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.