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Are You Impoverishing Your Service Business?

A little math can go a long way toward making your business more profitable.

Below are the formulae you need to determine how to be profitable.

I suspect that when most people think about poverty, they think about people who lack the fundamental necessities of life. Whether money, housing, or food, 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 do anything (or can’t see that there’s anything that they can do) to change their circumstances with regard to necessities of life, what I find almost sadder are those who impoverish themselves by their actions and/or sometimes inactions–those who sacrifice that which was absolutely possible to their own fears, or often, ignorances.

Within the Virtual Assistance community, and with the women I coach who own service businesses in other industries, I work every day to teach, train, and support them to step fully into their own spaces, and to understand that self-sacrifice and self-imposed impoverishment serve no one–not themselves, not their clients, not their professional communities, not the global community–no one.

As the US takes another financial hit, it drives home for many people that the lesson to be had is to be very afraid: afraid for your well being, afraid for your livelihood, and afraid for your survival.

And when people are that scared, it’s incredibly difficult for them to make choices to do anything but what panders to the fear and makes it worse.

So people with jobs cling more tightly to them…even if their greatest desires point to self-employment.  And people who are self-employed stop building businesses they love, afraid that saying no to even the crappiest of clients would be a bit like spitting in the face of Providence herself.

In truth, this is not the time to back down from what we know we need to be happy and fulfilled, but a time to run toward it. It’s a time to lean into the lives and work we most want, and to, if anything, pave the way for others to do that, too.

In doing so, we show ourselves that what we believe in is real, and can be done on our own terms, and we show the world, too.

Foundational to that in self employment is being profitable in business., When you are, you quickly learn that you need not count on a job to provide for you, and you need not worry about turning away clients who aren’t a fit for what you do or who you are. You learn to provide for yourself–in spite of whatever the world is doing.


Moving toward something better–profitability in business

I want all women to have profitable businesses. If they want financial wealth, that’s a-ok by me, but my deepest want is for them to have enough money and vast inner wealth.

Among women who own service businesses, especially those who have never done so before, having fees that are set appropriately to make the business profitable often feels like it’s somewhere on a scale from tricky to out-right impossible. But it’s not. Profitability is not subjective–it simply either is, or isn’t.

What I find most often is that self-employed people aren’t, and they don’t have the first clue about how to figure out what it would take to be so.

Know–don’t guess about profitability

What it will take to be profitable isn’t something to guess at. It’s not something you can assume you are. It’s not something you can figure out by looking around at what “other people” are doing. You have to take the time, and know.

Here’s how it would work for a Virtual Assistant. By seeing this, you can then figure out how to apply it to your own service business.

The profitability formula is simple: base hourly rate + hourly expenses + profit =  your fee

You must first arrive at a base hourly rate. This is the cost for your time only. It shouldn’t take into consideration any expenses you may have.

The Bureau of Labor Statistics lists the median hourly rates for US workers (shown below for Administrative workers). You can see the wage table for 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 you think it’s changed, alter it according to your better sense of your own industry.

  • Secretaries and Administrative Assistants: $14.82 per hour
  • Executive Secretaries and Executive Administrative Assistants: $20.92 per hour
  • Office and Administrative Worker Managers: $22.82 per 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/Admin Assistants. If you do some of that, but there’s a degree of strategy and responsibility involved, choose the ES/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!), choose the rate for the Office Manager.

This number is, by the way, the amount you are going to pay yourself (put in your own pocket) 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 a client account. So, it’s your office supplies, furniture, rent (if you actually pay rent–this is not where you put in the amount you take for the Federal home office deduction), utilities, software, hardware, business insurance, trade association memberships, dues, licenses and registrations, continuing education, business travel expense, money you pay to your professional team (accountant, bookkeeper, coach, insurance agent, tech person), biz books and magazines, etc. Smart business owners know that they absolutely need to account for all of it, whether or not they actually need it. 

Other considerations

Things that VAs often don’t consider are some of the benefits 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.

  • Health insurance

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 (yours, not your family’s). So get a quote for yourself, and factor that in to your indirect expenses

  • Retirement account

If you were employed, some percentage of the contribution to your retirement account would be made by your employer. Pick a reasonable percentage, and add that in to your calculation.

Calculating a profitable fee

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 (be sure to take into consideration the time off you calculated… your work year will not be 52 weeks long!)

Once you have those figures, you have what you need to work this formula:

  1. Billable hours/week X 45 weeks/year (or however many weeks you plan to work) = billable hours/year
  2. Annual indirect costs divided by billable hours/year = hourly costs
  3. Hourly costs + hourly pay + 10%-30% profit = hourly rate

The calculation doesn’t automatically 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!).

So, let’s say Suzie’s working this formula, and she’s an amazing VA with three years experience, full time, in her business. She plans to work 45 weeks/year, and do 25 billable hours each week. She does high-end client work, plus was an EA to C-level executives in the corporate world for 15 years, so she’s claiming $23/hour as her hourly rate. Her indirect expenses are $35K/year, and she wants a 20% profit. She’s been through the Author’s Assistant program to help her with her niche working with best-selling authors, and she’s an AssistU Certified Professional Virtual Assistant. This year, she’s attended/ing two high-end multi-day seminars by well-known teachers, so she figures the increase in her skills will be worth $5 more per hour (or $28).

23 X 45 = 1035 billable hours/year

$35K/1035 = $34 (rounded) hourly costs

$34 + $23 + $5 + 20% = $75/hour (rounded) = the fee Suzie needs to charge her clients for every one of her billable hours in order to be profitable in her business.

To break that calculation down a bit more…

  • $34 pays her expenses (including time off, insurance, and a portion of her retirement savings)
  • $28 goes in her own pocket (pre-tax)
  • $13  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. Even if she chooses to price her services in some way other than hourly (which I will always believe to be the fairest to all involved and the most “clean”), she knows what she needs to be profitable.

Becoming wealthy in the service-business game

Is she rich? Nope. But 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 changing her fee, her hours, or her expenses.


 …or you, as the case may be. And that, my friends, is a wealth that even money can’t buy.

Let me know how profitable you are, and how it adds to your overall wealth. I’m listening!

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