8 Simple Steps to Establishing Rates
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- Loren Hudson
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1 presents... 8 Simple Steps to Establishing Rates
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3 Establishing Your Rates Can Be Difficult at First One of the most common questions people ask about starting a new service based business is, How much should I charge? In many cases, it can be a difficult question to answer. If you charge too much, you won t get any clients, especially if clients can go to other service providers providing similar services for a lot less. On the other hand, charge too little and you won t make enough. Even if you get clients, you ll have to work so hard to make money that you ll probably burn out. So how do you figure out the right balance? How do you charge as much as you possibly can, without pricing yourself out of the market? Let s take a look.
4 Decide if You re a Commodity or Value Service There are two ways to sell services: Commodity sales or value sales. A commodity service is one where you re competing within an established market. For example, if you re doing voiceovers on Voices.com, you re competing in a commodity market. Since you re competing with other voiceover people who re charging $X per minute, you can t charge a lot more than the same amount. What you re selling is a commodity, even though it s a service. On the other hand, you have value sales. Value sales aren t sold based on where the market is at. Instead, it s sold based on what the service is worth to the client. For example, when a Fortune 500 company decides to re-name their company after a merger, they ll often go and hire an outside naming firm to help come up with a name.
5 That firm isn t going to be hired based on what other firms charge. There s no bidding market. The client isn t going to go out and look for the cheapest naming firm possible. No, they look for the best. And what the firm charges is based on what the value is worth to the client. That s why just coming up with a name could be worth several million dollars. Even the same type of service provider can often reside in both commodity and value markets. For example, graphic designers. In the commodity markets, you have designers on sites like elance and odesk that pretty much have to outbid one another to get jobs. On the other hand, you have high end designers that charge $20,000+ per job because they build value in their brands. So, before anything else, you need to ask yourself: Do you want to offer your services in an existing service market? Or do you want to try and sell yourself outside of that market and build value in your own service? The former is much easier. You can make sales in hours or days, because you re plugging into existing markets. The latter is much harder, but you can price yourself a lot higher once you re successful.
6 Check Market Rates Now it s time to figure out what other people are charging. This will help inform what you charge, no matter how you decide to sell your services. Use sites like elance and odesk to figure out what other online service providers are charging. Use Craigslist to see if you can find out what other people are charging for similar services. Look on internet forums in your industry and look at discussions of what others charge. See if you can determine what the median is. Figure out what most people expect to pay. Then also figure out what the maximum amount charged seems to be. In other words, try to figure out the standard in the market, as well as the upper end of what people are willing to pay.
7 Evaluate Supply and Demand This is especially important if you have a specialty. For example, if you re a finance writer who specializes in the energy industry, your services could be worth a lot to the right person. You re a lot more valuable than just a freelance writer, because you have the background and experience to do a very specialized kind of work. Look around and see if there are other people like you on the market. Are there people providing the kind of services you provide, with your specialty? If so, how much are they charging? Then look at the demand for your services. How many potential clients are there looking for services like what you offer? The less supply and the more demand, the more you can charge.
8 Determine Your Hourly Goal This decision isn t based on the market. It s based on you. How much do you want to make? For example, let s say you re replacing a current job at $50,000 a year with your service based practice. You re prepared to work 40 hours a week, which comes out to 2080 hours a year. If you divide the $50,000 by 2080 hours, you get $24 an hour. This is the amount of money you need to make in your business in order to replace your current income. Figure out how much you need to make. This could inform how you market your services and how you price your services. If you find that your potential earnings are a lot lower than how much you want to earn, it could even help you decide whether or not to work in the industry at all.
9 Translate Your Hourly to Billable Hours The amount you need to earn on a per hour basis is not the same as what you charge your client. Remember: Running a business is a lot more than just client work. You need to manage a website. You need to market. You need to respond to s. You need to respond to phone calls. Figure out what percentage of time you re spending on actual client work and what percentage of time you spent on unpaid business related tasks. Then figure out how much you need to earn from your paid work to compensate for your unpaid work. If you don t know how much time you ll be spending on client work yet, assume it s half. If you need to earn $25 an hour in total, then you need to bill your clients at least $50 an hour to make your earnings targets.
10 Factor in Costs Are there costs to your business? Of course there are, even if there are only few. For example, if your goal is to be a professional public speaker, you have to factor the costs of flying to your destination as well as accommodation in your prices. If you re a piano tuning specialist, you need to factor the cost of renting (or owning) vans to move pianos into your costs. Don t just look at how much you need to earn. Look also at how much you need to spend. Those costs need to be factored into your rates.
11 Choosing a Pricing Model Knowing your target hourly rate doesn t mean you have to charge by the hour. Often time s your target hourly earning rate is just for your own information. The best way to charge for your services is to use the pricing model that s most expected in your industry. Nobody hires a copywriter per hour. Instead, they pay per piece for the copy, plus perhaps a percentage of earnings. On the other hand, nobody pays a personal assistant on a per-job basis. Personal assistants are almost always per hour. Content writers on the other hand are often paid either on a per-job or per-word basis. Voiceover artists are paid on a per-minute or per-job basis. There are a lot of different ways to charge for your services. Try to figure out what the norms are in your industry. Use your target hourly rate to inform how much you charge, but express your rates in a pricing model that makes sense.
12 Start Low, Then Raise Your Rates When you re just starting out, you should price your services relatively low. Look for the median of the market and either price yourself right at the median, or 10% to 20% below the median. This will help you get your first paying clients. This will help you fatten up your portfolio as well as get you your first batch of positive feedback from real clients. This will help boost your credibility for future clients. As your practice starts to fill up, start raising your rates. Anytime you hit 80% capacity, raise your rates.
13 To sum it all up, Start by determining whether you want to price yourself in a commodity market or to build value in your own brand. Next, research your market to see what others are charging and to find out how much supply and demand there is for your specialty. Figure out how much you need to earn, what your costs are and what pricing model makes sense. Finally, start low and gradually raise your rates as you build more credibility and gain more experience.
14 Stay tuned and join us at VAhelper.com for weekly podcast episodes dedicated to helping virtual assistants to grow their business and get more done in a work day. You can find the podcast on our site of course, but we re also on Stitcher Radio and itunes for easy subscriptions delivered right to your favorite listening device! == Click here to visit VAhelper.com ==
15 Meet the Team of Virtual Assistants at VA Helper: Loretta Oliver I ve been a work at home mom offering a variety of virtual assistant services since I shifted my business focus from being a general virtual assistant to focusing on offering transcription services and I no longer accept new general assistance clients. However, I do still maintain a few original client relationships and I really enjoy working with those people. When you have great clients work doesn t seem so much like work as it does helping a friend, and that s the way it should be in my opinion. One thing I learned quickly as a virtual assistant and transcriptionist is that you can t let your entire business be YOU. Eventually you will reach a point where it won t work anymore, something might call you away from your comfortable desk (like you husband being in the hospital for two weeks), or you might want to take an actual vacation where you don t have to go back to the hotel and work for four hours every night, or maybe you ve just got too much incoming work that you can t handle it all alone anymore. The truth is even the assistant needs a little help sometimes, and that s perfectly okay. So I gathered a group of my closest friends who are also virtual assistants to contribute here at VA Helper. Everyone brings a unique set of skills to the table and we all focus on different areas. In fact, I ve worked together with each of these lovely ladies on various client projects as a team effort to create an exceptional client experience. Without further ado, I m pleased to introduce our VA Helper contributors.
16 Alicia Jay Alicia Jay began her foray into the online world when she found herself very pregnant and very laid off in a down-turned economy. She discovered Loretta Oliver and became a student of her Transcription Crash Course. Over time, she has built up her own general transcription business while perfecting her skills and gaining the trust and respect of her clients. She now teaches others how to master transcription. In an effort to give back, Alicia recently created newvaadvice.com, a site where she shares her journey of becoming a Virtual Assistant in the hopes of inspiring other women to follow their dreams of having a business that works around their lives not the other way around! Lauren Haugh Lauren has been involved in online business since Starting out in Direct Sales, and has always had at least 2 websites that she contributed to and maintained. Along the way she has mastered many online skills that she combined into a Virtual Assistance business so that she could offer her services to help out other WAHMs and online business owners. In Lauren s opinion, helping other business owners is one of the most rewarding things she can do.
17 Erica Cosminsky Erica Cosminsky is an HR Business Strategist for small businesses. She can slog through the pile of applicants and help deliver the best assistant to your office door, she transforms mile long to-do lists into manageable bites, and like your best friend after a raging party, she sticks around to offer assistance or clean up any messes, etc. Find her free delegation workbook attheinvisibleoffice.com She is a former corporate HR Manager, and ran her own virtual business team for 4 years. She has a BS in Organizational Leadership focused in HR and is a grad student in Industrial and Organizational Psychology focused in Workplace Efficiency. Honestly, if you have questions about working with people, Erica can probably help you. Ask her on Christina Lemmey Christina is the owner of MultimediaVA.com and focuses on creating compelling website content for her clients. In addition to audio, video & written content creation, Christina also offers oneon-one coaching sessions for clients who need more help learning some of the popular business software programs, such as WordPress, Aweber and Easy Video Player.
18 Tracy Roberts Whether you re just starting out or you ve been in business for awhile, finding people that you can trust to give you the information you need, when you need it and at the right price for your current pocket book can be hard work. Tracy shares her trusted resources at Moms In A Blog so you can avoid the frustration of digging through all the turds to get to the golden nuggets. She has been where you are and has been working online since 2006 as a virtual assistant, affiliate manager and running a team of virtual assistants for various clients. Tracy shares the inside scoop on people, products & ideas you can take to the bank as well as the howtos, tips, techniques that you need to know to run a successful business. Lisa Roberson Lisa is a stay at home mom with three kids, two of them are almost 6 foot, and she is just barely getting over the shock of that. She loves kids and also children s education, with a strong leaning toward literacy. She eats books for breakfast and has raised her kids to do the same. Her boys read faster than lightning itself, and she really doesn t understand that fast-forward reading nonsense. She is sure one day it s going to be hard to admit to their superior intellect. Not today, though. Lisa also loves the internet like there is no tomorrow! She cannot. get. enough. She s grown to love marketing from hanging out online with a bunch of internet marketing geeks. She loves to read marketing books and industry magazines. She also loves animals, trucks, and living simply. It is one more sad fact of Lisa s polarity, that her love for all kinds of big, air-polluting machines and trucks belies her desire to live an eco-conscious life. A true Gemini, indeed.
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