An American Editor

April 15, 2013

The Commandments: Thou Shall be Profitable

Along with my recurring column called “The Business of Editing,” I’ve decided to start another series titled “The Commandments,” in which I, and perhaps some guests, will discuss commandments I (we) believe editors and authors should follow.

The series begins with this commandment for editors and writers, although I will couch most of it in terms of editing: Thou shall be profitable! It is primarily aimed, of course, at editors who have their own businesses, but is worth keeping in mind even for in-house staffers.

What good is it to be in business and not be profitable? Being profitable is more than just having a steady income. It means earning more than it costs you to run your business, and it means earning at least what you would earn if you were working for someone else — that is, more than the minimum wage!

The question of profitability is difficult, but the reality is that, if you cannot earn enough to cover business and living costs, including such costs as health insurance and retirement, then you are not profitable — and being profitable is probably the one inviolable commandment for any business.

I understand that there are other rewards of being self-employed, not the least of which is not being employed by someone else and being able to set your own schedule. But these are really illusory benefits if you do not earn enough to afford what are considered today the basics of life. If you are not profitable, the answer is not to give up, but to adjust your approach to the business of editing.

I remember my very first months as a freelance editor. In those days, I had no clients on day one. My first year as a freelance editor was a lean year — I didn’t earn enough to pay my mortgage, let alone feed my family. My turnaround year was my second year, when I doubled the gross of my first year, which was followed by my third year, when I doubled the gross of my second year.

In that first year, I had to make a decision: Pay the mortgage or use the money to promote my business. I went back and forth about what to do. In the end, I decided to skip the mortgage payment and use the money to promote my business. My thinking went along these lines: If I paid the mortgage, I put off for one month the loss of home for just one month; if I promoted my business, I gave myself an opportunity to put off the loss of home permanently, because the cure for my problem was more (profitable) work. As it turned out, I made the right choice.

This is the kind of choice that every business faces: Do you pay a current bill and hope enough business comes in to pay future bills, or do you invest in something that might encourage more business to come your way (or make the business you do have more profitable)? It needs to be noted that part of the problem for editors is that editing is a hands-on profession. It requires, like all crafts, that person-time be spent on the material. After all, if someone doesn’t actually read the manuscript, it will never be edited.

Spending person-time, however, also acts as a limiter on precisely how much work an editor can handle. Unlike manufacturing widgets, it isn’t possible to simultaneously read two pages from two different manuscripts and edit both — at least not do so and provide a professional edit. Consequently, editors need to find ways to speed up the work they do, do the work more efficiently and productively, and thus make room in the schedule for more manuscripts to edit.

In other words, profitability is the result of a combination of factors: a constant flow of manuscripts, to be edited at a price that will give the editor the potential to be profitable, and which will be edited efficiently and speedily.

Few editors I know have taken the time to analyze exactly what is the point of profitability for their business. One telltale sign is that the editor charges by the hour rather than by the page or the project or the word. Consider this: A person who works for a large company may earn $20 an hour, but, if you analyze the company’s books, you will discover that the employee costs the company another $15 to $20 an hour — or more — which means the company has to earn the equivalent of $35 to $40 an hour just to break even on the employee.

Self-employed editors do not think in those terms. They think that they have earned $25 an hour for 30 hours of work this week and so they have made $750 this week. But they haven’t really made $750. Approximately one-third has to be set aside for federal, state, and local taxes. That reduces the amount earned to $500. Because we all rely on the Internet these days to send and receive manuscript files and to find the resources we need, for example, to verify that a word is correctly spelled or used, there is the cost of the Internet connection. I grant that cost can range all over the place, but for minimal service, I suspect it runs at least $25 a month, so for this week, let’s allocate $6.25. Similarly with telephone service. Most editors I know have a cell phone. Again, plans and costs can vary widely, but I suspect that, on average, the cost runs $80 a month. For this example, let’s allocate $20.

I don’t want to go into each and every detail; you get the idea. But even with just these three allocations, that $750 has become $473.75 — and we know that there are more costs of doing business that need to come out of that sum, such as an allocation for rent/mortgage, for electric/gas, and for insurance, not even counting health insurance.

And there is one other problem with looking at this week’s earnings and projecting: It is not safe to assume that, if you earned a gross of $750 this week, you will earn at least that same gross each and every week. Experience indicates that some weeks will match, some will be less, and some will be more (which is why we pay an estimated tax).

Instead, editors need to determine what their hourly costs are and what their profit above that cost should be. That, then, becomes the amount you need to earn as an effective hourly rate (Remember our discussion of effective hourly rates? See Thinking About Money: What Freelancers Need to Understand and In Editing, It’s the Little Things That Count), which is a truer indicator of your profitability than the hourly rate you charge.

If you are not going to run a profitable business, why run a business? If your editing is not profitable and you do not take the steps to make it profitable, should you not rethink your career plan? I know, as I said before, that there are other reasons for being self-employed and for being an editor. And these are important. For example, there is no sense being an editor if you hate reading and dealing with author foibles. On the other hand, as much as you may love what you are doing, do you not also need to eat?

Consequently, this commandment: Thou shall be profitable! And if you are not, you will think about how to change your business plan so that you do become profitable.

14 Comments »

  1. I would like to amend this commandment by two words: “Thou shall strive to be profitable.” Achieving profitability isn’t simply a decision; it takes a whole lot of learning and changing one’s ways and outlook, which, in the absence of very good luck, doesn’t happen overnight. That or long-term, careful planning.

    I’m surely not the only editor who found became self-employed involuntarily. In fact, I never intended to go solo because I knew I don’t have what it takes to succeed. Yeah, I despised working for someone else, but that wasn’t strong enough motive to risk going broke. When the choice came, however, there really wasn’t one. I was thrown into the deep end of the pool and had to sink or swim.

    Learning how to be profitable has been tremendously difficult. I’m still not there yet, and I’ve been self-employed now for seven years. But each year is better than the last, and each small success builds on the next, and each lesson learned leads to more lessons learned better and faster. I haven’t lost my house yet. I haven’t gone hungry. I’m still married (to someone who was also involuntarily self-employed and has weaker business skills than I do). And though I live on the knife edge, I get progressively more and better work. The gold ring I keep reaching for is comfortable solvency. But I had to start from inside a deep hole, inadequately armed with knowledge and temperament to claw my way out.

    Ergo, the commandment to me must include the word “strive” because if I stop doing so for one second, I’ll slide back into that hole. The only thing worse than starting over is having to do so over and over again.

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    Comment by Carolyn — April 15, 2013 @ 7:52 am | Reply

    • “the commandment to me must include the word “strive” because if I stop doing so for one second, I’ll slide back into that hole. The only thing worse than starting over is having to do so over and over again” – thanks for that, Carolyn. Because of what you say, I have realised how much I do exactly that, and how the only proper answer is to make friends with the fact that the striving is permanent.

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      Comment by Kersti — November 22, 2013 @ 5:11 am | Reply

      • I agree with Carolyn’s comment,”“Thou shall strive to be profitable.” Achieving profitability isn’t simply a decision; it takes a whole lot of learning and changing one’s ways and outlook,”

        However, in order to be profitable, one has to know what thir expenses are ahd have a guesstimate of what know what one’s guessstimate of income will be. In order to have some idea of income, one has to have a fee schedule to base the income on. Both are what goes into the financials of a business plan.

        Striving to be profitable without a business plan is like editing without an mss to edit.

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        Comment by Alan J. Zell — November 22, 2013 @ 6:43 pm | Reply

  2. Great article, and I like Carolyn’s amendment. I too feel the pressure of learning how to be a freelancer while trying to earn money. I admit that I am luckier than most freelancers in terms of return on investment. (My husband and I receive monthly pensions from our military retirements, and my husband works in a well-paying full-time job.) But, applying my education and experience to freelance editing has always been a dream of mine, and I’m pursuing that now. So, my income goals are different than most, I would guess. But, if I get stressed about marketing myself and building clients, I can only imagine what other freelancers must feel.

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    Comment by Susan G. — April 15, 2013 @ 11:06 am | Reply

  3. When someone asks me what the most important thing to do in preparing to go full-time freelance — someone who is making the decision to quit their full-time job — I say put away 6 months to a year of living expenses. That way, you can make the business decisions you need to make to become profitable without the wolf constantly at the door. Actually, financial advisors say this is something everyone should have, whatever their work situation. It’s easier said than done, of course! And as Carolyn wrote, many editorial freelancers did not make a choice but were laid off from employment in publishing world and didn’t have much chance of being hired into that downsizing industry again.

    Did I follow my own advice? No, and that’s why I think it’s so important. My husband and I didn’t have that cushion, and at the time, we had two young children and a mortgage, self-pay health insurance, and all the rest. I sort of fell into freelance editing (from another career, not publishing), but if we had had that little nest egg, the first few years would have been much easier.

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    Comment by Teresa Barensfeld — April 15, 2013 @ 11:09 am | Reply

  4. Something else I’d like to suggest is Thou Shalt Not Regard Thy Creditors as a Source of Short Term Loans. Yes, you can probably skip the mortgage for a month or so without losing the house, but things like late payments get into your credit rating and take quite awhile to get out again. Safer to just bite the bullet and take out a loan for the business, and use that to do the things that will make it grow.

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    Comment by anansii — April 15, 2013 @ 3:51 pm | Reply

    • Try to get a bank to give you a loan when you have irregular, unpredictable, and inadequate income!

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      Comment by Carolyn — November 22, 2013 @ 6:10 am | Reply

  5. I wrote a similar series a few years ago. My first two rules of business are to make a profit (but not to gouge!) and to remember that positive cash flow is king. http://cybertext.wordpress.com/2008/11/17/business-of-freelancing-money-rules/

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    Comment by Rhonda — April 15, 2013 @ 6:32 pm | Reply

  6. Although it may not be realm of something an editor needs to do, if an editor wants to, eventually, make a profit on one’s efforts it calls for doing a business plan. Failing to plan is planning to fail is the expression one needs to heed.

    As in the article, one needs to place a dollar figure on what the business pays the editor to do editing i.e. the editor is an “employee” of the business. For salary for other activities related to the business comes under the overhead.

    So besides the business paying the editor a salary, there is the task of setting “retail” fees — what multiple to put on the hourly salary to cover all other business expenses. Example, if a consultant charges $300/hr. the business is paying the consultant’s business is paying the consultant approx $50/hr. The spread is to cover the business’s overhead.

    The key to merchandising one’s fees, while it may be figured by the hour, is not to quote it as an hourly fee. There are several ways to turn one’s services/time into a product. This is called productizing services. I’ve worked with several people who have had to do this.

    My suggestion for editors who want to plan to make a profit on their efforts, I suggest calling on SCORE for free, confidential business advice. (Understand that to people who “edit financials” a , only divides thousands and hundreds.) To get this help from one of SCORE’s 400 chapters/offices, go to score.org and to “find a local chapter?” and enter your zip code.

    For most doing a business plan the enigma is how to guesstimate what one’s income/sales will be by the month. The best way to do this is to use one’s past monthly income as a guide. Putting in estimated income is only to give one a base to use to see what the real numbers are compared to what was estimated . . . and then making adjustments to see how the actual numbers affect the bottom line/profit.

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    Comment by Alan J. Zell — April 15, 2013 @ 6:38 pm | Reply

    • I prefer to quote a project fee whenever possible. However, it isn’t always possible in this buyer’s market. Some clients are institutions and they operate on an hourly billing system. One little freelancer isn’t going to move them to change their ways; there are way too many of us in the queue who are willing to step into a vacant opportunity. So it’s annoying to keep hearing that charging per hour is bad business sense. I consider it good business sense to acquire work, do it well, and snare a repeat customer. If the institution happens to require a fixed hourly rate, then the editor’s decision is a black or white one: accept or reject. But don’t bash someone for making the choice to accept!

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      Comment by Carolyn — April 15, 2013 @ 7:02 pm | Reply

  7. Ooops. My suggestion for calling on SCORE for help is only for US citizens or foreign nationals in the US with a Green Card. However, there are similar services in other countries.

    Alan

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    Comment by Alan J. Zell — April 15, 2013 @ 6:52 pm | Reply

  8. I have the trouble with the concept of delaying and/or not paying bills, period. Turn it around–what if you are a writer and you are determined to make a profit. So one of your choices with your limited amount of income is to invest it in your writing, and not pay the editor your hired in a timely fashion. As an editor,I was in that situation–once–and did not like it at all. I want the bills I send out to be paid, so I pay the bills I incur first.

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    Comment by Ramona DeFelice Long — April 16, 2013 @ 11:11 am | Reply

  9. […] is not enough to say that an editor has to be profitable (see The Commandments: Thou Shall be Profitable); a business must also be efficient in the delivery of its goods and services. Thus the […]

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    Pingback by The Commandments: Thou Shall be Efficient | An American Editor — May 8, 2013 @ 4:02 am | Reply

  10. […] has to do. The twin goals of the business side are to be profitable and to be efficient (see The Commandments: Thou Shall be Profitable and The Commandments: Thou Shall […]

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    Pingback by Is Editing Teachable? | An American Editor — December 4, 2013 @ 4:04 am | Reply


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