The high level economic model is summarized in How verseworks works. Here are some concrete examples to make it more clear.
Example: One month
Suppose Joe is a verseworks consultant, and his current client is Innitech. Joe’s consulting fee is £100 per hour. And suppose the current verseworks fee is 10% + £500/month.
- During January, Joe does 100 hours of work for Innitech.
- At the end of January, Joe adds one row to the invoicing spreadsheet (a single shared Google doc for everyone at verseworks), noting that Innitech should be invoiced £10,000 for January.
- The office team sends a £10,000 invoice from verseworks to Innitech, for Joe’s services.
- Joe sends a £9,000 invoice from his personal company to verseworks (£10,000 minus the 10% verseworks “tax”).
Result for January:
Innitech pays £10,000, Joe earns £9,000, verseworks earns £1,000.
In addition, once per quarter verseworks will send a £1500 invoice to Joe’s company (3 x £500, the monthly fixed fee).
So let’s put it all together.
Example: One year
Suppose Joe earns the same amount as above, every month for a year. In that case the net result is:
- Innitech paid £120,000 for Joe’s services (£10,000 × 12 months)
- Joe earned £108,000 for his work at Innitech (90% of the income from Innitech)
- verseworks earned £12,000 from Joe’s work at Innitech (10% of the income from Innitech)
- In addition, Joe paid £6000 to verseworks in fixed fees (£500 x 12 months)
- Result for the year:
- Innitech: -£120,000
- Joe: +£102,000
- verseworks: +£18,000
Example: hitting the ceiling
Suppose the verseworks fee ceiling is £20,000 per year.
And suppose Joe gets famous for his specialty skills in cybersecurity, and manages to land a £200/hour gig at Cyberdyne (something about robots, they’re very secretive about it)! Joe still works 100 hours per month (reserving the rest of his time for hobby projects and family).
That means Joe will pull in about £240,000, which means the verseworks fee would be £24,000. That’s way past the £20,000 ceiling, and we haven’t even taken the fixed £500/month into account. The point of having a ceiling is to make sure the cost of being at verseworks doesn’t get out of hand for the highest paid consultants.
Joe tells the office team that he’s most likely going to hit the ceiling this year, so there’s no point bothering with the % fee. Instead, Joe keeps 100% of what he earns, and verseworks just invoices him the ceiling fee of £5000 per quarter (= £20,000 per year divided into 4 quarters). Simple.
If he turns out to be wrong (because Cyberdyne cancels his engagement) then they’ll have to go back and recalculate. No big deal, it’s just an internal calculation that the customers don’t see.
Example: adjusting the fees
At the end of the fiscal year, the board notices that verseworks is accumulating too much money (we want to maintain a limited liquidity buffer and not build up piles of cash), so they lower the fee to 9% + £400/month, and lower the ceiling to £18,000/year. Yay!
Check how verseworks works if you are curious about why we don’t want verseworks to earn a big profit.
What about taxes and VAT?
Taxes and VAT? Oh yes, that messes up the clean calculations above… :o)
We have experts hired to deal with that, and much of that is country-specific, so we won’t bore you with details.
What about risk pooling? What if someone gets in financial trouble?
What if a consultant can’t find a client for an extended period? Or what if a client suddenly goes bankrupt and doesn’t pay? What if a consultant gets seriously sick?
In a “normal” consulting company, consultants get their salary every month and the employer needs to prepare for risks using things like cash buffers and insurances. But verseworks is more like a bunch of collaborating independents, and we leave it up to each individual to manage risk and insurance in their own company.
Nevertheless it may sound obvious that verseworks should provide a “rainy day insurance” for each consultant, a shared cash buffer to support a consultant who runs into sudden cash flow problems. But that money needs to come from somewhere, and will in one way or another cause the verseworks fee to increase.
Different people have different risk profiles. Some are very careful, keep their expenses low, and buffer lots of cash for rain day. Some are less careful, spend most of what they earn, and get involved in risky projects that may or may not pay off. Also, some people are good at managing their money, while others are sloppier.
As a result, our discussions always end up with people divided into two camps:
- Yes: “An insurance will increase my freedom and security, because verseworks will help me if I run into temporary cash flow problems.”
- No: “An insurance will decrease my freedom and security, because of the increased fees. I manage risk fine today by saving cash and minimizing unnecessary expenses.”
This is where our explicitly stated core values come into use. Freedom is a core value, financial stability isn’t. That doesn’t mean financial stability isn’t important, it just means that people came to verseworks primarily for freedom, and that includes the freedom to choose your own risk-management approach.
This reasoning always leads us to the same conclusion:
- Compromise: “Some people want a shared insurance, some don’t. Therefore we won’t force it upon everyone. Instead, those individuals who want an insurance (and are willing to pay for it) can get together and form one together. That way, insurance is opt-in.”
So anyone who wants to do risk-pooling is free to propose a model and see if anyone wants to join, but insurance isn’t owned or managed by verseworks.
Interestingly enough, no such generic insurance has been created yet, because nobody has managed to define a model that is good enough to attract a critical mass of participants.