An American Editor

June 20, 2016

On Ethics: The Ethics of Ballpark Quoting — A Rebuttal

by Louise Harnby

In On Ethics: The Ethics of Ballpark Quoting, Rich Adin posed the following questions:

  1. Is it ethical for copyeditors to ever do ballpark pricing as a way to induce clients to hire them?
  2. Does the editor have an ethical obligation to not give ballpark quotes, because they can mislead a client about the real cost?
  3. If the editor gives a ballpark quote, is there an ethical limit to how much the final bill can exceed the ballpark price?

1. The ethics of inducement

Rich states: “The ballpark quote has two purposes: (1) to enable the client to comparison shop and (2) to let the editor demonstrate her price competitiveness, which means the editor — consciously or subconsciously — wants the price to look as low as possible.” Rich’s concern is that ballpark quoters use an unrealistic (low) price, based on limited information, to induce the client to hire them.

He concludes that “to give a ballpark quote for copyediting a manuscript is unethical unless the editor is willing to stick to that price — that is, the quoted price is the maximum the client will have to pay. It is unethical for an editor to angle to be hired by using ballpark quoting to demonstrate the editor’s price competitiveness.”

I think Rich is missing the point regarding how the ballpark price works.

The ballpark price is just that — a ballpark, an approximation. It’s a rough guide, a preliminary quick quote that enables my potential client to decide whether they’d like to continue the discussion during the comparison-shopping stage.

It certainly is not binding — and it can’t be precisely because it’s a ballpark price based on limited information. It cannot be the maximum price a client will have to pay at billing stage because I haven’t seen the files. In order to provide the client with a price that will appear on the invoice, I must acquire this information. And that’s exactly what ballpark quoters like me do. We start with the ballpark price, then move onto a conversation, and then evaluate the project and firm up the parameters of the project; finally, we provide a confirmed quotation. That confirmed quotation, not the initial ballpark quote, is the price to which, ethically, we must be willing to be held.

In my view, the ballpark quote has three purposes: (1) to enable the client to comparison-shop; (2) to save me time by eliminating lengthy discussions with potential clients whose budgets are below my fee scale; and (3) to enable me to start a conversation with a potential client (whose budget is in accordance with my fee scale) about what the project looks like, what’s required, and what the true cost will be.

Rich states: “I am aware of very few editors who will quote a price to which they are willing to be held without having the manuscript in hand.” I agree. And if the editor supplied a ballpark quotation and, after that, failed to take the opportunity to evaluate the project before agreeing to be hired, completed the project, and submitted an invoice that was higher than the ballpark quote, justifying that higher fee on the grounds that more work had been required than anticipated, yes, that would be an unethical scenario. But it’s also an absurd scenario. That’s not how ballparking works.

Ballparking isn’t an alternative to confirmed true-price quoting — it’s an additional preliminary stage that occurs beforehand. It’s an invitation to a conversation that may end up in a confirmed booking or may end up with either party deciding to walk away before hiring takes place. It’s not unethical to invite a conversation.

2. The ethics of realistic quoting

In the second part of his analysis, Rich says: “The truth is that ballpark quotes for copyediting are deceptive and are structured to mislead the client as to the ultimate cost. Editors will not deliberately overquote (i.e., quote a price the editor knows will be higher than the real price), because the competition does not overquote.”

I reject this statement that ballpark quotes are designed to mislead. As I said above, the ballpark quote is designed to provide an approximate price that will enable the potential client to ascertain whether it’s worth spending additional time having a more detailed conversation about what’s required.

Editors (I use the term broadly) who have tracked their project data carefully will have a bank of rich data on which to base their ballpark quotes so that the prices are realistic (particularly if they’ve followed Rich’s invaluable advice about determining their effective hourly rates).

The proofreading I carry out for publishers (usually on copy-edited page proofs) is rather different from the so-called proof-editing I provide for independent fiction authors. The proof-editing I do for independent fiction authors is rather different from the proofreading I do for students whose second language is English. I have 5 years’ worth of Excel spreadsheets containing nearly 500 projects. With only a little filtering and formula-creation, I can tell you how long it takes me on average to proofread a 20,000-word politics dissertation, proof-edit a 40,000-word fantasy novella written by a self-publishing author, and mark up a 90,000-word PDF of economics page proofs supplied by a publisher. Since I know what I want to earn, working out the price isn’t that difficult. I’ve developed a little phone-based Excel tool with an array-based formula that can work out a price that takes into account the type of client, the type of project, and the economies of scale for larger projects. One of my Canadian editor colleagues has a website-based widget that works in a similar way.

Here’s the thing. My ballpark prices are pretty darn accurate. So when I provide a ballpark price (based on very little information) for proof-editing a novel for an indie author, and that author decides to get in touch to continue the conversation, and ends up sending me the project file for review, I’m almost always able to say, “Yup, the price I gave you will stand as a confirmed price. Let me know if you want to make a booking.”

What if the project needs a different level of intervention than anticipated and therefore requires a price that is higher than the one I ballpark quoted? Well, remember, the client still hasn’t hired me. So I can tell the client that, having now reviewed the project in detail, I feel that the service I was asked to ballpark quote for (e.g., proofreading) is not appropriate. If I supply the service that I think is required (e.g., copyediting), I can explain why, and provide a revised realistic quotation, or I can guide the client toward alternative suppliers. Either way, we’re still having a conversation — both parties can still walk away.

Here’s another thing. I don’t underquote. I don’t overquote. I just quote. I know what I want to earn. Either the client’s budget is within the range of my fee scale or it’s not. If it is, the ballpark quote might turn into a conversation that in turn becomes a confirmed booking further down the line. If it isn’t, the client and I won’t get beyond the ballpark quote — she asked for a price. I gave her a price. She considered it too high and she never contacted me again. Or she thanked me, told me it was too high, and said she was going elsewhere. Or she thanked me, said it was too high, and asked me to lower my price (and I said no).

I think that it’s unethical for an editor to provide a quotation that she knows is unrelated to the ultimate cost and then accepts a commission on the basis of that misleading quote. I also agree that it would be a public relations disaster. But the notion as applied to a ballpark quote is unrealistic precisely because it’s premised on the assumption that the ballpark quote is given instead of a review-based confirmed quote, rather than in addition to it.

I have a price. The client has a price. Either we fit or we don’t. The ballpark isn’t about misleading the client into hiring me for work that I’ll later charge a higher price for. It’s about enabling the two of us to start talking or start walking. That’s not unethical; it’s sensible.

3. The ethics of the final price

The final section of Rich’s essay asks: “Is there an ethical limit to how much the final bill can exceed the ballpark quote?” His answer is, “Yes, there is. That limit is zero; clients should not be asked to reward editors for their unwillingness to bear the burden of underquoting.”

I disagree. Again, Rich’s view is based on a misunderstanding of how editors like me use, and justify using, a ballpark-quoting mechanism. My final bill is not based on a ballpark quote, and I suspect that’s the case for most ballparking editors. Rather, my final bill is based on a confirmed quote that I provided after the ballpark quote.

Just so we’re clear — the process works as follows. The client contacts me to ask for a ballpark quote. I provide one. If we’re on the same page financially, the client and I then begin talking. As part of our more detailed conversation about what’s required, I ask for a substantial sample of the work (perhaps even the whole project). If all goes well, we firm up a price (mine usually stays the same as the ballpark, but it could change). The price that’s signed off — one that’s realistic and based on work that both parties agree is required ­— is not the ballpark price, but the follow-on confirmed price.

Is there an ethical limit to how much the final bill can exceed the ballpark quote? No, there is no limit because the final bill is on a different price, one that was agreed after the ballpark quote. Of course, if the editor agreed to be hired for a project without asking for any detail about the project and without asking to see what the project entails, and offered only a ballpark price, and the client accepted this ballpark price but didn’t realize that it was still approximate, and then the editor billed a higher fee on the basis that the price was only a ballpark, then that would be unethical!

The scenario is surely unrealistic, though. It’s unfathomable that I (or any other ballparking editor) would end up in such a situation. I’ve never had a client say, “Hey, Louise, I’d like to confirm a booking. Take your time. Do what you need to do. Money’s no object. Whatever it costs is good with me!” They always want a confirmed top-line price. (I have previously tested offering a confirmed ranged price — one that came with a guarantee that the invoice would be between £X and £Y — but I’ve abandoned that now).

Even if the client was prepared to agree to such approximate pricing terms, I wouldn’t agree to them! It’s a recipe for disaster (as Rich pointed out). I don’t want to waste a minute of my working day arguing with a client over the invoice I’ve submitted because it’s higher than the one-and-only approximate price I’d provided. Such an invoice may as well have “Don’t rehire me” emblazoned on it! I don’t confirm a booking from any client without knowing the clear parameters of a project, and without having discussed and agreed to those parameters (including price) beforehand.

Summing up

The ballpark price is an approximate price. It’s a conversation starter, another (initial) stage to the quoting process. It’s a way of increasing customer-engagement by enabling the client to comparison-shop quickly and efficiently. And for those of us with plenty of work offers, and a determination to reduce the amount of time we spend engaging with people whose pockets don’t fit our fee scales, it’s a time saver. The ballpark price is an effective tool that can, and I believe should, be tested by those editorial freelancers who have the necessary data to do so with accuracy. Those that don’t have that data should start collecting it.

Rich is right that behaving unethically is a PR disaster — that applies to pricing as much as to any other aspect of business practice. But there is no reason why the ballpark price has to be unethical as long as it’s used appropriately — as the starting point of the pricing discussion, which is exactly how I use it, and how every other ballparking editor I know uses it.

Can ballpark pricing ever be used unethically? Of course it can, just as confirmed quotations can be handled unethically. It can be handled honestly but badly, too, in the same way that other elements of editorial business practice can be handled honestly but badly. It would be wrong of me to deny that there are unethical and poor practices in our industry. But there is much good practice too. And where there is bad practice, I’m inclined to blame the individuals, not the mechanisms.

The discussion reminds me of scissors. In the hands of a tailor, they’re a superb tool; in the hands of a toddler, care and supervision are required; in the hands of a torturer, they’re a dangerous weapon.

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.

June 15, 2016

On Ethics: The Ethics of Ballpark Quoting

In The Business of Editing: Ballpark Quoting for Copyediting, I discussed the logistics of giving a ballpark quote. The essay raised these questions, but left the answers to another essay:

  • Is it ethical for copyeditors to ever do ballpark pricing as a way to induce clients to hire them?
  • Does the editor have an ethical obligation to not give ballpark quotes because they can mislead a client about the real cost?
  • If the editor gives a ballpark quote, is there an ethical limit to how much the final bill can exceed the ballpark price?

This essay discusses these questions.

Is it ethical for copyeditors to ever do ballpark pricing as a way to induce clients to hire them?

What is the purpose of ballpark quoting if not to induce a client to hire you for a project by demonstrating to the client your price competitiveness? No other purpose is served by quoting. The client wants to compare your price to the prices of other editors. Recall that the information a client needs to give is limited in this situation. (If you ask to see the manuscript before providing a quote, you are not giving a ballpark quote. A ballpark quote, by definition, is a very rough guess as to the expected cost based on very limited data.) The provided information is generally the word count, the subject matter/type (e.g., children’s nonfiction), plus the hoped-for schedule.

The ballpark quote has two purposes: (1) to enable the client to comparison shop and (2) to let the editor demonstrate her price competitiveness, which means the editor — consciously or subconsciously — wants the price to look as low as possible. And there’s the rub. The ballpark price may well have no close relationship to the ultimate, true price, and that gap between the ballpark quote and the real price will be a result of multiple factors, not the least of which is the editor’s desire to be hired.

It is certainly ethical to quote a price for a project; editors do that every day. But there is a great difference between quoting a price when the editor has all the necessary information to form a solid quote and making a quote when the editor has such minimal information that she knows beforehand that the ballpark quote will not withstand the test of editing.

I am aware of very few editors who will quote a price to which they are willing to be held without having the manuscript in hand (or at least a satisfactory portion of the manuscript). Yes, editors do have agreements with clients that act as a limit, but even then whether they accept or reject the project requires seeing the manuscript. The key to ethicality, I think, is to quote a price to which we are willing to be held. We are all willing to quote a price to which we will not be held.

In my view, to give a ballpark quote for copyediting a manuscript is unethical unless the editor is willing to stick to that price — that is, the quoted price is the maximum the client will have to pay. It is unethical for an editor to angle to be hired by using ballpark quoting to demonstrate the editor’s price competitiveness.

Does the editor have an ethical obligation to not give ballpark quotes, because they can mislead a client about the real cost?

As noted, the purpose of ballpark pricing is to show that you’re not overpriced in the editing marketplace, not to place a ceiling on what the client will ultimately be billed. The lack of a clearly stated ceiling can mislead a client, even if the quote is accompanied by disclaimers (caveats, if you prefer).

The disclaimers are a problem in and of themselves because they both delegitimize the ballpark quote and fail to stand out in the same way as the price number does.

Of what value is a quote of $500 accompanied by a disclaimer such as the following?

Price subject to change once the manuscript is received and reviewed for clarity of writing style and amount of editing work actually required. Price also subject to change based on what editorial tasks client requires as part of the copyediting; the extent and number of references, tables, and figures; the style to be applied; …

The disclaimer’s list can go on and on to cover all contingencies, and it needs to go on and on to avoid locking the editor into the ballpark price. (It is worth remembering that if a disclaimer is left unstated, the client will, justifiably, assume that it is inapplicable.)

But think about how we act as consumers. When we ask for a quote for repair work or a product we want to buy, our minds focus laser-like on the number we are given, not on all of the caveats that accompany the number. Should the work be done and the number then go up, we argue that we were quoted $X and shouldn’t have to pay more. (Of course, if the final number is less than $X, we think we are getting a bargain and do not argue to pay the higher quote price.) Studies show that the conditions get lost and the consumer only hears — and remembers — the quote number. The consumer loses the idea that the quote number was intended to be ballparkish and thus subject to upward revision as more foundational data is accumulated.

The editor who insists that the quote was only ballparkish is fighting a losing public relations battle. The client will tell everyone that the editor uses deceptive practices. The truth is that ballpark quotes for copyediting are deceptive and are structured to mislead the client as to the ultimate cost. Editors will not deliberately overquote (i.e., quote a price the editor knows will be higher than the real price), because the competition does not overquote; the competition often underquotes in hopes of getting hired. Editors know that in many cases the ballpark quote for copyediting is an underquote, which is why they attach disclaimers.

If the editor expects the ballpark quote to be accurate within, say, 10%, then the only disclaimer needed is to say that “the final price might be as much as, but no more than, 10% higher than the quote, based on the actual time and effort required to copyedit” or “the final price will not exceed the quote.” But editors rarely attach one of these disclaimers to the ballpark quote.

Because editors know, or should know, that ballpark quotes are misleading, how can it be ethical to provide such a quote?

If the editor gives a ballpark quote, is there an ethical limit to how much the final bill can exceed the ballpark price?

We all know that editors will disagree about ballpark pricing; their opinions on its ethicality are largely based on their own practice. The editors who think it isn’t unethical give ballpark quotes (or approve of giving ballpark quotes). Each of us is smart enough to rationalize that the ballpark quote we give clients is ethical even if we believe that the quotes given by our competitors are not.

Which brings us to the question of limits to underquoting, or the limit to how much the final price can exceed the ballpark quote. Copyediting has so many variables, it is, in my view, impossible to give an accurate or nearly accurate ballpark quote.

When I am asked to provide a quote, I always provide a “firm” quote, never a ballpark quote. But if I were to stray outside my subject matter areas and types of clients — for example, were I to wander into fiction editing and dealing directly with authors — my quotes would be “softer” than the firm quotes I currently give. Because my experience dealing directly with authors and copyediting fiction is limited, it is likely that any quote I would give would be an underquote. Who should bear the burden of that underquoting?

I am of the conviction that the editor who makes the quote should bear that burden. If editors have sufficient experience to give a firm quote, they should stand by the quote and use it as a learning tool for future quotes. If they have the experience but deliberately choose to underquote, then they should be held to the quote, as there is no legitimate reason to have underquoted.

If the client has provided all the information asked for, then it is the editor who should bear the burden of an underquote, not the client. If the editor failed to ask for vital information, that is not the client’s fault. If the editor failed to define what she meant by copyediting, that is not the client’s fault. The bottom line is that when an editor is asked for a quote, it is the editor’s responsibility to ask for all the needed information to calculate that quote; it is not the client’s responsibility to guess what information the editor needs. It is also the editor’s responsibility to not give a quote in the absence of essential information. And it is the editor’s responsibility to take the information and create an accurate quote. The only responsibility the client has is to provide the information that the editor asked for.

Note the balance of responsibilities: All but one falls on the editor’s shoulders. Consequently, if a quote is an underquote, it is the editor’s fault. The editor should bear the burden of the underquote, and the quote price should be the maximum price that the client pays.

Is there an ethical limit to how much the final bill can exceed the ballpark quote? Yes, there is. That limit is zero; clients should not be asked to reward editors for their unwillingness to bear the burden of underquoting. The client who asks for a quote is asking the editor to set a price; a professional editor does so and tacitly agrees that the quote price is the maximum price the client will pay. To do otherwise shifts the burden of underquoting from the editor to the client, which is both unethical and, in my view, impermissible. The one exception is when the quote has a disclaimer like that discussed earlier (“the final price might be as much as, but no more than, 10% higher than the quote, based on the actual time and effort required to copyedit”).

Richard Adin, An American Editor

June 8, 2016

The Business of Editing: Ballpark Quoting for Copyediting

In a recent essay found on “The Proofreader’s Parlour” (see Quoting for the Customer — Ballpark Prices and the Editorial Freelancer: Part 1 and Part 2), Louise Harnby discussed giving prospective clients ballpark quotes via her website (Get a Proofreading Quote). Although the essay was intended to be broadly applicable, I think it is most applicable to proofreading.

The underlying premise is that with her years of experience, Louise can give a fairly accurate, albeit ballpark, quote without any information other than the type of project (“suspense thriller, self-help psychotherapy book, or children’s book,” etc.), the deadline, and the word count. I admit I haven’t done proofreading in many years, so I will concede that Louise, who is a very experienced proofreader, can give an accurate ballpark quote for proofreading with just that basic information. In my view, this system does not work as well for copyediting. (However, see my essay The Business of Editing: To Post or Not to Post Your Fee Schedule?)

Copyediting is less mechanistic than proofreading. (I am not implying that proofreading is wholly mechanistic; I’m just saying that it is more mechanistic than copyediting.) The copyeditor has to decide whether OK or okay is the correct form; the proofreader has to make sure that, whatever the decision, it is consistently applied. The copyeditor has to decide whether Canal Street runs north–south or east–west; the proofreader needs to make sure that whichever direction it runs, it does so consistently.

I do not wish to be seen as trivializing the role of the proofreader, because the proofreader does play a very important role in the editorial process. But I want to emphasize that the decisions that the copyeditor makes are not remade by the proofreader; the proofreader is the enforcer of those decisions and catches the copyeditor’s mistakes when applying those decisions. (The proofreader does much more, but this essay is not intended to exhaustively describe the differences between copyediting and proofreading.)

Consequently, in determining a price for a project, a copyeditor needs to consider how well written the manuscript is; the proofreader expects to receive a decently written manuscript because it has already been copyedited. But how can the copyeditor determine the manuscript’s quality of writing from the minimal information outlined above and then give a reasonable ballpark quote?

Complicating the quote process are the subject area, the length, and the schedule for the project. Granted, these complications would be relatively easy to take into account if it were not for the question of how well written the manuscript is. A professional editor might be aware that, very broadly speaking, she can copyedit six pages an hour of biographical text that is reasonably well written, and she therefore knows that if a manuscript is 240 pages, it will take roughly 40 hours to copyedit. Thus, if the deadline is 2 weeks, the editor can surely say (1) I can meet the deadline and (2) because I charge $35 an hour, the price will be $1,400. Except that the editor does not know whether there are any footnotes, any references that need verification, any facts that need correction or questioning, or any of myriad other things that will affect the time required. Consider this: What is the effect on pricing of having to look up hundreds of acronyms because the author hasn’t defined them? Or ask yourself what the effect on pricing is of having 300 references that need to be in APA style but aren’t. For example, they should be in text this way: (Anderson, 2007); in the reference list alphabetically; and in the following form:

Anderson, A. (2007). Finding werewolves in prehistoric literature. Journal of Integrity & Nonintegrity, 35, 201–207.

Unfortunately, these references have been submitted to you in AMA style — in text as a superscripted number in number order and in the reference list as

Anderson A: Finding werewolves in prehistoric literature. J Integ Noninteg. 2007;35:201–207.

And what if the references have to be renumbered or alphabetized? (For additional discussion, see The Business of Editing: Journals, References, & Dollars, Business of Editing: Dealing with Reference Renumbering, and The Business of Editing: Uniqueness & Being Valuable to Clients.)

Ballpark quoting, as we can see, hits the copyeditor with a serious problem: it doesn’t permit or provide for sufficient information before the editor offers up the quote. The resulting number is likely to be far from even ballpark status — way past the left field bleachers.

The editor needs to get more information, but the more information you gather about the project, the less ballparkish the quote will be. And where do you draw the line? Is it sufficient to know that there are references? Or do you need to know how many? Does it matter whether there are both references and footnotes?

Of course, much depends on the subject areas of the books you copyedit. If you work on only romance fiction, it may be possible to define a small number of parameters to produce a fairly accurate ballpark quote, whereas it might be nearly impossible to do so if you only copyedit biographies.

There is, moreover, another problem with ballpark quoting: the way clients often focus on the number — the ballpark quote.

The way ballpark quoting works is that a client asks for a quote to copyedit an 80,000-word spy novel that needs to be completed in 2 weeks, and the editor nearly instantaneously replies with a price (recall that the price is quoted with manuscript unseen). This number becomes a fixation point. It is the number against which quotes from other editors will be compared; more importantly, it becomes the price that you are expected to not exceed.

Ballpark quoting is often the first step in the client–editor relationship and the first contact of the editor by the client. Editors think that once a client has retained them, they can discuss what the client wants and what they as editors will do in step 2, and then they’ll be able to adjust the price accordingly. Sometimes this happens, but often it does not. The editor often finds the client unwilling to budge, unwilling to go higher than the ballpark quote. The problem arises because the editor and the client aren’t speaking the same language. That is, neither defines copyediting in the same way.

Once the editor encounters resistance, she has lost the opportunity to educate the client about why she should be hired and at what price. Ballpark pricing puts quoting to the forefront. Yet what editors need is for our clients to understand what we will and will not do within a certain time frame for a particular price. (For further discussion, see, e.g., The Business of Editing: Saying Yes, Then No, Business of Editing: Schedules and Client Expectations, and The Business of Editing: Keys to a Project Quote (II).)

The question then becomes, Is it ethical for copyeditors to ever do ballpark pricing as a way to induce clients to hire them? The follow-up questions that need to be asked and answered are these: (1) Does the editor have an ethical obligation to not give ballpark quotes because they can mislead a client about the real cost; and (2) if the editor gives a ballpark quote, is there an ethical limit to how much the real cost can deviate upward from the ballpark price? The discussion of these ethical questions must be reserved for another essay.

There is an important difference between ballpark quoting and having a set fee that is applicable no matter what the complexities of the manuscript are. For example, I have a contract with a major publisher to provide copyediting for a set per-page price. That price does not change; nor does how it is calculated change. I do, however, reserve the right to decline particular projects. If I accept the project, the client knows the fee that will be charged. This is different from ballpark quoting — there are no contingent factors that can affect the final price.

Do you give ballpark quotes for copyediting? How do you deal with the unknowns? Do you limit the amount that the quote can rise?

Richard Adin, An American Editor

March 30, 2015

Business of Editing: Does Market Perception Matter?

In recent discussions about pricing of services it was suggested that perception of worth was an important factor in the battle to obtain higher fees. It was suggested that by setting pricing too low, potential clients would balk at hiring the freelancer because of the perception that the freelancer cannot be very good, which perception is based solely on the low price. The advice then being that it is better to turn down low-priced work than to give the market opportunity to misperceive the worth of your services and your skill level. (See “The Real Problem with Low Freelance Rates” by Jake Poinier for the original argument.)

At first blush, the argument appears to have value, but after thinking about it for a while, I think the argument of market perception is a very minor matter.

We need to begin at the very beginning: How does a freelancer know what is too low a price to charge? No discussion regarding pricing can have any merit if this riddle is not solved first. We have had this discussion before, and the resolution begins with knowing your required effective hourly rate (rEHR). (For that discussion, see the multipart series “Business of Editing: What to Charge.”) In the absence of knowing your rEHR, it is not possible to know whether the price you are contemplating charging a client is too low.

The second prong of the answer lies in knowing what price is the general price for the services required in your market. Each market has its own pricing scheme. Editing reports that are going to be submitted to a government agency is likely to be more expensive for the client than the editing of the novel that will be self-published. And working for a packager will carry a different market price than working directly with researchers seeking to polish an article for journal publication.

The third prong is delineation of the services. Too often we use a general term, such as copyediting, and assume that everyone understands the term to mean exactly the same thing. Of course, the reality is much different and you cannot compare my copyediting with your copyediting unless we have come to a mutual agreement as to what copyediting entails. We have to compare apples with apples, and even then, we need to compare cooking apples with cooking apples rather than cooking apples with eating apples.

A fourth prong is also fundamental to the answer: Under what conditions are you working? By this I mean are you in a position to turn down low-paying work and hold out, perhaps for months, until something comes along that meets the definition of “not too low paying”? In other words, are you the sole source of income in your household? If not, does the other person in the household earn enough that you can sit idly by waiting?

This fourth prong is the most often overlooked prong when discussions about pricing occur. It is easy if you have a lot of money in the bank or a spouse who has a secure job and earns enough to pay all the bills; it is not so easy if your income is the primary (or lone) income in the household. Yet when the argument about market perception is made, it is rarely disclosed why the argument’s author believes he can take the high road.

These prongs (and others not mentioned) are key to understanding why it is easy to make the market perception argument but not so easy to abide by it. Yet there is an even more fundamental flaw with the market perception argument, which relates to how many of your clients actually view the market that way. That is almost an unanswerable. In the absence of actually getting a prospective client to tell you why you are not getting a particular project and telling you honestly, measuring market perception’s effect on your business is nigh impossible.

My experience among my market is that I lose work because my prices are too high. In 31 years of editing, I have never had a prospective client tell me my prices were too low; only that they are too high. And when you peruse the various forums, you rarely see someone say that they didn’t hire an editor because the editor’s price was too low; invariably, the reason is that the price is too high. (When I do read a comment questioning pricing that is too low, with a little investigating I discover that commenter is a colleague, not a buyer of services.)

Is this to say that there aren’t clients who do not react negatively to low pricing? No, because I have no doubt there are such people. But the key is that they are not in my market and that is the market with which I need to be concerned.

There is another fundamental flaw with the market perception argument. The argument rails against low pricing but never identifies what is correct pricing or the maximal pricing. It is always couched in low pricing terms (which also is never really identified — is $25 an hour too low? How about $35? Or $50? Or $100? Or is $50 too high and $35 both correct and maximal?), which leads us back to where we began: How can pricing be judged if we do not know our rEHR?

And equally important: How can our pricing be judged if our EHR remains unknown?

I have made this argument numerous times yet still colleagues talk in terms of too low pricing. The key is not the pricing but what you can turn that price point into. If your rEHR is $20 and your EHR is $40 and your price point is $2 per manuscript page, is your price point too low? I think not.

One other point about the market perception argument. It is always couched in terms of how clients view you but is really based on how colleagues view you and the desires of colleagues. I think we would all agree that high-quality editing is a very valuable service. I know that we could come to an agreement as what is a fair rate that every editor should minimally charge. I also know that we can all agree that some colleagues charge too little for their editorial work. But when we make these agreements they are made base on our desire to be better compensated for the work we perform.

What we want is for everyone else to adhere to a standard we impose so that we can be part of a rising compensation tide. That is, the market perception argument is not based on what is good for you, but on what is good for me. And that is the ultimate flaw of the argument: the lack of agreement as to what is good for me.

Regardless of how you come down on the validity and worth of the market perception pricing argument, in the absence of knowing your rEHR and your EHR and understanding your market, it is not possible to determine where your pricing fits in the market perception scheme.

Does the market’s perception of your pricing affect your market’s view of your skills? Do you agree or disagree with the market perception argument. Do you know your rEHR and EHR?

Richard Adin, An American Editor

September 10, 2014

The Business of Editing: The Pride of Price

Over the past several months I have “listened” to discussions of pricing and I have also received numerous applications for employment that include statements of minimum expected fee. What I have noticed about all of these discussions and applications is that there is a wide gap between market valuation and personal valuation.

Just one example from an application: The applicant expected to be paid a minimum of $50 per manuscript page for editing. Just one example from a discussant: The discussant believed her editing was worth not less than $85 an hour.

In neither instance do I think that it is impossible for their services to be worth the price they want. What I do think, however, is that (a) the market will not pay that price and (b) they have not provided sufficient justification for that pricing. BUT, more importantly, they have imposed pride of price rather than viewed the market, determined what the market will bear, and figure out how to convert what the market will bear into what they think their service is worth.

Editors are like most professionals: Because we view ourselves as highly skilled professionals, we value our services at prices we think are commensurate with our skills. All of us do this, myself included. Yet some of us recognize that the market will not and cannot value our services the same.

I have, on occasion, asked these editors how they justify whatever price they have determined their services are worth. I have yet to receive a well-reasoned, carefully mapped out justification. We know that, for example, the grocery store justifies the price of a can of tomatoes on the cost to the store for the can, the store’s overhead attributable to the can, and a percentage for profit, all tempered by what the store’s competition charges. Professionals can’t do this same objective analysis for myriad reasons, none of which do we need to address here. It is enough to say that pricing is an art not a science for the professional.

Yet it is this pride of price that, I think, hinders many colleagues from finding financial success. Too many colleagues set an unrealistic price, based on what the market will bear, and are not flexible enough to work for less — as one colleague, told me, “Why insult myself?”

As you have guessed, my view is different. I, too, think my services are very valuable and were I to place a dollar figure on their value from which I would not deviate, I would rarely work. The market in which I move simply does not value editorial services similarly. Consequently, I have placed greater value on having sufficient work to keep me fully occupied throughout the year. In other words, I would rather have sufficient work for 52 weeks at a rate that pays my bills and generates a profit than to have work for only a few weeks a year at a rate the recognizes the value of my skills.

As we have discussed numerous times before, I accept the market rate and work to figure out how to convert that market rate to an effective hourly rate that exceeds my requirements. (For those unfamiliar with the effective hourly rate concept or who would like to refresh their memory, do a search on AAE for “effective hourly rate” and/or begin with this essay: Business of Editing: What to Charge (Part I).)

I do not let pride of price interfere with business sense.

This always starts a heated discussion about pricing that revolves around these statements: Make your price too low and not only do you not earn a living but you make it harder for everyone else to charge a more realistic price. Never lower your price: Every year raise your price. Never accept less than you are worth.

First, none of these arguments are sound. They are emotional arguments that are not evidence-based. Second, from a business perspective they are not rational arguments, again because they are not evidence-based. Third, they fail to account for each person’s individual circumstances. It makes a difference if your editing income is the sole income that supports a family of six or is “play” money that allows you to supplement your day-job income so that you can take monthly vacations.

But it is the lack of an evidence basis that is the fatal flaw in these arguments. There is no evidence that any of the arguments can withstand scrutiny — or, more importantly, that they are of any intrinsic value.

Louise Harnby wrote a wonderful essay at her blog, The Proofreader’s Parlour, titled: “I’m a newbie proofreader – should I charge a lower fee?” Her article is well-worth reading for the insights it provides. Alas, I think she omitted the essential answer, which is the need to determine what rate is needed to meet one’s financial obligations and to figure out how to meet that needed rate when the market won’t bear it forthrightly. It matters not a whit what colleagues charge; what matters is what you can charge in your market and can you make that rate a profitable rate. I wrote in my comment to Louise’s article: “You could be the greatest editor of all time — the one that dozens of biographies will be written about — but it matters not one whit if you need to earn $100 an hour but can only manage to earn $25. The best starve as readily as the worst.”

The pride of price is a deadly trap. I know editors who are underworked (in the sense that they are not working every day and wish they were) who could be working more except for that pride of price. This is not to say that there is not a minimum price below which one should not go; there is such a price, but that price should be determined not by pride but by hard calculation that there is no way to convert a fee below that price to a rate that meets one’s needs.

As I mentioned earlier, I prefer to work year round. I know what pricing my market will bear and I can accept that pricing because I can convert it to meet my needs. That pricing is less than I think my services are worth, but I look at the broader picture — over the course of a year rather than over the course of a single project. I recognize that on an individual project I may lose money (in the sense that I do meet my needs), but that doesn’t factor into whether I will take on a project (see The Business of Editing: The Rule of Three). My decision is much more influenced by the number of projects I can expect over the course of the year, because experience has taught me that other projects will more than makeup for the losing project.

Pride of price requires one to focus narrowly on each individual project; meeting one’s needed rate allows for the more expansive view.

What do you think?

Richard Adin, An American Editor

December 2, 2013

The Business of Editing: Standing One’s Ground

There is nothing I like more than to be overwhelmed with offers of work. There is nothing I dislike more than having been offered work and having to turn it down.

Recently, I had two offers that, had I looked no further than the gross amount of money I would receive, I would have accepted and would have turned into nightmares. What looked good on the surface was very bad for me underneath. And so I had to choose whether to stand my ground and insist on “thanks, but no thanks” or accept the work.

The first offer was perfect in every way but two. I had done similar projects before and so already knew what was expected. The price was acceptable based on my past experience with this type of project. The bugaboos, however, were schedule and language.

I am an American editor. My skillset is geared toward American English. Asking me to “translate” from British English to American English is fine; it is certainly something I can do. But to ask me to edit in British English, regardless of the amount of money being offered, is to ask me to do something I cannot.

I am aware of my limitations. Every successful and professional editor has limitations and is aware of them. I know that I do not have sufficient familiarity with British English grammar, spelling, structure, usage, and idioms to undertake a project that requires application of British rules.

The second bugaboo with this particular project was schedule. I was asked to do this project on a Saturday; the due date was the following Friday. The problem was that the week in question was Thanksgiving week, which meant that only Monday and Tuesday were available workdays — my office was closed for the holiday the rest of the week.

The client, to my pleasure, was persistent, but the reality was that I was not going to cancel long-ago-made plans for the holiday for my normal fee and I was not going to agree to work that I could not assure my client I could do professionally and successfully.

I tried to explain to the client that professional editors are generally busy and cannot simply set aside work for other clients that is also subject to a schedule, especially not for the standard fee. I also tried to get the client to understand that my language limitations are real limitations that if ignored could and would reflect badly on both of us.

With effort I convinced the client that I was not the right person for the job and that even if I was the right person, I couldn’t do it within the needed schedule. I believe that one difference between a professional editor and a nonprofessional editor is that a professional editor knows her limitations and will not let either a client’s cajoling or proffer of money induce her to step over that line. The professional has pride in her abilities and her work product — her reputation — and is unwilling to jeopardize it. So, I stood my ground and turned down this work.

The second opportunity I passed on was more problematic. In this instance, I was well-suited to the task and the schedule was one that I could work with. The problem was a lack of balance. We have discussed balance in prior posts, including “The Business of Editing: Expectations.”

This offer had a somewhat different history. There were three parties involved: myself, my client, and my client’s client. The saga begins with the relationship between my client and their client. My client was asked to bid on certain work. It decided to bid based on its doing the editing in-house. After doing some of the editing, it sent completed work to its client for review. Unfortunately, the review was not positive, the bottom line being the client’s client suggesting that the client needed to find more skilled editors to do the work.

This was a rare instance when my client did not have the in-house expertise to do the editorial aspects of the project; however, this project should have been earmarked for outsourcing from the beginning. That it wasn’t created the problem my client now faced: My client bid an editing price that was far too low for the type and amount of work involved. When they came to me, my price was nearly five times that my client had bid and that was accepted by my client’s client.

Unfortunately, I cannot lower my price enough to come close to what the original bid price was. The demands are simply too great. Ultimately how this will be resolved remains to be seen, but there are several lessons to be learned.

The first lesson is to be sure that you understand exactly what demands are going to be made on you before you price a project. In this case, I asked to see already edited material, knowing that I would see what edits were made and what the reviewer thought of those edits. Even in the absence of seeing that edit of an edit, I was familiar with what my client’s client would expect because I had done this type of work for my client’s client in the past and stopped doing it because there was no balance between demands and pay.

The second lesson is to be certain that you are capable of doing the work. To say that I have edited Roman history many times so therefore I can edit this Roman history is to ignore the unique features and demands of each project, author, and client. A project needs to be evaluated on many levels before it is priced and accepted.

The third lesson is to make sure that the quoted price is sufficient to earn you a profit even if some snags are hit. There is no sense being in business if you cannot make a profit.

A fourth lesson is to be ready, willing, and able to say no and to do so firmly. I understand the argument that it is better to have some work that pays poorly than to have no work that pays nothing. The problem with that argument is that it becomes a trap. If you did a similar job for next to nothing yesterday, why would I pay you more today? Experience tells me that you will lower your price. One must be willing to stand one’s ground and risk losing the job and/or the client.

Are you ready, willing, and able to stand your ground?

June 19, 2013

Business of Editing: Raising Prices

It seems like there is no such thing as an easy topic when it comes to the business of editing. In reviewing past articles, it seems I have called nearly every topic a difficult topic for editors. And here I go again. The issues of whether, when, and how/how much to raise prices are three more difficult issues with which an editor has to grapple.

Whether to raise one’s prices depends on a lot of factors. Who are your clients; what types of documents you edit; what services you provide; whether quantity of work is more important to you than receiving what you consider fair or adequate compensation; what both your direct and indirect competitors charge; how easily a client can move the work to a lower-priced editor; and myriad other considerations.

Each editor is different. For example, I prefer to have every day of the year loaded with work — enough to keep myself and several other editors busy — and so am willing to accept a price that is lower than I think my work is worth. Some colleagues with whom I have discussed this topic prefer to have less work, even with not knowing how much down time they will have, but receive higher compensation. Where you fit in this scheme, only you can decide, as there is no single correct answer.

However, regardless of where your preferences fit, you must be aware of market conditions and what your competition is charging. I know that there is a school of thought that says we need to move away from thinking in terms of hourly pay (with which I agree) and instead think in terms of the value we add to a product (with which I agree philosophically but recognize the impracticability of in real-world editing). The oft-used example is web design, where the designer, when asked by the client what the price will be, replies with her own question, “Why do you want your website redesigned?” The client responds that the redesign will generate $100,000 of new business, so the designer says, “Isn’t it worth spending $20,000 to earn $100,000?” Needless to say, the client agrees, the designer charges what she values her work to be worth, and all is well. Alas, that doesn’t work for editing.

That is not how negotiations go between editors and clients. Editors cannot identify anything in their work that will increase a client’s sales by a sum certain or a definite quantity. No client says to an editor, “the value of your editing will increase my book’s sales by 50%.” Editing is more invisible than that. Additionally, editing protects the after-sale reputation of the client; it doesn’t generate the initial sales.

So whether we should raise (or lower) our prices depends on a lot of factors that are outside our control but are important to consider. Once that hurdle is overcome, the timing of a price raise must be considered.

Some editors do a general announcement at the first of the year. A new year seems like a logical time to raise prices, especially if your clientele is individual authors rather than companies. If your clients are companies, however, you need to consider timing in several ways: How much lead time is necessary between the announcement and the implementation? Is there a better (or worse) time of the year to raise prices for a company client? Should you even raise current client prices or just use the new pricing for new clients?

When raising prices, I try to keep in mind the client’s fiscal year. I recognize that my clients plan a budget far in advance and that trying to raise prices in the middle of a budget is asking the client to hire someone else. Consequently, if I raise prices, I try to give 6 to 12 months’ notice. I also make it clear that any already scheduled project will not be affected by the price rise. So, at the same time that I announce a price increase, I encourage the client to preschedule as many projects as it can to lock in the old price.

The last piece of the puzzle is the how/how much. Some editors announce a single price increase (e.g. $1 for the year); others announce an overall amount but in increments (e.g., $1 for the year in 25¢ increments every 3 months); and still other editors simply go for small but more often amounts (e.g., 25¢ every 3 months).

One thing that is important to consider in the how/how much contemplation is the percentage the increase represents. This has long been a trick of marketing. To say you will receive a $5 discount is not as effective as saying you will receive a 50% discount, even though that 50% equals $5. Similarly, it looks better and a client may more easily accept a small price increase represented in dollars than the same amount represented as a percentage if the percentage exceeds 5%. In my experience, 5% seems to be the magic percentage. However, what you need to do is make the raise look as minimal as possible; the more minimal it looks, the more palatable it will be to the client.

I am not a fan of incremental raises. Clients rapidly come to think you are nickel-and-diming them. I think it is best to do yearly increases of relatively nominal amounts.

Of course, all this assumes that you are able to raise your prices. Some editors are able to do so, but many editors, myself included in the past couple of years, have been able to only hold steady on our pricing and even have had to lower our pricing. This is a result of competition plus the lack of, in the United States, a true professional organization that separates professional from nonprofessional editors.

Ease of entry and the constant influx of people who claim to be editors has put significant downward pressure on editing prices. Combine this with the globalization of editing and trouble is brewing in raising-prices land. In addition, one’s approach to editing is important.

I, for example, have decided that I would rather be busy and keep other editors busy than raise my prices. I prefer quantity. Consequently, I consciously decided that it is preferable to compete within my sphere than to have idle time, even though I would receive a higher price. (This does not mean, however, that I will accept work at a price that is below what I have determined to be my minimum acceptable price — my pricing floor.) My ultimate earnings would be about the same, but I prefer not to have the idle time. Consequently, to meet my goal of no idle time for myself and additional editors, I had to lower my pricing.

Did I make the smart move? Again, it depends on what you want. But I also look at it like a challenge. This is one of the reasons I created EditTools and keep modifying and adding to it: I needed and wanted to maximize my effective hourly rate while lowering my price so I could keep busy. In other words, I take steps that have the same ultimate effect as raising my price — steps that make the editing go faster, although with increased accuracy, which means my effective hourly rate rises.

Raising prices depends on so many factors that no one can give you one-size-fits-all advice. The most difficult part of the equation is the whether factor. Resolving that question — whether to raise, retain, or lower your price — is the most difficult and the most important consideration; once you resolve that, the when and how/how much will fall into place.

December 17, 2012

The Business of Editing: One Price Doesn’t Fit All

Questions have risen, yet again, regarding pricing. Not how much, but whether to post prices on websites and whether to accept a “long-term” contract that sets a standard price for all editing services.

Of course, there is disagreement among editors on both questions.

I think it is a bad idea to post prices. The primary reason is that no two people agree as to what services are included under the rubric of, for example, copyediting, and what services are excluded. There are nearly as many definitions of copyediting as there are copyeditors, or so it seems.

Just as each manuscript is unique, so are the services that each manuscript needs different. By posting a price, you may turn away business that you might otherwise get if you had the opportunity to discuss what services are wanted and that you provide.

Not posting prices gives you an opportunity to interact with a prospective client. What editors do is personal; that is, it is not selling widgets but selling a very personalized service on a one-to-one basis. Consequently, price is only one element of the decision whether to hire or fire an editor (or client); a significant element is how well personalities mesh — are the editor and the client on the same wavelength?

Posted prices lock you into a set scheme. If you post that you charge $30 an hour for copyediting services, it doesn’t matter that the price includes, for example, fact checking. All the prospective client sees is the price you posted and that a competitor editor has posted copyediting services for $20 an hour. You lose the opportunity to demonstrate to the prospect the superiority or comprehensiveness of your services or your experience.

It also means that if you do take on the client and the project really should have been priced at $40 an hour, you are locked into the $30 an hour price. Yes, I know you can include a clause in your contract that allows for adjusting the price. But is that really the reputation you want — one of a bait and switcher?

Accepting a “long-term” contract that sets a standard rate for all editing services is, I think, a different matter. I have had this debate with myself in the past and have consistently ended up on the side of accepting the contract in exchange for steady work. We tangentially discussed this in The Business of Editing: Best Price “Bids”.

Perhaps the worst feeling I have had in 29 years of freelance editing occurred in slack times, those periods between jobs when I would wonder whether more work would be forthcoming. After experiencing slack times a couple of times in my early years, I decided it was better to earn less money when working but be always busy than to earn more money when working but not always be working.

Consequently, I did two things. First, I made an effort to figure out how to be more efficient and productive so that I could accept a lower pay scale yet earn the hourly rate I wanted. Second, I resolved to try to find clients who were interested in a long-term relationship in which they would keep me busy and I would accept the work for a fixed rate. I have been successful at both these endeavors.

But I did learn early on the important lesson that one price doesn’t fit all clients. Even though I may offer a client a single set price for all the work they send my way, I do not offer every client that same price. The reason is the same as for why I do not post prices at my website: The work that each client wants is different and the complexity — on average — of their projects differs, sometimes greatly.

For example, some clients do not want editors to check or style references; they just want the editor to make sure that all the pertinent information is present. Other clients want the editor to not only style the references but to check the references and to find and supply any missing material. Reference work for the former group of clients might take minutes whereas for the latter group, it could take hours.

I know that some editors are thinking that setting a single price for a client can be dangerous because some projects are more difficult than others. (This is also the argument that some editors use to justify sticking with an hourly rate rather than going to a per-page or project rate.) Yes, that is true, which is why I apply my Rule of Three (see The Business of Editing: The Rule of Three). My experience has been that few projects over the course of time are money losers; most are money makers if handled properly.

The keys are pretty simple: First, don’t box yourself in by posting prices on your website unless you intend to minutely detail exactly what services are included and excluded for that price. Second, consider, if you are working with publishers and packagers, trying to work out a long-term deal in which you offer set services for a lower price in exchange for a steady stream of work. Third, spend time trying to figure out how to streamline your editing and implementing the procedures you discover. Remember that the more you can automate, the more you can earn, especially if you work on a per-page or project fee basis.

One last thing. I have been asked whether my advice not to post prices still holds if one posted a minimum price, for example, “copyediting from $30 an hour.” My answer is yes. If someone had a very simple project but is only willing to pay $25 an hour, posting your minimum price would eliminate you from consideration, even though you would jump at the opportunity to take on the project were it offered.

An editor’s mantra must be that just as each author’s book differs from books in the same genre written by other authors, so do editing services differ based on the editor and the project, which means that pricing differs — one price doesn’t fit all!

November 26, 2012

The Merger Apocalypse

It has been a while since I wrote about ebooks and books in general. For the most part, nothing new or exciting has been happening once you move away from the hardware side of things. But the merger of Random House and Penguin is a comment-worthy event.

In the past, consolidation has been very bad for professional editors. Somehow these mergers and purchases needed to be paid for and with supposedly declining sales in bookworld, the way to pay for the merger was to cut expenses. The primary way to cut expenses has been to cut costs in areas that consumers do not see or notice until too late, thus primarily in editorial and book production.

Past consolidations have resulted in layoff of editorial and production personnel and in lowering of fees paid to freelance editors. In preconsolidation days, there was competition for editorial services, so freelancers could easily raise prices. In postconsolidation days, competition has been greatly reduced, there are fewer publishers to compete with each other for editorial services and thus the (successful) downward pressure on pricing. Freelance editors have little place to turn when where there was once two there is now but one job opportunity (publisher).

The merger of Random House and Penguin, who combined will account for approximately 25% of traditionally published (as opposed to self-published) books, is likely to spur a second merger, that of HarperCollins and Macmillan (or perhaps it will be HarperCollins and Simon and Schuster), who combined will account for at least another 20% of that market. And when pricing for freelancers is set, it will be set companywide — it will make little difference which imprint of the RandomPenguin colossus a freelancer works for, the pricing will be fairly uniform, and increasingly depressed. Or so experience says.

I understand why the merger is occurring: somehow a company has to combat Amazon and Apple and the most logical way is to make it so that Amazon and Apple cannot ignore the publisher’s demands because neither can forego stocking 25% of traditionally published books. (And let us not forget that Amazon is working to build its own publishing behemoth as a foil to these publisher tactics.)

Yet there is another possibility. What if one or both of these megapublishers — RandomPenguin or HarperMacmillan — decides to combat Amazon and Apple directly? It strikes me that the way to do it would be to buy Barnes & Noble. Buying B&N would give them immediate access directly to consumers. They could set terms for distribution with their captive company (bring back agency pricing) and tell Amazon and Apple they, too, can have access to these books but on the same terms as B&N. It would put the publishers back into control quickly, and B&N could be bought cheaply — a couple of billion dollars ought to do it.

Another possibility, although one that would likely have limited success, would be for publishers to start a “first edition” club only for brick-and-mortar stores. B&M stores would be given the exclusive opportunity to sell to consumers collectible first edition-first printing-author signed hardcover books that come with an included ebook copy. If done smartly, it could be an incentive for consumers to enter a b&m bookstore. I think, however, publishers would blow it simply because they seem to blow everything else.

The bottom line is that just as these consolidations are likely to be bad news for editors, they are likely, too, to be bad news for consumers and for sellers like Amazon and Apple.

The consolidation of the publishing industry has been ongoing for 30 years. The problem is that there are fewer large publishers to consolidate today than 30 years ago. It strikes me that if the Justice Department doesn’t think that Amazon dominates the ebook retail market in the United States and that it never did, it would be hard pressed to oppose these consolidations or even the purchase of B&N by a combination of the megapublishers because their market position would be less than that of Amazon.

Are we in for interesting times in publishing? I think more worrisome than interesting. If book quality is noticeably declining preconsolidation, what will it be postconsolidation? If editorial incomes are in decline, how much more rapid will that decline be postconsolidation? If book prices are on the rise, how much faster will they rise postconsolidation?

The question that comes to mind, however, is this: Would RandomPenguin have come about if Amazon were not acting like the Wal-Mart of ebook world? I have no inside information but I suspect that the answer is no, the merger would not have been proposed. I think it is fear of the Amazon vision of the future that is driving this merger, with the final straw being the court’s decision to approve the settlement in the agency pricing case. That settlement gives publishers little leeway against Amazon in the absence of controlling a large enough portion of the market that Amazon cannot do without that portion’s product, which would be the case with RandomPenguin controlling 25% of the traditionally published market.

The more I think about the megapublishers joining to purchase B&N, the more I think it would be a smart move. There are a lot of ways that publisher ownership of the chain could effect cost savings, and with good planning, the physical stores could be made relevant again. More importantly, B&N’s online store is already a well-established and well-known destination for books for consumers, which would relieve publishers of having to create a new online presence and drive traffic to it, a difficult task. And, as noted earlier, it would provide leverage for dealing with Amazon and Apple.

What do you think?

September 12, 2012

Bye Bye $9.99 and Price Competition in eBooks

The mantra for many ebookers over the past year or so was “get rid of agency pricing and bring back lower ebook prices based on competition.” These ebookers are ecstatic over the approval of the settlement terms in the Department of Justice’s lawsuit against five of the Agency 6 publishers and Apple by Judge Denise Cote on September 6, 2012.

I think it is way too early to celebrate and I think ebook prices of bestsellers will rise, not become lower.

To set the mood to say goodbye to $9.99, here is a song from the past — Don McLean singing his Bye Bye Miss American Pie:

Now that you’ve been entertained, let’s discuss why I think we can say goodbye to the $9.99 bestseller and to real price competition among the big publishing houses which control the majority of popular publishing today.

The first problem lies within the settlement agreement itself. As Judge Cote wrote (p. 10 of the Opinion & Order filed September 6, 2012), the publishers, although they cannot use agency pricing, which presumably means a return to the wholesale pricing of the preagency days, can “enter into contracts that prevent the retailer from selling a Settling Defendant’s e-books at a cumulative loss over the course of one year.” This is a threefold problem for consumers.

First, it means that publishers will be able to require Amazon (and/or Barnes & Noble and/or Apple and/or all other ebooksellers) to disclose both sales numbers and pricing, something that Amazon has been loathe to disclose even to its shareholders. Under the current system of no such requirement, a publisher knows how many of a title have been sold by Amazon because Amazon has to pay for each title sold. But what has not been known, and what every analyst wants to know, is whether the sales are profitable, not just how many units are sold. Analysts want to know whether Amazon has sold 1 million ebooks and made or lost $5 million from the ebook sales alone. And knowing that information, analysts can determine whether or not Kindle hardware sales are profitable — all information that Amazon has steadfastly refused to isolate.

This is problematic because if Amazon has to verify that over the entire line of, say, Macmillan ebooks it is making a profit — and note that it is over the entire Macmillan line, not over the combined lines of Macmillan and Simon & Schuster — Amazon will have to be very cautious about pricing. One cannot easily take a loss on a million-selling ebook in hopes that over the course of the next months it will sell enough ebooks from that publisher to end the year in profit. How likely is it that Amazon will take that gamble and reinstitute $9.99 pricing?

The second reason this is problematic for consumers is because the order essentially orders a return to the wholesale pricing scheme but sets no boundaries on that scheme. There is nothing to prevent the publishers from altering the discount rate or even giving a different discount rate to different ebooksellers. As part of its order, the court did away with the most-favored-nation clause, which said whatever terms you give X you must give me.

I know the response to this is that the publishers need Amazon more than Amazon needs the publishers. I think, however, that Amazon’s caving in to Macmillan when Macmillan demanded agency pricing demonstrates that it is the publishers who are in the catbird’s seat, not Amazon. Amazon is the seller of product and thus needs product to survive. Each of the Big 6 publishers controls a significant portion of the necessary product that Amazon cannot afford to do without. Besides, I expect that each of the publishers will come, independently, to the position of squeezing Amazon similarly, so Amazon will have little recourse, just as it had little recourse in the Macmillan dispute.

The third problem for consumers is that the answer to the worries of the publishers that brought about agency pricing is simply raising the list price of newly published books. The way publishers do this is to take an expected blockbuster and raise its price to the new price point and watch sales. If expected sales (or close thereto) occur, then the next expected blockbuster is given the same price point, and this is repeated until there is confidence that consumers are now expecting to pay the price point.

And this is already beginning. J.K. Rowling’s new book, The Casual Vacancy, a Little, Brown, imprint, has a new price point for a novel: $35. If you check Amazon and Barnes & Noble, you will find that the ebook price at both is $17.99 — a far cry from the previous bestseller price point of $9.99 at Amazon. And the $17.99 is a 49% discount off the list price, which means that the ebook is likely to be generating a 1% gross profit for the retailers, just barely meeting the condition in the settlement order. I see this as an indication that the ebooksellers are concerned about profitability over the entire Little, Brown ebook line over the coming year.

Under the agency system, it would have been expected that Rowling’s new ebook would carry a price no higher than $14.99.

There is also the question of whether Amazon has gotten used to actually making money on ebooks and is using the profit to subsidize the Kindle hardware. Nate Hoffelder raised this question in Did the Agency Model Lead to Cheap eReaders? at his The Digital Reader blog. Having made money on ebooks over the past year, how likely is it that Amazon will want to subsidize both the hardware and the content, perhaps taking a loss on both? At some point, Amazon has to show a profit to prevent shareholder rebellion. And now it has the perfect excuse to do so: Judge Cote’s approval of the settlement agreement that allows publishers to require Amazon to earn a profit on ebooks.

It is the combination of forces that have been unleashed by the approved settlement agreement that will result in no agency pricing for at least 2 years but, instead, higher prices for consumers and the end of the $9.99 bestseller price. We may occasionally see a bestseller being offered at the $9.99 price, but it will be the occasional bestseller, not all bestsellers as in the past. And if we watch prices, I think we will see list prices climb; it will be the rare bestseller that will have a list price below $30. Rowling is leading the way and if her book is a bestseller at $35, it won’t take long for other top-tier writers to insist on equal list pricing. That is how it happened in the past and how it will happen this time.

I may be wrong, but I doubt it. History does tend to repeat itself and the DOJ and Judge Cote have let loose a rising tide. Do you agree?

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