Profit & Business Model
A business has to either be profitable so that its owners can earn a living or it has to have investors who are willing to fund the business for years and let the business lose money during those years because of greater future profit expectations or the business has to go out of business.
The first option is usually the option of the freelance editor. We rarely can convince people to invest in our business and let us generate losses for years (the Amazon model), because of the type of business editing is — personal and hands on. Amazon sells goods; the goods are not unique and buyers of the goods do not care whether Jeff Bezos has ever touched the goods. Amazon sells to us based on customer service and price.
Editing, as we know, is different. We are usually hired because of our skills (there are semi-exceptions as in my business model in which clients hire me because of my skills and because of the skills of the editors who work for me) and those skills are hands-on skills. We are hired to read each and every word and pass judgment on the words, the sentence structure, the grammar, and so on. Editors are hired to exercise judgment and improve a product; we do not expect Amazon to edit the book we buy from it.
As a result of this difference, Amazon can go years without making a profit, but freelance editors cannot. And Amazon can get people to invest money in it based on a not-written-in-stone promise of future rewards; outside editors themselves and immediate family, it is the rare person who will invest in an editor’s business with the expectation of a future profit.
Yet there is something in our business model and in Amazon’s business model that is identical (aside from the need for stellar customer service): We both need data to determine how we are doing and what we should be doing. The types of data we need are different, but we both need data.
Why Collect Data?
And this is where editors make a fundamental business mistake. Many editors simply do not collect data or if they do collect data, they make no business use of it. Yet data can tell us lots of things about our business. For example, data can tell us whether
- a client should be kept or fired
- certain types of projects should be avoided or sought
- we are charging too little or too much
- our focus is wrong or right
- we need to start a marketing campaign now or can wait
- our marketing campaign is a success or failure
- making an investment is likely to increase or decrease our profitability
- subcontracting would be a smart or dumb direction to go
- and myriad other things
— all we need to do is gather and explore the data.
We’ve discussed several times how to calculate what to charge (see the five-part series, Business of Editing: What to Charge), but knowing what you need to earn and charge does not necessarily equate to profitability. It is not difficult to have calculated the rate you need to charge, charge that rate, yet be unprofitable. That’s because knowing what to charge is only part of the necessary information.
Consider the type of editing you do. I focus on long manuscripts, the longer the better, preferably 1,000 manuscript pages or longer. Offer me a manuscript that runs 15,000 pages and you will make me happy. Over the years I have been professionally editing, I have collected data on hundreds of projects — in fact, on every project that has passed through my office. Among the information I collected was project subject matter; whether single author or multiauthor; number of manuscript pages (which was calculated using my own formula); the time it took to complete the project; the number of projects I was offered, indicating the number I accepted and the number I turned down; the reason for acceptance or rejection; and the fee I was paid. (I gathered other data, too, but for our discussion, this list is sufficient.)
From this data, I learned what manuscripts were likely to be profitable for me. It is important to remember that we are not all alike; that is, what is profitable for me may be highly unprofitable for you. What is important, however, is to know whether what you are doing is, in fact, profitable for you.
Editors focus on editing — it is what they know best and what they feel most comfortable doing. But freelancers wear multiple hats. Not only do they wear an editing hat, but they wear the business owner’s hat. When wearing the business owner’s hat, editors need to assess their business objectively. It does not matter whether they love or hate editing; what matters is whether they are running a profitable business. To make that determination, editors must objectively collect and analyze data about their business.
One of the most important bits of data is time. How long a project takes to edit — not approximately, but exactly — is key information. It is information that is used to determine your effective hourly rate as well as the number of pages you can edit in an hour. It also is information that is needed when giving a client a quote. An editor needs to know whether, as a general rule, a heavy edit means 2 pages an hour or 6 pages an hour, because that helps you determine the likelihood of profitability at different price points.
I have heard editors say that data collection isn’t all that important for them because they bill by the hour, not by the page or project. Contrary to such sentiment, it is equally important to collect data regardless of how you charge, unless your clients have unlimited budgets (and I have yet to meet a client who does). It is also important because in the absence of data, it is not possible to determine whether you are making a sufficient profit.
Editors have told me that they know they are making a sufficient profit because they are able to pay their bills, put a little bit away in savings, and have money for entertainment, and that they are doing this without collecting and analyzing data about their business. Accepting that as true, data collection is still necessary because you may well discover, for example, that you can earn the same but in less time and with less effort. Or you might discover after analyzing the data that although you are making a profit, you are spending more time and effort to do so than is warranted and that making some changes in your business would increase your profit but require less effort.
Data collection is key to business growth and profitability. Data inform decisions; data provide a foundation for action. It is a fundamental business error to not collect as much data as you can about your business.
Richard Adin, An American Editor
Related An American Editor essays include:
- The Business of Editing: Fundamental Business Mistakes That Editors Make
- The Business of Editing: A Second Fundamental Business Mistake That Editors Make
- The Business of Editing: A Third Fundamental Business Mistake That Editors Make
- The Business of Editing: A Fourth Fundamental Business Mistake That Editors Make