An American Editor

October 2, 2017

The Business of Editing: Do You Know Your Business’ Health?

Discussions in online forums are fascinating. Pick an editorial forum and you are bound to find that sometime in the forum’s recent history, at least one, and even more than one, editor has asked “What should I charge?” or “What’s the going rate?” Both persons new to editing and experienced editors ask that question.

There are a lot of things wrong with the answers that are usually given, and we have discussed any number of times how to calculate what you, individually, should charge for your services. Yet there is another aspect to why the answers are generally wrong and why the question should not be asked of colleagues — your business’ health.

Let us assume that you ask “What should I charge?” and that the consensus responses are $25/hour. That is the extent of the online exchange. No analysis of the response is made that goes beyond “This is what I charge” or “The XYZ survey says” or “This is what seems to be what most responders to such questions give.” It is the lack of analysis that will hurt your business the most.

When someone responds $25/hour, what do you know about the responder’s business? For example, do you know

  • how many hours of editing they do a year
  • how many clients they have
  • how many years of experience they have
  • what types of manuscripts they edit (e.g., fiction or nonfiction, romance or biography, academic or nonacademic, STEM or medical)
  • who their clients are (e.g., independent authors, bestselling novelists or barely selling novelists, doctoral students, well-known publishers, small presses, academic presses, packagers, law firms, pharmaceutical companies, journals, English-as-a-second-language authors)
  • among their client types, the percentages of each type
  • their annual gross income solely from editing for the past year; the past 5 years
  • whether editing is their full-time occupation
  • whether they have another, primary source of income so that the household is not dependent on their earnings or if they are the sole income source for their household
  • whether their editorial business is profitable year after year
  • what their local cost of living is in comparison to yours
  • what debts, if any, they have that would affect the amount they charge

The list can go on but you get the picture. You are taking advice for your business from someone whose circumstances you do not know.

General advice about how to calculate what you should charge doesn’t require in-depth knowledge of the person offering the advice — but advice on precisely what to charge does. It matters greatly whether the person offering the advice runs a business that loses money year after year or turns a large profit. It matters greatly whether they work 25 hours a week for 40 weeks a year or 35 hours a week for 50 weeks a year. And it matters greatly whether what they earn is supplemental income on which the household is not dependent for survival or their income is the only household income and its absence would jeopardize survival.

In other words, you need to know your business’ health and their business’ health.

A healthy business is one that is satisfactorily profitable. The profit may be $1 or $100,000 — the number that satisfies you is personal to you. But profitable it must be; it cannot be costing you money to be in business.

So we come back to the fundamentals of the required Effective Hourly Rate (rEHR) and the desired Effective Hourly Rate (dEHR). You need to know your rEHR before you can accept advice to charge $x/hour or that $x/hour is the “going rate.” Even if $x is truly the going rate, what does it matter if by charging $x/hour you do not earn enough to be profitable?

When assessing your business’ health, you need to have all your data at hand. You need to know, for example:

  • how many hours and weeks of work have you averaged over the past few years
  • the likelihood of your being able to maintain that amount of work over the coming year
  • how much you owe others
  • your living expenses
  • how much you need for a rainy day fund
  • your costs of doing business (e.g., marketing, internet access, computer hardware and software)

With this information, you can calculate your rEHR, which represents the minimum amount you can earn per hour to support your lifestyle. This number is fundamental to many business decisions you need to make, starting with whether you can afford to continue editing space opera novels for independent authors and ending with figuring out how to expand your business through marketing.

If your rEHR is high, that is, higher than you think or know the market will bear, then it will also act as an impetus for you to devise ways to make your workflow more efficient. I’ve told the story before about the origins of my EditTools macros, but I’ll repeat it here. I found that to earn my dEHR (not my rEHR) I had to either work longer hours every day or become more efficient in my workflow. The smarter way for me was to become increasingly efficient. As my efficiency grew, my work hours became fewer but my EHR grew. Eventually, I found that I could reduce my working hours by 25% yet raise my EHR so that it approached my dEHR. I was able to do this by creating EditTools macros. I invested upfront time, money, and effort so that I could repeatedly, over the long term, increase efficiency.

The dEHR is the hourly rate I would like to earn. It is not an hourly rate I can charge my clients, few would be willing to pay it. It is an EHR that is greater than my rEHR, which represents the minimum EHR I can earn to meet the costs of lifestyle. When I earn more than my rEHR, my business is healthy and profitable; when I earn just my rEHR, my business is healthy but not profitable; and when I earn less than my rEHR, my business is unhealthy and unprofitable — it is losing money and thus costing me money.

When someone online tells you that the going rate for copyediting is $25/hour and you do not know your rEHR, you do not know whether your business will be healthy, healthy and profitable, or unhealthy and losing if you charge that $25/hour. If you know your rEHR, then there is no need to ask others what to charge because you will know what you need to earn. Instead, you will need to focus on determining how to calculate your fee — hourly, page, project, word, character — to meet your rEHR and to work toward your dEHR.

It is important to think in terms of efficiency and EHR. And it is important to remember that if you charge your client by the hour, whatever you charge as your hourly rate does not change — $25/hour remains $25/hour — whereas if you charge by the page, project, word, or character, your EHR can fluctuate up and down so that the more efficient you are the higher your EHR can be.

Regardless of how you calculate your fee, the bottom line is that your business being healthy relies on your knowing your rEHR, not on what someone responds in response to “What should I charge?” or “What is the going rate?”

Richard Adin, An American Editor

September 12, 2016

The Proofreader’s Corner: Testing Editorial Pricing Models

by Louise Harnby

(Editor’s Note: This is Louise’s last essay for AAE. Because of demands in her business, she has found it increasingly difficult to find the time needed to write the high-quality and informative essays she has been writing since she first began contributing to AAE in 2013. All of us at AAE wish her continued good fortune and hope that sometime in the future she will be able to resume writing for AAE.)

This isn’t an essay about what one should charge. What you should, want, or need to charge to make your editorial business sustainable may be different from what I should, want, or need to charge to make my proofreading business sustainable. Rather, I’m focusing on how even experienced editorial freelancers should regularly evaluate what they are charging and how they are determining the price for a job, and whether they should introduce new pricing models that could increase their income. We’re back in the world of testing.

Tracking the data

If you don’t know what you need to earn each fiscal year (required earnings) and you don’t know what you are earning each fiscal year and how many hours you are working to achieve this income (actual earnings), you can’t evaluate whether your business is profitable or unprofitable, nor whether it is in financial growth, stagnation, or decline. And if you can’t evaluate the health of your editorial business, you won’t be able to evaluate the impact of introducing new pricing models, new services, new working-week regimes…new anything, in fact!

Data tracking doesn’t have to be complicated. I use an Excel spreadsheet to track my work schedule and earnings (a very basic template, which you can adapt for your own purposes, is available on The Proofreader’s Parlour at “Editorial Annual Accounts Template (Excel)”). Each line in my annual spreadsheet tells me the name of the client, the client type, the title of the project, the word count, the price charged, the time taken to complete the job, the dates for arrival and completion, an invoice number, the number of words per proofread per hour, and £ per hour earned.

At the end of the year, I can see at a glance my total earnings, my average billable hourly rate, and my average billable rate per 1,000 words. I like to record previous years’ totals on my current spreadsheet so that I can make quick annual comparisons. In this way, I have a macro view of my business.

I can also look at micro issues including, but not limited to, whether particular types of work are proving more lucrative than others (e.g., students vs. indie authors vs. publishers). I can see what’s working well and what’s working less well. That tells me how I might want to focus future marketing activities in order to expand the amount of work I do in the most profitable sectors.

Importantly, I track all requests to quote, so I know how much work I turn down, refer, make an offer on, and whether those offers convert into bookings or are rejected by the client. I keep a spreadsheet on my mobile phone that logs all requests from new clients. This logs the type of client (e.g., student, agency, author, publisher), the date the request was received, the type of work (e.g., thesis, book, report), and my response (offer, referral, decline). If my offer converts into a booking or if the client declines my offer at a later date, I amend the spreadsheet. Requests to work for existing clients are logged in a separate file on my PC. All confirmed bookings are entered into my annual accounts spreadsheet.

The data that you need to collect and evaluate will not necessarily be the same as the data that I need to collect and evaluate. One thing’s for sure, though – the more data you collect, the more insightful your conclusions will be.

Testing different pricing models

Even experienced editorial freelancers can fall into the trap of not testing different ways of pricing. When I set up my proofreading business, most of my work was for publishers. In the main, the publisher offered an hourly rate and a budgeted number of hours in which they expected the work to be completed. I would accept, negotiate, or decline. I became used to thinking in terms of hourly rates and this model was the one I used to build a price when I was quoting for other client types, even when I was in control of setting a price. So when a student asked me to proofread a thesis, I’d estimate (based on a sample) how many hours the job would take, and then multiply the figure by my self-determined hourly rate.

There’s nothing wrong with this type of model. Many people prefer it and believe it to be the most profitable way of working. However, it is not the only option; and even if it is the most profitable way of working for person X, it may not be the most profitable way of working for you. Furthermore, different models may yield better returns depending on client type or editorial service.

What is certain is that unless you test different pricing models, and record the data acquired during your tests, you won’t know whether model A or model B is your best choice. Here’s a breakdown of how I went about testing an alternative pricing structure.

The pretest micro view

Note that my data tracking, reviewing, and testing decisions are particular to my business. I’m a proofreader who specializes in working on book-length projects for academics and independent authors. I sometimes work on postgraduate dissertations and theses, business reports, journal articles, and promotional material. In general, my proofreading service is fairly uniform in terms of what I’m required to do. Projects rarely overlap — it’s a case of project in, project out, move on.

After several insightful discussions with a trusted colleague/friend who used a different pricing model to my hourly rate one, I decided to take another look at my data. First, I looked at my macro-level totals. These told me that my business was growing year on year. That’s all well and good, but what about the micro data?

By looking at the micro data for each client, I was able to see which client types were giving me the best value for money for every hour I dedicated to working for them. Remember that at this point I was charging by the hour. My data told me, among other things, the following:

  • When I was offered an hourly rate by publishers, I earned less per hour on average for this client type than when I charged independent authors, students, and businesses a fee based on price per hour.
  • Three publishers were outliers and were competitive with my other client types.
  • Many publishers were offering uncompetitive (for me) rates, though they were low-risk clients — long-term customers who paid on time, offered regular work, and were thoroughly enjoyable to work with.
  • I was turning down a lot of work from indie authors and students because there was no room in my schedule. Some of those slots were being taken up by the less-competitive but long-term, low-risk, much-loved publishers!

The pricing-model test

I decided to take a leaf out of my colleague’s book and test the per 1,000 words pricing structure for indie authors, students, and businesses. I created a formula in an Excel spreadsheet that uses an array (see “Guidelines and examples of array formulas”). The array is useful because it takes a large number and break it into blocks of units. Those sections can be priced differently. So, for example, one could set up an array formula such that the following proofreading prices might be generated (these are fictitious examples for demonstration only):

  • Initial 2,000 words: £18 per 1,000 words
  • Next 3,000 words: £14 per 1,000 words
  • Next 5,000 words; £10 per 1,000 words
  • Next 20,000 words; £7.50 per 1,000 words
  • Next 10,000 words; £7 per 1,000 words
  • Next 10,000 words; £6 per 1,000 words
  • Next 10,000 words; £5 per 1,000 words
  • Next 20,000 words; £4 per 1,000 words

Thus:

  • 100K-word novel = £658. Average rate per 1,000 words = £6.50
  • 40K-word novella = £348. Average rate per 1,000 words = £8.70
  • 10K-word business report = £128. Average rate per 1,000 words = £12.80
  • 2K-word children’s book = £36. Average rate per 1,000 words = £18

You could build different arrays for different client types or different services. These would reflect the different demands of the work. Fundamentally, the array formula allows you to build economies of scale into a pricing structure.

The test results

I introduced the test pricing model in August 2015. One year later, my average earnings per hour are now 40% higher. That increase is a piece of macro information that’s pleasing to note, but the micro data are worth discussing, too. My posttest evaluation of the data told me the following:

  • When I charged indie authors, students, and businesses on an hourly basis, I earned less on average than when I set the fee on a per 1,000 words basis.
  • When I set my fees on a per 1,000 words basis, I earned more per hour from businesses than from students and indie authors.
  • The business projects tended to be much shorter in length. Therefore, the total earnings per project were higher when I worked with indie authors and students.
  • All of the businesses wanted a fast turnaround, which incurred a premium rate (hence the higher per-hour earnings mentioned above) because of the out-of-hours nature of the work.

The posttest evidence-based decisions

Evaluating the micro and macro data (and talking to a trusted colleague) helped me to work out where I might have been guilty of basing my pricing structure on untested assumptions, and where there could be room for improvement. Testing, and evaluating the results of that test, enabled me to make evidence-based decisions about client focus and marketing. Personally, I prefer to have fewer short turnaround projects on my books, and a greater number of longer, but profitable, projects. That means:

  • I’ve whittled down my publishers to a those few whose rates are competitive with my other clients. That meant saying goodbye to some long-term clients whom I had very much enjoyed working with.
  • I’ve increased my promotion focus on the student and independent-author markets.
  • I now favor a price per 1,000 words model (there are exceptions) over a per-hour model.
  • Fast-turnaround work for businesses on a per 1,000 words basis is very lucrative but rarely fits comfortably into my standard proofreading schedule because of the large amount of book projects I am commissioned to work on (especially fiction). I prefer not to work out of hours so I’ve increased my out-of-hours premium levies (from double to triple) to reflect this position.

If I’d not recorded and evaluated my data, I would not have been able to evaluate the then current state of my business and identify opportunities for potential growth.

Following on from that, I’d not have been able to take actions (e.g., the pricing-model test) that would affect the future state of my business.

In my case, it’s not just the change in pricing model that impacted on the increase in my average billable hourly rate; looking at the micro elements of my work schedule and accounting information helped me to fine-tune my existing client base (e.g., publishers aren’t out of the mix — I do still accept work from a small number of competitive presses, even though they set the fees and even though these fees are based on hourly budgets; and my out-of-hours premium rates have increased).

Using your business ownership to make
choices for growth

Owning an editorial business means you have choice — choice about what to charge and how to charge, and choice about what to accept, negotiate on, or decline. What works for your colleague may be less fruitful for you. Some pricing models may work better for particular client types. And different types of editorial service may favor different fee structures.

When it comes to pricing, what you know is as important as what you charge. If you are basing your fee structure on untested assumptions, you may not be getting the best out of your editorial business. I’d recommend that we all regularly look at our work schedules and accounts in detail, evaluating the data at micro and macro levels. We should ask ourselves whether there’s room for improvement and consider testing new models (pricing, of course, isn’t the only thing we can test). In this way, we can make evidence-based decisions about how to charge, where to target our marketing, and which clients to say goodbye to and which to retain.

Louise Harnby is a professional proofreader and the curator of The Proofreader’s Parlour. Visit her business website at Louise Harnby | Proofreader, follow her on Twitter at @LouiseHarnby, or find her on LinkedIn. She is the author of Business Planning for Editorial Freelancers and Marketing Your Editing & Proofreading Business.

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