14	10	140%	26
2	13	27	20	135%	13
3 (projected)	13.5	40.5	30	135%	−0.5
4 (projected)	13.5	54	40	135%	−14

At the end of week 2, the retainer has used 27 of 40 hours with half the month to go. The 13 hours of headroom cover about one more week at the current pace, so the included hours run out at the end of week 3. If nothing changes, the month closes at 54 hours.

Here is what that does to the money:

• Planned: 40 hours at US$70 is US$2,800 of delivery cost, leaving US$3,200 contribution before overhead, a 53% margin.
• Projected: 54 hours at US$70 is US$3,780, leaving US$2,220, a 37% margin.
• Effective fee per hour: US$150 as priced (US$6,000 ÷ 40), US$111 as delivered (US$6,000 ÷ 54).

The retainer still contributes something. But one month like this takes nearly a third off its contribution, and three in a row usually means the fee no longer fits the work. The figures are illustrative and are not a customer result.

Check the people, not only the client

A retainer that burns fast often has one person carrying it. The same overrun shows up from the other side as an overbooked owner: the account lead or specialist whose week is fuller than their available hours.

For each person, add up the hours booked across every client for the coming week. Compare that with their available client hours, not their contracted hours. A designer contracted for 40 hours who spends about 8 on internal meetings, admin and leave has around 32 client hours. If they are booked for 38, they are at 119%.

An overbooked person leads to one of two results. Work slips on another client, which moves the problem somewhere else, or they work extra hours that nobody logs, which hides the real cost. Either way, a retainer's burn and a person's load are the same problem seen from two directions. Checking both each week tells you whether to change the retainer or move the work.

Include the agency owner in this check. Owner hours on a client are often the least logged and the most expensive.

Know your renewal and notice dates

Every retainer has three dates that decide how much room you have: the renewal date, the notice period and any price review clause. Put them next to the burn figures.

Work backwards from the notice deadline. If a retainer renews on December 31 with 30 days' notice, the conversation should start in early November, with two or three months of burn data to show. One hot month is a note. Two in a row is a pattern. Three is a pricing conversation.

You don't have to wait for renewal if the gap is large. Most clients would rather hear "we're running over and here are the options" in month two than a price increase with no warning in month twelve.

What to do when a retainer is underwater

Work through three levers, starting with the one that asks least of the client.

1. Scope. List what the extra hours went on. Common causes are extra revision rounds, meetings that grew, and small requests outside the agreed work. Cap revision rounds, move out-of-scope requests to a change request at a stated hourly rate, or drop a deliverable the client values least.
2. Rate. If all the work is in scope and the client wants all of it, the fee is too low for the scope. Show three months of included hours, used hours and effective fee per hour, then propose either a higher fee or fewer included hours for the same fee.
3. Structure. Change the terms at renewal. Options include overage billing (hours above the included amount billed at a stated rate, with approval at a threshold such as 80% of hours used), clear rollover rules, or moving spiky work to separate project fees.

If none of these work and the retainer shows negative contribution month after month, plan an orderly exit at renewal, with proper notice.

Raise it as a routine update

Send the burn figure to the client at week 2 as part of your normal status note, not as an alarm. For example:

We're at 27 of 40 hours with two weeks to go. At this pace we'll reach 40 hours in week 3. Would you like us to prioritize the product pages and move the blog refresh to next month, or approve up to 10 extra hours at US$150 an hour?

Numbers turn a possible dispute into a scheduling question. The client chooses, and nothing arrives as a surprise on the invoice.

A weekly routine

Once your hours are in one place, the check is short:

• Total hours by client for the week, including calls and admin.
• Update used hours, pace and headroom for each retainer.
• Flag any retainer above your pace threshold.
• Compare each person's booked hours with their available hours for next week.
• List renewal and notice dates in the next 90 days.

Tracking this in a spreadsheet

The Retainer Burn & Capacity Planner is in progress. It will track included and used hours, pace, headroom and each person's load in one workbook. There is no release date yet; its page describes what it will do. Once the free lite edition of the tracker is released, signing up for it also gets you one email when the planner launches. For setting capacity targets by role, see how to set a realistic utilization target.

To see what each retainer contributed after the month closes, the Client Profitability Tracker shows contribution before overhead by client and month. For the method behind it, read client profitability: contribution before overhead. If the problem starts at the quote, see how to price a project so it still pays.