Alright folks, this one is longer than 3 mintues… but it’s juicy stuff that I get asked about A LOT so I had to make it longer.
Should you pay by the hour? A package rate? And what’s up with this incentive stuff?
There are 3 different ways you can be paying your team members, so let’s break them down here for you:
By the hour – paying someone an hourly rate for the TIME it takes them to do the work. This is the simplest arrangement as it’s the easiest to calculate, BUT the downside is that you have no control over how long it takes someone to do the work. Some people are fast, some are slow, and you run the risk of getting a “surprise” bill from someone when you don’t have parameters and strong agreements in place. Hourly is best for the “doers” in your business, such as a virtual assistant.
Pay for a package – this is paying someone a flat rate for a specific DELIVERABLE. For example, if you are hiring a web designer to create a new website for you and you have a clear agreement on what specifically they are going to deliver. The beauty of paying for a package is that you know exactly what you are getting, what you will be paying for it and it doesn’t matter how long it takes them to do the work. That being said, this arrangement is NOT ideal when there is not a clear deliverable or specific start/end to a project.
Incentive Based Compensation – this is when someone is paid a simple flat rate base (or retainer) amount with the option to earn more based on the RESULTS that they are helping to create in the business. This is ideal for the people on your team who help contribute to the overall growth and success of your business. A launch manager who is running a launch for you A to Z. An Online Business Manager who is responsible for setting the foundation for growth in your business. A sales person who is bringing new clients into your business.
The key to incentive is that the person has a bit of “skin in the game” – and that they don’t get paid more unless there is growth in the company (results). Again, hourly can be taken out of the equation here by giving the person a base/retainer that is enough to keep them engaged without having to track time and get caught up in the hours. Instead, they know they can truly make more money as the business grows and that the investment of time/energy on their part will pay off. Incentive can take the form of a percentage of revenue (5-10% or more in some cases), percentage of profits or a flat rate bonus based on reaching certain milestones.