In 2026, the "Subscription Economy" has hit the creative industry hard. More clients than ever prefer to pay a monthly retainer for design services rather than erratic project fees. While this provides great cash flow stability for an agency, it can create a bookkeeping nightmare if not set up correctly in Xero.
If you're not tracking how much work goes into each retainer, you're likely over-servicing and losing profit silently. Here's how to configure Xero to manage design retainers like a pro.
Automation is your first step. Instead of creating a new invoice every month, use Xero's Repeating Invoices feature.
A $5,000/month retainer is only profitable if you're spending less than $3,500 of effort to deliver it. To track this, we highly recommend using Xero Projects.
💡 Pro Tip: Link every designer's time entry to that specific client's "Retainer Project." At the end of the month, Xero level will show you exactly how many hours were used. If you consistently hit 40 hours on a 30-hour retainer, it's time to renegotiate.
If a client pays for a 12-month retainer upfront, you shouldn't report all that money as "income" in month one. This is Deferred Revenue.
Correct bookkeeping involves putting the full payment into a liability account on the balance sheet and slowly moving a portion of it into your P&L as the work is performed each month. This ensures your tax obligations are distributed fairly throughout the year.
Don't just lump all income into "Sales." Create a dedicated "Revenue - Design Retainers" account. This allows you to see exactly how much of your agency's billings are guaranteed recurring revenue versus one-off project work.
Our Xero specialists can audit your account setup and ensure your recurring revenue is tracked with precision. Don't lose profit to over-servicing.
Talk to a Xero Setup Specialist