How Much Should I Pay My Providers?

If you never started a business before, you may be wondering how much should I pay my providers? By providers, I mean; cleaners, dog walkers, movers, tutors, and other service type providers. That question sometimes can prevent people from ever starting. It can be a difficult topic for some, and in this blog post, I will show you a proper strategy to follow to get off to the right start.

IC versus W2 employee

The first thing when starting is to determine how you are going to hire your providers. Are they going to be independent contractors, or are they going to be w2 employees? This is important because based on this decision, the structure of your company will be formed. If you hire w2 employees, you will have much more control over your workers, and with independent contractors, you won’t have any or very little.

Here is an example (image source):

This often scares a lot of people when they first look at this, because it often makes them feel like the only choice they have is to hire W2 employees. That is not true. There are a lot of successful ways that you can hire workers as ICs. However, your company structure and contracts have to reflect that. I may write a blog post specifically on that in the future, so stay tuned and comment below if you’d like me to do that. Once you decide on the type of workers that you will hire, you will start to create your company around them and your customers.

Narrow down your audience and tailor your services

Now, before you start hiring, decide which clients in your industry are the right clients for you. As an example; if you’re in the cleaning industry, are you going after large homes or small apartments/condos. Both of these clients have different expectations, and when you are just starting, it’s near impossible to satisfy them both. Clients with larger homes will expect teams while owners of smaller apartments/condos will be fine with one individual.

The same goes for the providers. Teams of 3 won’t be entirely satisfied going to a small job, and an individual won’t be satisfied performing a large job themselves. You need to find a balance that will satisfy the customer, the provider, and make you the most money.

Here is an example:

See how in this example, one person makes more money, and you also make more money. That means that doing smaller jobs only, and focusing on sending one person per job can be very beneficial to everyone. Not only are providers making more money, but you are tailoring your service and making it perfect for a specific customer. The providers are also less likely to complain, which will lower your churn rate significantly as well as customer complaints.

Optimize over time

One thing to keep in mind is that you don’t need to make everything perfect when you start. You can always optimize later. For example, if you feel like you can lower the pay by 5% or $2 per hour, without sacrificing the performance of your company, then test it. Hire your next set of providers at the new rate and see what happens. Sometimes it may take several years to find the right structure that works for your company. Don’t be afraid to test. After all, saving 5% when doing $1,000,000 in revenue is $50,000 extra for your business.

Tailoring to more people

Now that you’ve customized your service to a specific customer, you can start to branch out if you are ready for another challenge. From our example above, if you started by doing only smaller homes, you can now expand to larger houses and perfect that specific customer next. Later you can go into a specific type of commercial service or even start with post-construction and master it next. Personalization is critical, and you cannot do all the services at once. You need to perfect every part of your service to scale your business. This is also why we segregate everything inside BookingKoala.

Some providers refuse to go to specific zip codes, and we block those zip codes from ever being matched with them. As you can see if I unselect a zipcode or a specific location, that provider will never receive a job from that particular location or zip code. These things are essential because it offers personalization towards the provider, which will make them happier and lower the churn rate significantly. Hence, why you cannot start offering all services to everyone.

Hire your first provider(s)

Now it is time for you to start hiring your providers. You don’t need a fancy office to interview people either. 

Figure out if you will be hiring ICs, W2s, then structure your company around that choice. You can then start to tailor your services to a specific customer, which will allow you to make your providers happier. Later you can branch out and tailor to more customers.