Entry by Jennifer Allan

Former Management Consultants - Identify Yourselves!

  32 Comments

During our beach-front brainstorming session, Merv had the great idea to tap the brains of the former management consultants in our midst as we're developing the ACRE/TCP 2.0 course. We'd love to pick your brains about how consulting works in the "real world" so we can better explain a consulting model and practice to real estate practitioners who may not fully get it.

So... if you'd like to help... please step forward. Thanks!

32 Comments

Stepped forward!

"No matter how knowledgeable you are in your field....No matter how great your track record...No matter how expert your advice or impressive your credentials...you jeopardize your client base if you do not instill every phase of your practice--from proposal-writing to final reporting--with a consummate professionalism. And for sharp clients, the first clear signs of such a savvy professional are the ability to develop a well-wrought and compelling proposal, set fees at a fair market price and offer credible, straightforward contracts that protects both you and your client." 

This is a paragraph from the back sleeve of a book I purchase back in 1994. My wife and I at the time ran a document retrieval company and used it to learn how set our fees. We keep it around as a reference and have loaned it out to our friends and associates when they asked how we went about setting our fees.

The author of the book is Howard L. Shenson. Title, "The Contract and Fee-Setting Guide for Consultants & Professionals. This is where I learned about cost-plus pricing, very similar to activity base pricing. 

Here is the second paragraph from chapter one;

"Fee setting is actually an element of marketing your services. A realistic fee announces that you are going to deliver quality service for dollars spent. It also communicates that your confident in your abilities and the worth of your services. By explaining the basis of your charges, you let your prospective clients know how valuable your consultation is."

That last sentence really sums it up that this is cost-plus pricing. 

Merv I'm not saying that your SmartPlan doesn't accomplish Activity Base Pricing. I also know that QuickBooks Pro is Accounting centric, but it  is capable of much more. 

Jennifer,

I'd be glad to provide input.

Regards,

John

You know what ... to each his own. I do not wish to engage in any sort of competition. What works for you is great. It may work for others ... or any other accounting software which helps "independent contractors" understand their cost of doing business and how to set fees.

I am about how to present your fees to clients.

Peace be with you.

It's been a lot of years since I was officially a management consultant, but I'd be happy to help weigh in!

I agree, I am about that too, Merv!  I will look into your stuff down the road however. 

Justin

I never mentioned competition. I'm also about how to present fees to my clients. And I can present my fees to my clients using the software I mentioned.

I was just making a suggest, not offering up my service in competition. What's the deal! Is transparency not allowed here, among us?

Winfried Viebahn whom I introduced to ACRE nearly a year ago has a consulting background. Hope he's following this discourse!

I am a broker and Owner of my company Cornerstone Realty and I have employed this business miodel immediately. I have produced a easy to undertand fee schedule along with a work order. Also included is an exclusive addemndum agreement to a standard listing agreement. Sellers appreciate the ease of use and the flexibility of having the options to pay for what they want and pick what they need. I love this model and am in the process of of teaching my agents and they will be signing up and completing the ACRE course as well.

Hi Jeffrey,

I have actually done the exact same thing as you have. I was already doing something similar prior to discovering Mollie's information.  Once I went through the ACRE course, I redesigned my programs and even modified my philosophy quite a bit, then developed a brokerage where all my Realtors are ACRE's and we are learning as we go, but getting good acceptance in the marketplace in Spokane, WA. Would you mind emailing me a copy of your addendum and your fee schedule? ronaldmcintire@gmail.com

Ronald (or Ron) ...

I found the problem with your picture ... someone registered after you with the exact same picture file name: ron.jpg. I fixed yours (found it on your website).

Sorry for the the glitch and it will be permanately fixed. :-)

Thanks for stepping up, my friends! I'll be in touch soon with some questions I'd love to get your feedback on... stand by and again... thanks a million.

Quick question for my management consultant folks (or anyone else)... is there a difference in your mind (or your practice) between a retainer fee and an upfront fee when speaking of real estate consulting? In my mind, there is, but I'm having trouble putting into words...

Retainer is like having a credit line to draw from. An upfront fee is being depleted immediately for service being provided for. Not sure if that helps?

Upfront fees are highly frowned upon and in some states illegal. I think MD and VA are 2 of them. A retainer fee is a commitment that gets used to cover the costs as they incur. I have not heard of that being an issue as they are reconciled at closing or along the way as services are performed. 

With so much shady stuff going on around Distressed properties, we need to be careful. States are really on the lookout for shady and non typical business practices. 

William - that's how I understood it as well, but couldn't put it into the right words - I like yours - thanks!

Justin - I like your words, too ;-]. I charged an upfront fee in Colorado with no problems and it was in no way a retainer as the two of you define it. In my practice, it was simply a payment to offset my risk (in exchange for a lower commission). Sort of like a pre-paid mortgage point...

In Virginia it is called a Retainer Fee. It is non-refundable and earned when paid. It may or may not be applied to future compensation. Retainer Fee sounds more business like to me than upfront fee.

Let me add one more thing. The fee has to go through the broker and is paid out to the agent in most cases according to their compensation agreement.

Yeps, that is the word in our world. ANY MONIES real estate related must go through the broker. 

Hey Justin,

I know the big push by federal and state regulators, was for banning fees when it came to loan mods. Florida also has upfront fee ban for timeshares. I had to do quite a bit of research when designing my program about the fees I would charge clients.  I charge a nominal processing fee for services that rendered. The pre-paid fee is escrowed and I have no ownership of the account-that remains with the property owner.

It's a thin line for sure!

Thanks, all... and yes, all fees need to go through the Broker (that was the part I forgot to do when I charged an upfront fee - oops).

Admin fees and Broker fees also came under fire.  It's interesting how this might push the boundries.

Dear Jennifer,

In my experience, a retainer fee is paid to a consultant to be available to the client as needed and for providing ongoing counsel and answers to issues and questions that might arise - on any matter. A retainer is considered earned as received.

An upfront fee is a an upfront payment of a portion of the total fee to be collected for a specific project - i.e selling or purchasing a pice of property. 

'Nother question for my Management Consultant crowd.

I'm working on the Hourly Rate part of the new ACRE course and I'm finding myself a bit confused as to what "we" are referring to when we discuss an hourly rate...

Is an "hourly rate" simply a calculation of what you earned last year divided by the number of hours you worked (or what you WANT to earn divided by the number of hours you WANT to work)?

Or is it your "market value" to the consumer - that is - the rate you charge them when you're working by the hour or calculating a package price for a project or bundle of services? 

To my admittedly financially-challenged brain, these two figures are not at all related and shouldn't be the same. Correct me if I'm missing something, but your hourly market value has nothing to do with how many hours you choose to work and how much income you earned (or want to earn) during those hours. And if we're assuming a 40-hour workweek, your actual billable time probably won't be anywhere near 40 hours, especially if you aren't working exclusively by the hour, right?

 

Jennifer,

This is why the real estate industry is in the quandry it is in. I could go into a huge explanation of what Capitalism is and how our industry has turned it on its' head--but I will not.

Hourly rates are about covering expense associated with being in business. They are about the cost the consultant incurs in offering the value of what their products or services bring to the customer base it serves. Lastly, it is about profits--in Capitalism businesses exist to make a profit. 

This is just a short list of what someone running any business should take into account when calculating an hourly rate.

We have done a poor job of explaining true cost to sell a home.  Our time has a value and that is different than the cost to market one's property. That is why it is necessary to have them as separate line items when you bill a client.

Thanks for your thoughts, William!

But what I'm asking isn't really related to selling (listing) homes - it's more of the big picture of determining your hourly rate as a real estate practitioner sans risk mitigation. Somehow it seems that many have meshed the two concepts of HOW MUCH I MAKE PER HOUR in my work and WHAT MY MARKET VALUE HOURLY RATE (MVHR) is to a consumer who hires me.

To my way of thinking, these are two entirely different calculations and concepts. Am I missing something?

So are you telling me the cost to cover expenses should not be a factor of computing hourly rate or your profit margin. Your are asking how to compute it?  

You asked the question: "Is your hourly rate simply a calculation.......?"

I gave you an answer. Yes? But, not based on what you earned last year. It is also base on the other things I mentioned. 

William, we may be saying the same thing here, just not communicating clearly. I think I've answered my own question, especially once I did the math...

If, let's say, last year I grossed $60,000 practicing real estate and I worked, on average, 40 hours a week. That would make my hourly PAY just under $30/hour.

Does that mean that my hourly RATE I charge my consulting clients is $30/hour if I'm happy making (grossing) $60,000/year?

No, it does not.

When I do contract work for people now as a writer/mentor/trainer, I bill at $150/hour. I do work 40++ hours a week, so does that mean I made over $300,000 last year? No, it does not, because I don't bill at $150/hour 40 hours a week. Now maybe I made more than $300k or maybe I made less, but it's not at all a function of the hourly rate I charged the clients who elected to hire me and pay by the hour.

As far as the costs of doing business (overhead), of course that needs to be figured into what you charge for your services, regardless of the approach (hourly, per activity, contingent commission, etc.) you take.

My point in asking the question is to clear up some confusion I believe exists between what you MAKE per hour and what your consulting HOURLY RATE should be.

To me, my fee is my fee. I don't calculate hourly rate. I charge per project or per task. My rate is what I am worth to the client -- in their eyes. If they agreee to pay it, I am worth it. If it is too high, consumers won't buy my services. It's a personal decision only you can answer.

Your are right--we agree on your point of what you Make per hour if you decide to calculate your hourly rate based on last years total. This would in essence be consider your effective hourly rate.

If your effective hourly rate is $30/hour, but your quoted rate is $150/hour (And this rate is what you need to pay overhead etc. and to be profitable) the $60,000 you made last year would not cover expenses and profits. Would you really be happy with that? What is this telling you? 

The fact of the matter is, in determining what method you use to charge your client maybe a personal one as Erica mentioned. But you are not pulling your fees, your hourly rate or your expenses from mid air.

If you just did it on straight commission, you would have to calculate the number of homes you needed to sell to be profitable and cover expenses. It is no different the other way around.

I look at everything at work as an hourly rate...  It helps me decide which tasks are better suited for my assistant to do...

Erica - that is my approach as well and I feel I can "gut" it out and figure out 1) what makes sense for me and 2) what will make sense to my potential clients. But many want more of a formula and that's what I'm trying to come up with... having a hard time, though!

This page contains a single entry by Jennifer Allan published on January 5, 2012 4:29 PM.

New ACRE/TCP Website Cometh... was the previous entry in this blog.

ACRE 2.0 - Stepping Back... and Moving Forward! is the next entry in this blog.

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