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  1. I have posted this in a few other forums but it still needs repeating for new VAs. A common theme with many new businesses is the idea that to get clients they need to start out by charging low fees. There are a couple of significant fallacies inherent with this thought process: 1) if you start really low with a client, it will be extremely difficult to raise your rates to a reasonable amount and 2) do you really want to work with clients that are looking for a bargain rather than a quality, long term partnership? Determining appropriate rates can be a daunting process, it’s true, but it is also a necessary one. Keep in mind, that on top of expenses, as a solo entrepreneur or LLC/LLP, you can anticipate (depending on your state) 35-42% of your NET profit will be taken in Federal and State taxes annually. So the best suggestion is to calculate how much you need to live comfortably, then estimate your annual expenses (figure in utilities, marketing costs, supplies, etc.) and then add 42% on top of that. A 40 hr workweek is 2080 hours/year and there are 52 weeks in a year. However, if you reduce billable time by a two week vacation, the standard 10 holidays and the average 5 days of sick/personal time per year, your annual billable hours come down to 1,880. Example: PERSONAL EXPENSES – annual $14,400 rent/mortgage ($1200/mth) $4,200 utilities ($350/mth – elec/gas, water, phone, cable/satellite $10,400 groceries/gas ($200/wk) $350 prescriptions/dr visit $1,200 auto insurance/plates/repairs $1,000 misc BUSINESS EXPENSES – annual $1,200 office supplies ($100/mth) $900 cell phone ($75/mth) $600 internet ($50/mth) $100 bus/State filing fees (annual) $120 post office box (annual) $1,200 marketing ($100/mth) = 31,550/yr gross personal expenses = 4,120/yr gross business expenses Total Annual Expenses = $35,670 The example above requires that you gross AT LEAST $35,670 to make ends meet. Ideally, you would want at least a 30% profit (10% for savings, 10% tithe, 10% ‘fun money’) so you now need to gross at least $46,371/yr. But, oh wait! You have to pay TAXES on the profit! Your taxes are approx 42%, but of course the more you earn, the more your taxes! So now you need about 116% profit on top of your expenses (‘cuz remember, you can’t write off personal expenses) so you now need an income of $77,047/yr. $77,047 gross profit less 4,120 bus expenses equals 72,927 net profit less 30,629 federal/state taxes equals 42,298 less 31,550 personal expenses equals 10,748 (a little over a 30% net profit) To make the required gross of $77,047/year, at 1,880 hours (40 hour billable workweek) you need to bill $37.04/hour. However, working 40 billable hours per week doesn’t leave the time required for basic admin and business building requirements. It also defeats the purpose of being virtual and setting your own hours! So, to work a 40 hour workweek and cover your income/expense needs (32 hours) and have 8 hours left per week for marketing, networking, etc. your rate would need to be calculated at 1,504 hours/year. The calculation works out to this: Need: $77,047/year to make ends meet 47 weeks/yr = 32 billable hours/week or 1,504 hours/year (2 weeks vacation, 10 holidays, 5 sick days) Billable Rate $51.23/hr ($77,047 ÷ 1504) If you work more billable hours than that per week and put the extra income aside each month, you have padding for the times you don’t have 32 billable hours/week. FYI – after calculating what I needed to earn, I compared it to the going rate for my ‘job title’ and ended up charging a higher rate. However, I was then confident that I would be earning enough even if my billable hours weren’t at the minimum 32/week and I knew the minimum hours I had to bill to make ends meet were actually 2% lower than 32 hours/week. On an average year of 1,504 work hours, 2% works out to 30 hours of ‘lost’ billable time; good padding for the lean times. Obviously, this is a very simplified example and doesn’t come close to figuring out accurate expenses. It’s just a demonstration of all the financial considerations you need to make when setting rates. The best way to start is to build budgets (both personal and business) so you have a better idea of your actual estimated annual expenses. Keep in mind that if you work a full time job as well as your personal business, it still doesn’t mean you should undervalue your services. I work a 9-5 job but my virtual bookkeeping business rates are the amount I will continue to be charging once I drop the 9-5 and go full-time virtual. Also consider that you will need to pay taxes on your business income and, depending on how your business is set up, it MAY throw your 9-5 income into a higher tax bracket, as well (solo, LLC/LLP income is considered personal income by the IRS, rather than as a separate entity). If you are a solo or LLC/LLP you need to plan on making regular tax deposits based on BOTH your 9-5 AND personal business income. And don’t forget that because you are virtual the rates in your area don’t have anything to do with the price of tea in China! In other words, if your geographic area rates are relatively low, market to an area that will not blink at YOUR billable rates. If your local rates are $25/hour but you need to make $45 (or more), try marketing in a large metropolitan area. It’s a mental shift, but learning to think more globally than locally will help with the ‘comfort zone’ of charging higher rates and still allow you to earn a decent living, virtually.
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