If you don’t want to be perceived as a commodity, don’t set your fees as if you can be bought in bulk

I’ve seen some Virtual Assistants who have a particular standard that simply doesn’t serve them. I feel certain they don’t know that, or they wouldn’t do it.

The standard is to have a multi-tiered retainer program. Some couch it simply as “options.” Others couch it in “jewels” (sapphire, ruby, diamond). Others still couch it in precious metals (bronze, silver, gold, platinum). Ultimately, the richer the level (platinum is “richer” than gold, for instance), the more hours are included in the retainer, for less money per hour.

This is what I call the Costco pricing model. If you buy more of something, it costs you less than if you buy less of it. It’s commodity-based thinking, and the sole reason why places like Costco exist is because it works…for some things.

It works, for instance, for cans of corn. It does not work for services. I mean, it does work for services…if you want money to be the biggest factor that your clients consider. It does work for services…if you work in a call center in Bangalore. It does not work in an industry that tells clients that fit is the top criterion for choosing a VA.

If your fee is appropriately set, then THAT is your fee. And whether someone puts you on retainer for ten, 20, even 60 hours/month, your hourly rate needs to remain the same.

Someone asked me why it matters. Well, first of all, it matters because of what I just shared. But it also matters because in structuring your fees that way, you set yourself up to end up being haggled where you don’t want to be, and where you shouldn’t be.

For instance—let’s say that you have a $500 retainer that includes ten hours of your time, and a $675 retainer that includes 15 hours of your time. So that you don’t have to do the math, that makes the first retainer fee $50/hour, and the second $45/hour. So, your client Jack is on the $675 retainer. And one day Jack calls and says, “My business just skyrocketed. What’s the lowest fee you can give me if I want 25 hours/month?”

You think about it, and logically, based on your pricing model, it should be $875 (which would be $35/hour). But now you’re stuck, because you know you can’t afford to work for that. So you tell Jack that $45/hour is as low as you can go, and a 25 hour retainer would be $1125. Jack says, “How is that fair? You gave a discount when I went from ten hours to 15. How can there not be any other discount when I want to buy more of your time?”

Now, you certainly can say that that’s just the way it is. That’s your right. But Jack already sees you as a commodity—because that’s how you set yourself up in his eyes—and he is not going to understand. He may take his business elsewhere (probably a good idea, anyway, really!), or he may begrudgingly agree to your terms.

But why set things up in the beginning that could possibly cause you problems down the road? What’s the point of that, exactly?

Bit O’Moxie: There is no point. That’s the truth. Discounting your fees does nothing for you, and the only thing it does for the client is make him think of you in dollars and cents.

Set your fees appropriately. This means doing the hard work to figure out what they should be, and having them be exactly that. Then decide on retainer. Pick one. Just one. Make it ten hours, or 20, or 25—whatever you want it to be. And have that be the starting place for each client. Increase the retainer, at the same hourly rate, every quarter or so, based on the number of hours the client actually uses.

For instance, if you have a ten hour retainer ($500), and after three months, Jack is routinely using 16, move him to a retainer of $750 to include 15 hours (be round about it…an hour or two/month in overages won’t kill you). If Jack is using 19, move him to a retainer of  $1000 to include 20 hours (he’ll use the extra for sure!). Adjust it every quarter to make it appropriate for him (and to allow you an appropriate picture of how much work you've committed to), but never ever go below your minimum—whatever that is (in our example, 10 hours). And never offer a discount on your fee!

Let this be your mantra this week: What I offer has a value distinct from all others because I am distinct from all others. I am not a commodity!

Comments

[Mary Koch]

Hi Stacy.

Thank you so much for writing this piece. It really made me think and I feel the same way. I just could never put it into words like you just did. Why shouldn't VAs be paid what they are worth per hour no matter how many hours they work for a particular client? I think a lot of VAs need to think about this question and raise themselves up from working in the corporate world to the level of thinking like a business owner. All VAs need to remember that if a client wants excellent service, then he/she has to pay for excellent services. The saying, "You get what you pay for," should carry over into our profession as well.

Thanks again for writing such an enlightening article.

[Ginger Derrickson]

Stacy I so agree with you that multi-tiered retainers do a HUGE disservice to the industry.

Recently I had a potential client who wanted me to offer more hours at a lower per hour rate. I paused a second and said, "My fee is xxx no matter how many hours I work. The value of my time does not decrease as the hours increase." He agreed that was true.

He did not become my client, but that does not matter. I want clients that appreciate the skills and experience I bring to their lives. Not those who are only concerned about getting more for less dollars.

Hopefully other VAs will take this wisdom to heart and strengthen their standards regarding their value!

[Sloane Thompson]

What inspiring advice -- and so clear! The examples really helped me "get it." I'm sharing this posting with my husband, who is building a photography business (www.lifespathphotography.com), because I think this advice can apply to anyone with a "service business."

On a side note, I just learned about AssistU today, as a link from a web site of a local art framing business in Indianapolis, and I've been so intrigued and impressed with this company and the career possibilities for VA's that I began reading your (Stacy Brice's) bio and the other AssistU bios ... and I had to read more about you all, so I followed your links for more info. I'm so excited about all that I'm learning ... for myself, my husband, my clients, and my students!

THANK YOU, THANK YOU, THANK YOU!!!

[Kim Guglielmino]

I beg to differ that retainer discounts portray you or your business as a commodity. IF you structure your tiers and place a cap on the discount 15-25% etc. Say 25% for simplicity, should cover your expenses so that you are not "getting cheated" out by your own discount. For example, the cap on my discount is 15% for 71-120hrs/month. If the client contracted me for 71 hours @ 15% I am still making a 12% profit.

The key to structuring a successful retainer tier is to not low-ball your discount but increase your PAYG rate so that you don't get a shortfall by having a "trickle-in" client that only needs you for a few hours a month.