The Admin Fee.

When you run an outsourcing agency for REO services, you deal regularly with paying contractors for projects you’ve assigned. But how much should you pay yourself? Should this be a fee over and above what the contractor has proposed? Should your fee be a discount from the contractor’s price? Should it be 10%? 20%? How about 25%? Some take more, unfortunately.

You have to consider how competitive the bid you provide for your client will be. They could approach a plumber directly, but they come to you hoping for a comparatively good price. They, of course, understand that you must feed your Afghan hounds and your growing Sudoku addiction, not to mention care for your small children. But, they will recognize greed when they see it in dollar signs under your company logo. The idea is to arrive at a fee that makes time spent scheduling and coordinating the project profitable for you and doesn’t take a noticeable chunk from your client’s budget.

You have to also consider how your fee will sit with your contractors. If the fee assessed is over and above what they ask for, then you will not have an issue. But, if you require a discount from the contractor’s earned fee, then the percentage deducted will mean a lot to the one doing the manual labor. If you were the contractor, would you want to spend advanced monies on supplies and fuel, do the work in expectation of being paid 30 – 45 days later, and then bring in only 50 – 60% of what you know you have earned? The entrepreneurial contractor knows they could make 100% of what they have earned by going directly to the source — cutting you out of the equation.

Then, you also have to consider not offering what looks much like Pro bono services. Think about your Afghan hounds. Your Sudoku addiction. Your children. There is a certain amount at which you are profitable and then a certain amount at which you barely break even. I learned early on that 10% is in the “barely break even” bracket. Though, we were working with some major mortgage lending institutions, getting some sweet jobs. Many which paid so well that 10% looked pretty decent. But not all jobs we were given were as profitable. You have to ask yourself, “How much do I need to profit from this project?”

The reason for the admin fee should be obvious. Yes, you are providing a service the client could very well provide for themselves. But, they refuse to because they are completely swamped with other things. They have tons of vacant assets to manage on a daily basis, and the more items they can delegate to someone who might assess a small admin fee, the better. In the end, the ability to trust someone else with repair, maintenance, or field tasks is well worth the extra money.

I had an asset manager ask me one time why we assessed an admin fee at all. My quick response was that it was a small fee for them to expect from a company which held a large amount of experienced contractors at its disposal, researched the condition of the property, the items being requested, and the most reasonable cost for said client, then managing the project from start to completion.

We ask for a 20% admin fee because that is what we feel has shown itself profitable to us. Sometimes we are able to assess this over and above the contractor’s proposed fee. Sometimes we take this in the form of a discount from the approved fee. But, in each case we are upfront with both the client and contractor about how much we will take. I think to announce our fee is an honest approach to business, though some would advise otherwise.

More and more as I am open about this fee, contractors are pleasantly surprised. Especially as in the past they have had to accept huge discounts from other money-hungry outsourcing agencies. And, when I tell my clients about my fee, they don’t complain.


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