I’ve been reading a lot of blogs lately, trying to figure out where I wanted to go with this one. I read a blog post by Stacy Brice, (author of Virtual Moxie) that really got my writing juices flowing. You can read her post here: http://www.virtualmoxie.com/2008/07/if-you-dont-wan.html She talks about discounting your fees for retainer clients and I never thought about it from her perspective before. (Thanks, Stacy!)
When you are setting up your business plan, you need to decide what your fee structure will be, and how much money per hour you need to clear to make it profitable. If you are like me, when I jumped on the scene, I didn’t have much experience with running my own business. When you set your hourly rate you have a lot to consider. (Disclaimer, I am not an accountant or tax consultant, and the laws vary depending on where you live, so always get professional advice.)
What is your cost of doing business? (This is your overhead.)
How much space does your office area take from your living area? You’ll have to do some math to figure the cost of your office space versus the living areas. For example, if you have 3,000 sq. ft. available in your home and your office takes up 75 sq. ft., that means you may be able to deduct that 75 sq. ft. from your mortgage or rent payment and that would be your office rent payment. This only works if you have a dedicated office space that is not used for any other reason. If you work from a laptop anywhere and everywhere in your house, this consideration would not be part of your overhead.
Other things to consider:
• How much does your ISP charge you?
• How much should you allow for electricity charges?
• How much are your business phone & fax line charges?
• Do you have a cell phone that is used for business purposes?
• How much do you pay for office supplies?
• How about your office equipment? (Includes printer supplies & paper.)
• Do you have business insurance?
• How much do you pay for continuing education?
• How much do you pay for subscriptions or membership fees?
• How much do your promotional items cost you? (Business cards, brochures, etc.)
• What else should be included in your overhead?
Once you figure out the cost of doing business, then you need to decide how much money you want for your own paycheck. For example, $50.00 an hour sounds like a great wage to most starting out, but how much of that is actually going into your pocket as profit?
After you decide how much your hourly rate is, your next question should be how much can I discount my fees for retainer clients and still be profitable? Nina Feldman has a worksheet you can use on her website: http://ninafeldman.com/pricing-worksheet.htm One other thing to decide is, how much will I pay subcontractors? You need to have your rate set before you advertise your availabilty or make an offer to another VA.
For retainer clients, I did have a discounted plan depending on how many hours the client purchased. A lot of VA’s do this, but after reading Stacy’s blog (link above) I decided to listen to the voice of experience. Besides, it makes perfect sense. I am restructuring my fee schedule today and no longer discounting my rates for retainer clients! I am also making changes to my website, to reflect this change. I am not saying this is the only way to do business. I am saying it makes perfect sense to me; I’m the boss, so I am instituting the change for my own business model.
One big mistake I made when creating my business model, was offering a 100% satisfaction guarantee. Unfortunately, I didn’t think about a less-than-ethical client actually taking me up on this offer and demanding the money back. I had no choice but to refund the money, even though the client is using my intellectual property, because my website and scope of services proudly boasted my guarantee. I had no wording to the effect that retainer fees were not refundable. If you decide to offer a guarantee, make sure you can live with your decision and be prepared to return money whether it was earned or not. Oh well, live and learn! It was a costly lesson and it won’t happen again. Do your research and try to come up with all the possibilities for your fee structure. You won’t hit all the possible issues, but it’s better to be informed.
