“I can’t afford that.”
The minute I hear those words, I know the person has impoverished her business.
I don’t use that term lightly. I suspect that when most people think about poverty, they think about people who lack the fundamental necessities of life. Whether money, housing, food, etc., the lack thereof makes a person poor, or impoverished. Often overlooked is that something or someone can also be impoverished of strength, vitality, and spirit. While people can often not see that they can do anything to change their circumstances with regard to money, housing, food, clothes—necessities of life, what I find sadder still are those who impoverish themselves by their actions and/or sometimes inactions—those who sacrifice that which could have flourished to fear, or often, ignorance.
Within the Virtual Assistance community, I work every day to teach, train, and coach virtual assistants to step fully into their own glory and power, and to understand that self-sacrifice, and self-impoverishment serves no one–not themselves, not their clients, not their professional communities, not the global community–no one.
I once heard someone say that a VA’s fee depends on credentials and training. Actually, training/credentials are just two parts of it. Your fee is actually based (or should be) on a mathematical calculation, where there’s very little guess work involved. I find that many VAs who come to me for coaching of one sort or another have no idea what their fees need to be in order for them to be profitable. And when I have them figure it out, they are often astounded to find that, as a practical matter, they’ve set their fees far lower than is practicable.
Be smart. Don’t assume that your fees are set appropriately, and especially don’t believe it because you’ve “looked around at what others are charging” and what you charge is similar. It’s more likely that they aren’t profitable, than that you (and they) are.
And if your fee is set under $40/hour, I can just about guarantee that, unless you live in a hut on a mountain in West Virginia, your business is not profitable.
I mentioned a mathematical calculation earlier. It’s below, along with how to use it. First, let me tell you what you’ll need to have with you before you start.
You must first arrive at a base hourly wage. This is a cost for time only. It shouldn’t take into consideration any expense. The Bureau of Labor Statistics lists the median hourly rates for US workers (shown below). You can see this table yourself, if you’ve a mind to. The most current information is more than a year old, but I suspect it hasn’t changed much, if at all. If you think it’s changed, pad it the way you see most fit to.
- Secretaries and Administrative Assistants: $16.61/hour
- Executive Secretaries and Assistants: $25.16/hour
- Office and Administrative Worker Managers: $23.66/hour
For the purposes of figuring out your fee, you’d want to pick whichever hourly rate is most appropriately tied to the work you currently do for clients. If you’re doing very task-based work, you’d choose the rate for Secretaries. If you do some of that, but there’s a degree of strategy and responsibility involved, choose the EA rate. And if you are managing a client, or a client’s business, or overseeing the work that others do for your client (plus all the other stuff!), I would say to choose the rate for the Manager, but as it’s lower than the EA rate, choosing it would be creazy. Instead, pad the EA rate. This is, btw, the amount you are going to pay yourself at the end of the day.
Next, you have to account for all of your indirect expenses. An indirect expense is any expense that’s not tied to an account (meaning, you can’t bill it to a client). So, it’s your office supplies, furniture, rent, utilities, business insurance, trade association memberships, continuing education, etc. *
Smart business owners know that they absolutely need to account for all of it, whether or not they actually need it all right now. Absolutely include all your indirect expenses and anything that might not technically fall into usual indirect expense, but that you want to be sure your fees cover. Things that VAs often don’t consider are some of the benes they’d have if employed, such as: Vacation, sick, holiday and personal time I suggest you plan on taking at least three weeks (week = 5 days) of vacation, one week of sick time, one week of personal time, and the major federal/national holidays in your country. In the US, that would end up being a total of 33 days, or 7 (rounded) weeks. If you are of a particular religious group and have other days that you need to take away from your business, be sure to add those in, too.
Many VAs have insurance coverage via a spouse’s employer so they don’t factor this cost in. But in reality, if that coverage went away tomorrow, you’d want your business to pay for your health insurance premiums (it can pay for yours, not your family’s). So get a quote for yourself, and factor that in to your indirect expenses
With regard to funding a retirement account, if you were employed, some percentage of the contribution to your retirement account would be made by your employer. If you want your business to “fund” part of it, pick a percentage, and add that in to your calculation.
Then you need to figure out how many billable hours there are in your work week. Use that to figure out how many billable hours there are in your work year (52 week, including your time off) Once you have those figures, you have what you need to get busy.
The Fee Formula
- Billable hours/week X 52 weeks/year (or however many weeks you plan to work) = billable hours/year
- Annual indirect costs divided by billable hours/year = hourly costs
- Hourly costs + hourly pay + 10%-30% profit = hourly rate
The calculation doesn’t include an amount to include for special training or certification you earn—and unfortunately, I’ve never seen anything in any professional group that says, definitively, how you price/value those kinds of things, so that’s really going to be a guess (but I would suggest that $1/hour per higher skill, and $3/hour for a certification isn’t too much to ask, and may, in fact, be too little!).
Let’s say Suzie’s working this formula, and she’s an AssistU-trained VA with three years experience FT in her business. She plans to do 25 billable hours each week. She does high-end client work, plus was an EA in the corporate world for 15 years, so she’s claiming $25/hour as her hourly rate. Her indirect expenses are $35K/year, and she wants a 20% profit. She’s been through a rigorous program to help her with her niche working with best-selling authors, and she’s an AssistU grad and Certified Professional Virtual Assistant. This year, she’s attended/ing two high-end multi-day seminars by esteemed teachers, so she figures the increase in her skills will be worth $10 more per hour.
- 25 billable hours/week X 52 weeks/year = 1300 billable hours/year (including her time off)
- $35K in indirect expense/1300 billable hours/year = $27 (rounded) hourly costs
- $27 hourly costs + $25 hourly base rate + $10 bump for special skills/certifications per hour + 20% = $74/hour = the fee that Suzie needs to charge her clients to be profitable in her business. More means she’s more profitable. Less means she’s volunteering for herself. Ouch.
To break that down a bit more… $27 pays her expenses (including time off, insurance, and a portion of her retirement savings) $35 goes in her own pocket, and $12 is profit for the business
By setting her fees this way, Suzie now is well compensated for her time, she covers all her expenses—including paid leave and a contribution to her retirement account, and her business is profitable.
Is she rich? Nope. But she’s certainly not impoverished, and she’s free. She’s at choice the way no one living in poverty can be. She works exactly as much as she wants, when she wants, and how she wants. She’s taking care of herself. She’s large and in charge and in command of her own world, and she’ll never again be dependent on anyone–a BIG piece of what happens with poverty causing lack of necessities.
And her income can be adjusted at any time by raising her fee, or the hours she works. It’s all up to Suzie …or you, as the case may be. And that, my friends, is a richness that even money can’t buy. Yay!
Now, off you go. And when you’ve figured out what your fee needs to be, leave me a comment and let me know what it turned out to be, and how close (or far!) you currently are from it, and how it makes you feel to know what your fees need to be for you to have a strong, healthy, vibrant business!
* There’s more about indirects at this post!