Fee or No Fee: Do you understand what they are worth?

Fees and Hourly rates - I love the discussion.

The other day Laurie Anderson noted her rate for an hours work - I was surprised at the number of people who were surprised at this. To help some of you I thought I would throw a few ideas out and let you work through them. I should note - I have had lots of “off FACE BOOK” discussion over the phone with many brokers on here about this topic, and often to some of their surprise they find I am far more friendly than my Short Sharp "do a Search" or "Charge a fee" comments come across on this platform. I actually don’t care if you don’t charge a fee, just don’t whinge on FB when your client moves on for what ever reason and you don’t “get Paid”.

Firstly I will make my disclosures – I charge Fees, I am very flexible on my charging of fees, I don’t charge everyone a fee.

BUT I hate working for Free – so with experience TARGET MY FEES.

So have a think about this as a start point. If you weren't a broker - what would you be doing?

What hourly rate would you be on as PAYG? That is your start point, for an hourly rate - the Opportunity cost (for all the economists in the group) of not working PAYG and doing this job – you should be covering this rate. It is a guide to your base rate, I know all the arguments about Experience Knowledge etc etc but it’s start point.

OR think of it this way……. if you were a PAYG broker somewhere – what would you be earning an hour?

OR another way to think about it….. do you have staff – how much do you pay them, and how much time do they spend on putting a deal in – there is a base cost you should be covering to enter that deal – eg as a non-proceed fee.

So do y ourself a favour if you haven’t and work out a rate – not that you will charge everyone, but so you start to value your work.

That is the key to the confidence in charging Fees – WHAT AM I WORTH! (gees I am starting to sound like a self-help guru.)

There are other quick ways (and more complex ones) – I used to work in HR – not sure if anyone has worked this out before – but if you are on $40 an hour working 38 hour week – you earn near enough to $80k. a year - so as a guide the hourly rate, times 2, then take it out as Thousands – BAM your annual income, or we’ll do it another way.

Scale it up! What is your annual turnover – (depends how tricky you want to get – but for me Trail is deferred upfront so I count it.) lets use some round numbers to make it easy, if you want to make $100k (your net Taxable income) and you have an idea of you margin (for ease we will say 50% Net Profit Margin.) you would need to be turning over $200k.  are you with me so far?

Or another way - $200k in revenue – less costs of $100k -= NP of $100k (paid to you)

So you would be working for a PAYG rate of about $50 an hour on $100k NP. (as per above $80k example)

But you would need to charge $100 an hour to make this profit of $50an hour – to be on track if that was your PAYG hourly rate at another job. Based on 50% margin.

NOTE the above is a very simple round number example – you need to know your profit margin and costs base etc to profit. THEN work your numbers out.

All good? You with me?????

SO you have options – but it’s not hard to work out  your hourly rate, pretty quickly to get your started.

There are other ways – you can time jobs and estimate costs – You can run like an accounting or legal firm and break it down and track the tasks, and do a job cost (or average – eg time for standard PAYG deal>)

However you decide that you want to determine your hourly rate, just do it and work it out –you have the start point.

I actually am not worried how you do it – just want to encourage people to understand what they are worth – and WHAT THEY SHOULD GET PAID!

Fee or No Fee

I see some comments on F&C and think “you need to shift your thinking”.

So some food for thought.

I do a free consult – Same as tradies who do a quote for free (not all do) or a retailer who quotes you a price for a TV. Or even a financial planner or account who does the first consult for free.

I do very standard home loans for no extra fee – just the pay from the bank, but charge a non-proceed fee. I don’t charge FHB anything, even if they do 3 pre-approvals (not likely we would do that but just an example).

I charge for trust loans, SMSF loans, Low-Doc, etc. depends on complexity – but $1500 would be minimum – normally $2500. However again depend – I restructured a good client with 4 loans last year 3 in trusts – I charged him for the first trust loan 6 years ago – but never again have I charged him a trust fee. (I have lots of his info and he has 4 loans with me – soon to be 5 again. I judge it and knowing him we can do it quickly.

Maintenance – I do my clients on my trail book for free – the payment is the trail to me and I think most would agree. But I do charge non-clients who need support.

I charge people if they are property Flippers – if they are long term customers it is often less than the value of the loan but agreed price to cover me and make a profit.

I even have the Bare Footers Choice Fee as I call it, they can take it at their choice. – A flat fee and then rebate the upfront and ask the bank to not pay trail. Never had anyone take it up (I don’t think most banks stop trail either)– but the reality is even bare footers who are hard core into it, when they realise it is out of their pocket, don’t want to pay the fee and go with bank fees.

So lots of reasons to get paid and more I haven’t covered in this quick speil.

SO MY RECOMMENDATIONS

Don’t work for Free, your worth more than that! You have to eat, pay your bills and don’t want to have to sell your kids. (Although I have a 15yo and 17yo with ‘Tude”, so it is a real option.)

Get a start point – value your time! – as above what is your hourly rate – even to start in your business.

Be Confident – Your time is worth something! Know before you get nailed by a client so your confident with it.

Would the client – Do your tiles for Free, Paint Your house for Free, Tutor your kids for Free? – so find that time where the free consult stops and you should be getting paid.

If you have a Support person – what to you pay them, their base rate, plus 9.5% super, plus leave, sick hols, PHols, etc etc. then your base operations.

• Do you know your breakeven point – I always know my break even point. What are my wages, rent, IT costs, monthly fees for software etc. (easy way – look at the P&L for last year, Note any key changes eg has rent gone up. Take out all the variable and focus on key set costs (not fixed) but key ongoing costs – IT and software monthly fees, rent, wages – divide by 12 and that is your core costs to be covered. (basically your wage and any of your “expenses” are taken out.)

 Hope this helps with some of the things that keep coming up in the F&C discussion.

The other day – we saw a post on F&C from Daniel Chan – charged his first fee and sorted the wheat from the chaff – a client who had lodged directly with a lender and was getting messed around for want of a better term, came to him and he said he can do it, and here is my fee if you don’t go through to settlement with me. Winner Daniel, love his work more time to focus on getting the job done for clients you will get paid helping and building a life long relationship.

They key to me as salesperson is that you should be prepared for and know what your going to charge.

You should know what your worth, I charge more than I do when I started on my own 11 years ago (have been broking longer but PAYG before that), and I get that with newer brokers it is hard when you have to pump for every deal to make it this month, next month etc – but at least understand this concept and it will help you build your business.

So some practical ones to work on …. Even if you don’t like fees, or have never charged then in 20 years of broking.

1 - Refi – I have the discussion and put out my fee straight up and tell them if they get retained they will pay me (I don’t use words like retained). I tell them have they checked with their bank, what have they offered? Ok I can beat this – But if your bank comes back again and beats my rate so as not to lose you and your loan, after I have done all the work and put another application in for you, at your request to save you $XXX money a year. I am going to charge you for my time if my application doesn’t proceed and it will be (at least $1500.) are you OK with that. If they say No or baulk I go, all good but you have to understand I pay my staff ever hour they sit putting your application in, or I use the “You get paid when you go to work don’t you?” Helps then context it. Some go away and push their bank, others engage. Either way I have not wasted time not getting paid. I learnt this one in my first year working for someone and vowed never to be in this situation.

2 - Someone comes to me about a bridging loans especially with no end debt (or even a small remaining debt) – I am upfront with the conversation on the phone straight way that I don’t get paid by the bank so they will pay me. (I probably don’t convey the way I pitch this in this written email – I sell it.)

3 – Or this chest nut if they have lots of funds in offset (lots of funds anywhere actually)– I tell them what me fee is for the money to be offset. Their choice if they want to pay me a fee or they don’t offset for the period required. I basically charge them what the bank would pay me – so every $100k = $700 fee. (Again flexibility – if it is 1million loan with $80k in offset I wouldn’t worry about this fee.) And this is one fee I do charge for existing clients.

They key is to know your worth and be prepared if you see the deal is not going to be profitable. Just know your worth and when the opportunity comes up you know what to charge confidently as you have worked It out in your head and have not doubt when discussing it with the client.

I hope this helps some of you who are unsure.

Not an exact science, but important to #notworkforfree!

PS I charge more for an hour of my time than Laurie does. But didn’t want to freak more people out. LOL.

Regards,

Jason.