Economic Model

Our high level economic model is summarised in How Organa Works so listed here are some examples of how our economic model works.

Example: One month

Suppose Sandy is a Organa Member, and her current client is HappyClient1. Sandy’s consulting fee is $150 per hour. And suppose the current Organa contribution is 10% of Sandy’s billables + $250/month.

1. During January, Sandy does 100 hours of work for HappyClient1.
2. At the end of January, she adds one row to the invoicing spreadsheet (a single shared Google doc), noting that HappyClient1 should be invoiced $10,000 for January.
3. The office team sends a $10,000 invoice from Organa to HappyClient1, for Sandy’s services.
4. Sandy sends a $9,000 invoice from her personal company to Organa ($10,000 minus the 10% Organa “members contribution”).

Result for January: HappyClient1 pays $10,000, Sandy earns $9,000, Organa earns $1,000.

In addition, once per quarter Organa sends a $750 invoice to Sandy’s company (3 x $250, the monthly fixed contribution).

So let’s put it all together.

Example: One year

Suppose Sandy earns the same amount as above, every month for a year. In that case the net result is:

• HappyClient1 paid $120,000 for Sandy’s services ($10,000 x 12 months).
• Sandy earned $108,000 for her work at HappyClient1 (90% of the income from HappyClient1).
• Organa earned $12,000 from Sandy’s work at HappyClient1 (10% of the income from HappyClient1).
• In addition, Sandy paid $3,000 to Organa in fixed contributions ($250 x 12 months).
• Result for the year:
  • HappyClient1: -$120,000
  • Sandy: +$102,000
  • Organa: +$14,400.

Example: hitting the ceiling

Suppose the Organa contributions ceiling is $15,000 per year (which is currently is).

And suppose Sandy gets famous for her specialty skills in reinventing organisations, and manages to land a $200/hour gig at Company Y. Sandy still works 100 hours per month (reserving the rest of her time for hobby projects, fun and family).

That means Sandy will earn in about $240,000, and the Organa contribution would be $24,000. That’s way past the $15,000 ceiling, and we haven’t even taken the fixed contribution of $250/month into account. The point of having a ceiling is to make sure the cost of being at Organa doesn’t get out of hand for the highest paid advisers.

Sandy shares in Slack that anticipates hitting the ceiling in a particular month, so for the remaining months she makes no further contributions. Instead, Sandy keeps 100% of what she earns. Simple.

If she turns out to be wrong (because Company Y cancels her engagement) then she’ll go back and recalculate. No big deal, it’s just an internal calculation that clients don’t see.

Example: adjusting the fees

Towards the end of each financial year, the Head of Numbers (Roles we play) notices that Organa is accumulating too much money (remember we maintain a limited liquidity buffer and try not build up piles of cash), so the Board of Directors may choose to lower the fee to 9% + $200/month, and lower the ceiling to $18,000/year. Yay!

Check how Organa works if you are curious about why we don’t want Organa to earn a big profit.

What about taxes and GST?

Taxes and GST? Yes, that messes up the clean calculations above.

GST or Goods and Services tax may be country-specific, so we won’t bore you with details. Suffice to say, once you pass the GST threshold of $75,000 in Australia, you start allowing for GST.

What about risk pooling? What if someone gets in financial trouble?

What if a Member can’t find a client for an extended period? Or what if a client suddenly goes bankrupt and doesn’t pay? What if an adviser gets seriously sick?

In a “normal” consulting company, Members get their salary every month and the employer needs to prepare for risks using things like cash buffers and insurances. But Organa is more like a bunch of collaborating independents, and we leave it up to each individual to manage their own levels of risk.

It may sound obvious that Organa should provide a “rainy day insurance” for each Member, a shared cash buffer to support a Member who runs into sudden cash flow problems. But that money needs to come from somewhere, and will in one way or another cause the Organa contributions to increase.

Different people have different risk profiles. Some are very careful, keep their expenses low, and buffer lots of cash for rainy days. 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. Remember freedom and autonomy are high on the list of what we value so we expect each Member to be able to manage themselves.

As a result, our discussions always end up with people divided into two camps:

• Yes: “An insurance will increase my freedom and security, because Organa 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 minimising 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 Organa primarily for freedom, and that includes the freedom to choose your own risk-management approach.

Ther 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 Organa.

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.