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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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Great post! I agree. My rates are much higher than the "average" going VA rate - and I absolutely get people who pay me my hourly rate. I do offer packages that equate to a slightly lower per-hour rate, but still way above the "average". :)

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Excellent post. We have a similar discussion frequently at the transcription forum I belong to related to newbies not starting at a really low rate to get "their foot in the door."

 

I also love what you have to say about not necessarily thinking just local. I do most of my marketing toward major cities and I haven't done ANY local advertising other than putting my company Google Places, Yahoo, Bing, etc.

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Lily

 

I agree, Great post! I "see" where VAs determine their hourly rate based on what an employee would make (or maybe slightly higher) and they don't take into consideration the other items that you have mentioned above. Then at the end of a year they wonder why they didn't make money. I will make a comment that if you have software updates or programs that you need to keep current, you need to include those costs as well. I also budget in assets (cell phone/printer/computer upgrades) as well.

 

I created a spreadsheet that I could adjust my expenses and my "salary" to determine if I needed to raise my rates. That way I just look at it every six months or so to see if I need to raise my rates.

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I created a spreadsheet that I could adjust my expenses and my "salary" to determine if I needed to raise my rates. That way I just look at it every six months or so to see if I need to raise my rates.

 

I created an updatable budget spreadsheet, as well, as part of my book "How To Do Your Own Small Business Bookkeeping." If anyone is interested in getting a free copy of the spreadsheet, click here and fill out your email address at the bottom of the page. You will receive several excel spreadsheets, including the budget one, in your email shortly. If you are interested in the book, too, click on the link in my sig line as the Amazon.com price is currently cheaper than I can sell it myself!

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I created a spreadsheet that I could adjust my expenses and my "salary" to determine if I needed to raise my rates. That way I just look at it every six months or so to see if I need to raise my rates.

 

I created an updatable budget spreadsheet, as well, as part of my book "How To Do Your Own Small Business Bookkeeping." If anyone is interested in getting a free copy of the spreadsheet, click here and fill out your email address at the bottom of the page. You will receive several excel spreadsheets, including the budget one, in your email shortly. If you are interested in the book, too, click on the link in my sig line as the Amazon.com price is currently cheaper than I can sell it myself!

 

Thanks so much for the spreadsheets!

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I agree with the spreadsheet for a starting point, but I'm going to play devil's advocate because it's what I do.

 

That's what you need/want to live, right?

 

But is that what your services are actually WORTH? Make sure you do very due dillgence not only in your service niche, but market niche as well. If you are signing more than 1/3 of potential clients, I think your rates are too low.

 

Just sayin'.

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I agree with the spreadsheet for a starting point, but I'm going to play devil's advocate because it's what I do.

 

But is that what your services are actually WORTH? Make sure you do very due dillgence not only in your service niche, but market niche as well. If you are signing more than 1/3 of potential clients, I think your rates are too low.

 

My spreadsheets don't help you determine how much you need to live - they help you budget for what you need to cover expenses (and when), track what you've earned, and how much tax to deposit. Calculating actual needed/wanted income is a totally different process. You SHOULD re-visit your budget on a regular basis to make sure you are charging enough to not only cover expenses and cost of living, but to make a profit for things like vacation, retirement, etc.

 

I completely agree with Candy - if you are signing more than 1/3 of potential clients, your rates are too low and should be revisited. :)

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Guest FidataBusinessSolutions

 

I created a spreadsheet that I could adjust my expenses and my "salary" to determine if I needed to raise my rates. That way I just look at it every six months or so to see if I need to raise my rates.

I created an updatable budget spreadsheet, as well, as part of my book "How To Do Your Own Small Business Bookkeeping." If anyone is interested in getting a free copy of the spreadsheet, click here and fill out your email address at the bottom of the page. You will receive several excel spreadsheets, including the budget one, in your email shortly. If you are interested in the book, too, click on the link in my sig line as the Amazon.com price is currently cheaper than I can sell it myself!

 

Are these spreadsheets still available? The link is not working for me and I would be interested in reviewing the information. Thanks!

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Great post! I agree. My rates are much higher than the "average" going VA rate - and I absolutely get people who pay me my hourly rate. I do offer packages that equate to a slightly lower per-hour rate, but still way above the "average". :)

 

These posts are great! What are the average rates for VA work? Where could I find a range for hourly rates and per job. I've been trying to find this out! :flowers:

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Thank you for posting on this topic. As a new VA I have been struggling to set rates that are fair and accurate. I want to drum up business but I don't want to undersell myself. This detailed response lets me know that my rates are fair and appropriate. I also think that rates vary based on what area of the country you are in.

 

I have a quick question about billing for Power Point. Is it best to bill by the hour or page etc. Any advice on specialties etc.

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