(The following essay was originally published on
An American Editor on August 19, 2013.)
The previous four parts of this series (I, II, III, and IV) discussed the effective hourly rate, how to calculate it, and how track it. The remaining question, as several colleagues have noted to me, is: “Why bother?”
Professional editing is a business. If it were a hobby, it would not matter whether or not we made a profit because we would be pursuing editing purely for our love of editing. Yet, for most of us, editing is a business, and as a business we need to be concerned with profit and loss. Even businesses that are organized as nonprofits need to be concerned with profit and loss. The difference between a for-profit and a nonprofit business arrangement is that the former distributes any profit to its “owners” whereas the latter uses any profit to further its goals (i.e., there is no distribution to owners because there are no “owners”).
A business cannot make a profit if it does not generate income in excess of its costs of doing business. It’s a simple concept but one that seems to be just outside the grasp of many business owners.
Knowing whether we are making a profit or suffering a loss is important to editors because we, just like all other businesses, need to constantly evaluate whether what we are doing is worth continuing to do. If we are not making a profit and if we cannot adjust what we are doing so that we do make a profit, perhaps we need to pursue a different career path or conduct our business differently.
Tracking one’s effective hourly rate (EHR) is a way to determine the health of one’s business. It is also an alert system to tell us if and when we need to make adjustments in how we operate our business.
If we know, for example, that no matter what we do, our current client base will not pay a rate higher than $20 an hour (or its equivalent), and if we know that our EHR, as we are currently operating, needs to be higher than what our client base is willing to pay (the required EHR), then we know that we need to make adjustments in how we conduct our business.
This is the critical and most important reason to know and track the EHR. When we operate without knowledge of our EHR, we assume that if we bring in $1,000, it represents mostly profit. This is the allure of the hourly rate: an hourly rate makes us believe that we are earning a decent income because we are assured that for every hour we work, we earn that hourly rate. In real-world business, however, it is not so simple.
Editors, like all businesses, have a production line. I know we do not like to think in those terms, but the fact is that we do operate a production line. (A “production line” is not synonymous with “assembly line.” Production line refers to the manner and order in which we do our work.) We receive a manuscript and we take certain steps in dealing with the manuscript, steps that we repeat with each project. For example, the first thing we may do is clean up the file to remove extraneous elements like extra spaces. Then we may break out reference lists from the main text, or put figure legends in a separate file, or insert bookmarks, or whatever. Ultimately we get to the editing phase, but it is rarely the very first thing we do.
As part of our production line we may do multiple passes. We may do a rough edit, then a second edit, then a cleanup, then a final pass to search for anything we may have missed. What exactly each of us does is not as important as that we recognize we have these steps and that we can articulate them. The articulation is important because part of what we need to do if we are not making a profit is determine what steps in the production line can be omitted or modified so as to make the step more efficient.
One publisher, for example, looks for the least-expensive editor who meets certain minimal qualifications and then provides a multipage checklist of things it expects the editor to do. There are several interesting aspects to the list, one of which is the blurring of the roles of the developmental editor and the copyeditor. The publisher expects copyeditors to fulfill both functions for one very low price. In addition, the publisher has its own style. which differs from standard styles in small, subtle ways. However, failure to comply with the publisher’s house style results in requests for the editor to repeatedly go over the manuscript to fix it for no additional fee.
Faced with not earning the EHR, an editor has to determine what changes can and must be made in the editor’s production line in order to earn the EHR. Will, for example, eliminating a second or third pass over the manuscript reduce the hours sufficiently to raise the EHR? Will changing the production line to a single-pass process do the trick? What other adjustments can be made that will result in increasing the EHR? Or does the editor need to drop this particular client? Can the editor afford to drop this client (i.e., how easily can the revenue this client generates be replaced)?
The reason to bother with calculating and tracking the EHR is to create a foundation for making business decisions. Bringing in revenue of $50,000 a year is nice, but meaningless, if we do not know what our cost of doing business is or whether the procedures we follow are hampering, increasing, or having no effect on our profitability — or even how many hours we need to work to make that income. It is also meaningless if we do not know whether doing work for a particular client is profitable. If working for a particular publisher is not and cannot be profitable, should we not know this so we can decide whether or not to drop the publisher and find other clients?
Perhaps even more importantly, bothering with the EHR lets an editor determine how well the editor is doing over time. Is the editor’s speed and efficiency and productivity increasing or decreasing or remaining stable — month to month, year to year?
The EHR also spreads the earning requirements over the full work week, thus accounting for the nonbillable time we need to devote to business, such as for marketing. It also is (usually) a rate we can more realistically expect clients to accept. More importantly, unlike an hourly rate, the EHR forces us to think in terms of a business week and not just in terms of billable hours. Too many small business owners think that the only hours that are part of the business calculation are the billable hours, which is incorrect.
Finally, the EHR, unlike an hourly rate, lets us fully measure productivity and efficiency. The more productive and efficient we are, the more often we exceed our EHR. When we charge by the hour, we can never exceed that hourly rate.
The EHR is foundational information that acts as a guide to business decision making. It is something against which a business can measure what the business is doing and determine whether the business is on the correct path or needs to alter its course — making calculating the EHR worthwhile.
Richard Adin, An American Editor
Since you advise in this series that editors would be better off with a per page or per project fee how do i figure that out using the EHR? I’ve recently started freelancing and need to make an income that will compensate for the items my ex-employer covered (taxes etc.). Thank you.
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Comment by crabemamabookworm — July 28, 2017 @ 10:55 pm |
I assume you have read the 5 parts to this essay. There is a difference between the required EHR and the EHR. The required EHR (rEHR) is calculated by amortizing ALL of your expenses, including taxes, over your expected actual workweek/year. For example, if you expect to have enough work to average 20 hours of actual earnings each week for a total of 42 weeks in the next year, you spread your costs over the 840 hours (20 h x 42 wk) you expect to actually be earning hours. If your total costs come to $60,000 — i.e., food, shelter, utilities, taxes, insurance, literally every expense you have/anticipate that you are responsible for — then your rEHR is $71.43 ($60,000/840 h).
Now your task becomes how to earn that rEHR or lower it. If you are in a two-income household and responsible for half of the total operating costs of the household, you calculate your expenses by adding 100% of your business expenses (e.g., cost of software and computers) to your 50% of mutual household expenses (e.g., groceries).
The per-page rate or the project rate (essentially a per-page rate) is a separate calculation. If you can edit 5 pages an hour and your rEHR is $30, then your minimum per-page rate is $6 ($6 x 5 pph = $30 or $30 rEHR/5 pph = $6 pp) and if the manuscript is 1,000 pages, the project fee is 1,000 msp x $6 pp = $6,000 project fee. If the client is offering $3 pp and you have a rEHR of $30, then you need to figure out how to edit at an average minimum rate of 10 pph.
If you are editing a project at an average speed of 15 pph and are being paid $3 pp, then you have an EHR of $45 (15 pph x $3 pp = $45 EHR). If your rEHR is $30, you are effectively earning a $15 per hour profit; if your rEHR is $60, you are effectively losing $15 per hour.
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Comment by americaneditor — July 29, 2017 @ 2:14 am |