Small Business Online: Thriving in a Virtual World

Hourly versus Retainer Client Billing

We talk to and work with many freelancers and virtual professionals, and one of the most interesting topics is how the industry bills for time.

Two of the most popular approaches are billing by the hour and billing on a monthly retainer. This article explores the pros and cons of these strategies.

Billing by the Hour

The main advantage of hourly billing is that it is simple. Work 10 hours, get paid for 10 hours. It’s also an easy way to get started with a new client who may not yet be willing to commit to a long term relationship.

For those just starting out part-time as freelancers or virtual assistants, hourly billing can be attractive for this simplicity.

On the downside, hourly billing puts a cap on your earning potential. There are a limited number of hours in the day, so at some point, you’re out of hours. Even a “normal” 40 hours per week is difficult to bill for - unlike being employed where just being in the office is something you’re paid for, as an independent businessperson, you need to actually be doing client work to get paid for it.

Another drawback is that there is no commitment from clients for regular work. One month you may get 40 billable hours of work from a particular client, and the next, zero. This means more (unbillable) time needed for marketing and client outreach to sustain a constant inflow of work.

Retainer Billing

Retainer billing is an approach where a client commits to purchasing a fixed amount of time and pays upfront typically. For example, a virtual assistant might offer a minimum 10-hour monthly package at a reduced hourly rate of $30 versus the normal hourly rate of $35 or $40.

The benefit for the client is twofold: some level of assurance that their work and priorities will get the hours they have paid for, and typically a reduced rate for that work.

For the service provider, the benefit is predictability of cashflow - retainer payments are usually received in advance of performing the work, so you know exactly what’s coming in, and can actually “fill your practice” in a relatively reliable manner.

Another common feature of retainers is that they tend to be “use it or lose it” arrangements. This is very common in other industries (like your local fitness center). If your client doesn’t take advantage of their retainer hours available, they will expire at the end of the month.

What seems to happen in practice is that most clients use most of the hours they’ve purchased, but just enough do not that it offsets the discounted rate. In other words, your average hourly rate would be roughly the same as if you didn’t offer retainer discounts. So you get the benefit of predictability at little to no cost in income.

A drawback of retainer billing is that you do need to commit to being available for the hours that are being paid for that month for your clients. So time management becomes a key skill - you don’t want to overbook hours and be unable to perform the work. But this is what is commonly referred to as a “high class problem”.

Another concern about retainer billing is that it can be more complex to manage - you need to keep track of how many hours are left and when they expire for each client. However, software systems can make retainer client management easy by tracking hours remaining and expiration dates, and providing a simple report to let you and each client see how much time is left on the retainer.

The Bottom Line

Depending on your situation you will most likely use a combination of some hourly and some retainer billing. If you’re looking for more stability and predictability, you’ll want to focus on attracting clients who are comfortable with a retainer arrangement over time. For clients just starting out with you, hourly might be the way to go until trust is established.

3 Tips for Managing Multiple Clients and Projects Effectively

Managing multiple projects for multiple clients can be a little daunting for new or even experienced solo and small business professionals. Without a system for keeping track of deadlines, client feedback, and team activity, you might quickly find yourself on the other end of an angry phone call with an unhappy client.

Here are three tips to help you work more effectively with multiple client projects:

Communicate More Efficiently
Clients are like everybody else, they get stressed and uncomfortable when they don’t hear from you. But they don’t want to hear from you just because of your charming wit and soothing voice, they want to know the status of their important projects!

A weekly status call or email might be sufficient when you have just a couple of low-key clients. However, when your client and project load increases, you could quickly find yourself spending precious hours on the phone just to provide status updates.

One easy solution is to keep task information online so that clients can login at their convenience (even at 3am) to find out the latest status of their tasks, and even more detailed information (optionally) like time tracking information or how much retainer time they have remaining.

Keep Files and Comments in One Place
Another simple way to keep things organized is to gently move your clients towards accessing files and giving feedback in a central location. Online project management software can help your clients easily upload or download project documents that you’re collaborating on, as well as make comments on a specific project or file without sending dozens of emails back and forth.

The key advantages of this approach is that your responses won’t get lost or misplaced - you’ll have a clear, coherent record of your project conversations. You’ll also be able to reference the latest version of your files in a consistent way.

This winds up saving lots of time that might otherwise be spent with a client providing feedback about the wrong version of a file, or missing your response to a query.

Track Deadlines Proactively
Even with the above measures in place, you still need to keep an eye on the dates you’ve committed to clients. At a minimum, you can adopt a simple system to prompt you about upcoming deadlines, and also to update clients if you are unable to meet those due dates.

One way of doing this is to keep a project or task calendar for each client that shows each upcoming deadline. You can refer to this calendar once a week or more frequently as needed to make sure you’re clear on client commitments. If you have a team, you can also add their commitments for more timely followup.

If you are using an online project management system, you can also have the system remind you and your team of upcoming deadlines by email a couple of days before the fact. You can also monitor the status of tasks across all projects, clients and team members, or check just the work assigned to a specific person.

By staying on top of deadlines, you can also pro-actively notify your clients if things start to slip. Most clients will not only be understanding of an occasional delay, but will appreciate the early notice so that they can adjust. Not that you want to make a habit of missed deadlines, but at least by monitoring them carefully, you can still provide excellent customer service by informing clients early and giving them options to reschedule work.

Multiple Income Streams for Small Businesses to Weather any Economy

It can be tough to be a solo professional or a small business that relies on a single source of revenue like client projects.  In a difficult economy, your long term clients can cut back on their spending, leaving you short of the cashflow your business needs.

The concept of “multiple income streams”has become popular over the last decade with real estate gurus like Robert Allen, “wealth-building” gurus like Robert Kiyosaki, and professional slackers like Tim Ferris touting the benefits.

But as applied to your small business, it’s not about renting out your extra office space or the back corner of your home office.  It’s more about diversification, and ways to generate passive income (money that comes in without you working for every hour to generate it).

Diversifying Client Risk

A typical freelance consultant or virtual assistant might do work for 5 clients a month, and bill 40-50 hours per week (which is probably 50-60 spent in the business).   But for many, instead of each of the 5 clients representing 10 hours in a week, one client will take up the majority of the available hours (maybe 25 hours out of 40 or 50) in a given week.

The rule of thumb in business to reduce exposure is to try to limit your income from a single client to 20% of total revenue.  But this can be challenging with hourly work, especially with good clients - working with two or 3 good clients is less taxing than working with 5 or 10 in the same month for a solo professional.

The problem is that if one of your clients leaves, you’re now at risk for more than 20% reduced income for that month unless you can quickly find a replacement client.

Generating Passive Income

The other strategy for weathering any economy is build up additional sources of income that are more passive.  In other words they don’t rely on your active participation every day (although these do take some time and effort).  There are a couple of good ways to do this:

1. Offer your own monthly service or maintenance program

If you offer a service like web design, you might offer a monthly maintenance package  to your clients to update their site or monitor its uptime, or even do web hosting for them for a monthly fee.

If you are a virtual assistant, you could offer monthly retainer packages that don’t rely on hours, but on specific services rendered.  For example, if you do “social media”, your package could be to maintain a clients online presence (in whatever special way you have) for a set monthly fee.  You can list what types of things you’ll be doing, and even provide a list of what things you did, but get away from a strict hourly billing approach.

2. Become an affiliate of complementary products or services

Even simpler than creating your own services is to offer services from other companies that you commonly use and trust.  A web designer could be an affiliate for a web hosting company instead of offering their own hosting.  A virtual assistant could refer clients to affiliates who do specialized services like accounting, graphic design, or software development.

The same idea works with affiliate products as well as services.  For example, our company’s affiliates refer clients or colleagues and get a recurring commission for as long as the referred account is active.  There are many other affiliate programs available for everything from books and office supplies to seminars and coaching.

By using a strategy of client diversification (remember the 20% rule), and adding carefully chosen passive income sources, you can make your business resistant to downturns, sudden client cancellations, and whatever else life brings.

Virtual assistants are going mainstream

Virtual assistants are online business professionals who work with other entrepreneurs and small businesses to support them with marketing, bookkeeping, administrative tasks, and more.

Having partnered with several in our own business, and served quite a few more as customers of our online project management software, I’ve developed an appreciation for the industry as a truly valuable resource.

Until recently, though, when I asked other entrepreneurs if they were familiar with virtual assistants, I’d get a blank stare.  More and more, I now hear things like “Oh, my cousin is a virtual assistant”, or “I use a virtual assistant myself”.

Certainly books like Tim Ferris’ 4 Hour Work Week helped raise media awareness, though perhaps in a way the industry wasn’t particularly thrilled with (a discussion of overseas virtual assistants making $10 per hour was not well received).

And with increased media awareness, naturally there has been more coverage in blogs and online news sites.

But I think the reasons the industry is going mainstream are twofold.

First, the uncertain economy is making existing businesses hesitant to hire full time staff.   But there is still work to do.  There are also still new businesses being created, and those entrepreneurs want support without needing to hire full time staff and training them.  This is creating tremendous opportunities for skilled professional virtual assistants who can help right away.

Second, a trend I’m noticing in particular is the so-called “social media assistant”, who can setup a presence, monitor online reputations, post entries across the ever-growing range of social media websites, and even guide clients along the path of making an impact.

With major television networks trying to outdo each other in their mentions of Twitter, and confused entrepreneurs trying to figure out how to get a handle on the latest technologies, virtual assistants who specialize in social media assistance are finding more and more eager clients.

When the shine wears off of social media though, I think the value that virtual assistants bring will no longer be a mystery to entrepreneurs.

And that’s how the industry will bridge the gap from the obscure to the mainstream.

The Rise of the Virtual Business

About 5 years ago, I started a small software company with the goal of helping distributed software teams to collaborate on complex projects.  At the time, this was a relatively new phenomenon, and outsourcing of services was mostly limited to software development projects and the occasional call center.

As I write this, new industries like Virtual Assistance have taken off where “regular” people who were working offices as administrative assistants, office managers, or even as executives are now putting those skills to use online.

These new “virtual companies” are providing valuable services to other entrepreneurs and small businesses, often without having full time employees, offices, or set work hours.

What’s more interesting about these new industries is that they are being adopted not by large corporations looking to save a few bucks on software development or handling customer support, but by new businesses, solo entrepreneurs, and others who don’t yet need full time staff, but want to develop a virtual team that can handle their needs as they come up.

Of course, as the number of virtual team members grows, it becomes more and more difficult to manage the tasks, documents, and schedules of team members.   Sending email attachments back and forth with revisions works well for 2 people, but doesn’t scale well to 4 or 5 team members or clients.

Over the last few years, software solutions have started to fill in the gap between these new virtual service professionals and the increased need for visibility and communication now that your team isn’t in the same office (or in an office at all in some cases).

From virtual telephone systems that can route calls to your cell phone, to online project management tools, document collaboration tools, calendars, and more - you can create a virtual business environment in a day with an array of online services.

As the technology matures, and businesses get more savvy about how best to work with virtual service providers, it may be soon that starting a business and getting the resources you need is as easy as clicking a few buttons.

Now if only sales and marketing were that easy.