An American Editor

August 19, 2013

Business of Editing: What to Charge (Part V)

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.

Links to the other articles in this series:

July 1, 2013

Business of Editing: Lower Your Rate?

I recently wrote about raising one’s rates (see Business of Editing: Raising Prices). Although the article focused on raising rates, I did, somewhat off-handedly, mention lowering rates. No one commented on that possibility, and I suspect that very few readers even contemplated the wisdom of lowering one’s rates.

I’m here to tell you that sometimes it is a smarter business move to lower one’s rate than it is to either maintain or raise one’s rate. I’m sure the resistance barriers are already rising.

Let’s begin with the obvious. The decision whether to lower or raise rates rests on many of the same factors regardless of which way you lean. It makes no sense to charge $100 an hour when all your direct competition is charging $25 an hour. Similarly, it makes no sense to do the reverse, at least not with such a great spread; perhaps a smaller spread will work.

But what is not obvious is the reason why lowering one’s rate can be a smart business move. Consider why businesses generally lower prices or charge membership fees or issue loyalty cards with rewards. Now recall that you, too, are a business. You want exactly what your credit card company or your grocery store wants: repeat and loyal business. It costs much less to work with repeat clients than to find new client.

When I think about my rates, I consider the types of clients I deal with and what I want from those clients. I want to “lock them in” to me; I want them to ask me first to undertake an assignment and I want them to be reluctant to hire another editor. When those projects that are worth $20,000 in fees come around, I want the very first reaction to be to call me.

I understand that quality of editing is important. I also understand that many, if not most, editors rely on the quality of their work to bring in repeat business. I know I certainly do not skimp on quality. Yet that is what all of my competition does as well.

As I have written previously, I want to keep myself and those editors who work for me busy all year-round, not just a few weeks or months a year. Thus quantity of work is important to me. The question becomes: How do I get the quantity at the least cost and effort? One important answer is that I offer a discounted price to clients who are willing to offer me assurances that I will be called first.

Does this always work? No, it doesn’t. Some clients have corporate policies that prohibit such negotiations; others take the position that they cannot accurately forecast when and how much manuscript will arrive and thus cannot agree to “guarantee” an amount of work. Some clients have other reasons why such a proposition wouldn’t work with them.

But there are clients for whom this does work and it works to both our benefits: I am assured a steady supply of work and they are assured some money saving, along with a high-quality edit. Not only does it not hurt anything to try to work out some arrangement for repeat business with a client, but even if it doesn’t work out, the client recognizes you for what you are: a businessperson.

Of course, all of the above fits my business model and works with publishers. Such an approach is difficult to take with authors because most authors cannot generate enough work in the course of a year to make such negotiations worthwhile. An editor needs to evaluate his business and his wants and needs before considering fee reduction. But every editor should think about whether this is a concept that can be made to work for you in your business.

In a way, this hearkens back to the concept of effective hourly rate (see Thinking About Money: What Freelancers Need to Understand for a discussion on EHRs). What good does it do you as an editor to have an hourly rate of $50 if your EHR is really $20? High EHRs depend on not only the rate and expenses, but the number of hours you are actually editing. If you charge $50 an hour but only edit 20 hours a week, your EHR is $25, not $50 — and that’s before considering expenses. To my mind, I would rather work 40 hours a week at an hourly rate of $40. (And, no, I’m not advocating hourly rates; it is just that using an hourly rate makes the examples easier, less complex, more pointed, and much shorter.)

Lowering one’s rate can have several advantages. Such a move can increase the quantity of work. It can also “lock-in” a client. And, it can make a wholly new-to-you client willing to talk seriously to you about adding you to their list of editors.

Something else to keep in mind. Lowering your rate for client A does not mean you have to lower your rate for client B. Each client should be considered individually. I think an editor should have standardized base rates for certain types of work but then the rate should be adjusted based on the client and even on experience with a client. Editing services are unique to each client and sometimes to each project and one’s rate should reflect that. However, some clients offer the possibility of a quantity of work over years, which work is of a similar nature and thus requires a set rate.

Also necessary to keep in mind when thinking about rates is whether it is possible to make use of economies of scale, which is something every business has to consider. In manufacturing, the concept is illustrated by the idea that the larger the quantity you buy, the lower the individual piece price. Although editors do not work like a manufacturer, the basic concept can still apply.

I know that I can edit certain types of books more quickly than other types without loss of quality because I know that I have tools available to make the work go faster. (See, e.g., Business of Editing: The Logistics of Large Projects, wherein I discuss using my Journals macro. Also see, e.g., The Commandments: Thou Shall be Efficient.) Knowing that I have certain efficiencies in my business allows me to be flexible with rates for clients whose books are ones to which I can apply those efficiencies. Lacking the ability to apply those efficiencies would prevent me from lowering my rate and would induce me to raise it.

The bottom line is that for the right client and for the right return, editors should consider whether to lower their rate and not reflexively dismiss the possibility. As with raising rates, lowering rates should not be approached willy-nilly. Doing either must be the result of careful evaluation of what benefit (and harm) will accrue to you. What editors must overcome is the reflexive response that one should never consider lowering one’s rate, let alone actually do it.

Whether to lower or raise one’s rate for a client is a business decision and must be approached like one — objectively, not emotionally.

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