Erik Sherman's WriterBiz

A spot about the business of writing as seen by a freelance writer. That includes marketing, sales, contracts, copyright, planning, research - in short, the business end of writing.

Name: Erik Sherman
Location: Massachusetts, United States

I'm an independent writer and photographer who covers business, food, technology, books, media, general features, and pretty much anything appealing that results in a signed check. My work has appeared in such places as the New York Times Magazine, Newsweek, Newsweek Japan, Fortune, Inc, Fortune Small Business, the Financial Times, Advertising Age, Saveur, US News & World Report, and Continental

Tuesday, April 14, 2009

Measuring Your Business II

I've written before about metrics, or the use of measurement to better run your business. If you already calculated your lowest hourly rate, track cash flow, and follow the other numbers to know what is happening, it may be time to start looking at less obvious but still useful things to measure. This is probably easiest to point out with an example.

In some recent online discussions with other writers, I've noticed that many point to soft benefits, or gut feel reasons they make given decisions. For example, with a nod to my minor rant yesterday about low pay, people give many reasons for taking such assignments. Aside from the see-how-much-I-make-an-hour argument, there are other common reasons that writers give:
  • A client is "nice" to work with.
  • The client brings me assignment topics and I don't have to query.
  • I find the work interesting.
  • I have a book out and am doing a free piece to promote myself.
  • I'm building a reputation that will pay off in the future.
  • I'm building an audience.
  • I'm getting a foot in the door on a new area of work.
Any of these can certainly be a factor in your decision of whether to work with a given client or not, because I'd hope that a writing business would be about more than just money. However, it's possible to bring in numbers and analyze at least some of these rationales more carefully.

Take having a client come to you with an assignment, saving you from having to query. This is certainly a benefit, but one that can be calcualted. You know from experience that it would have taken X hours to get the work, between researching an idea, creating a query, and doing the assignment dance. (And if you've never calculated this, it might be worth your explicitly adding up all time. You might be surprised, either at it being less or more than you expected.)

If you multiple that time by your calcualted billing rate (the amount you need to bill to make the money you need), then there is a cost savings of $Y. That means you can coldbloodedly compare the cost of the time saved and the discount $D that a client wants. So long as $Y is greater than $D, you are making more money for your time than you otherwise would have and opening more time in your schedule for something else, like approaching prospects about work. In fact, if $Y is big enough compared to $D, you might be able to even discount off your normal billing rate and still come out ahead financially. On the other hand, if $D is greater than $Y, then you know you're making less money than you would have had you invested time into a query. This lets you make a more informed decision as to the client's value to you. Your gut decision might be smart, or you might be doing something that feels right but that doesn't pan out when examined dispassionately.

This is why smart business executives focus on getting the information they consider necessary to make decisions. It often is only 10 to 12 factors, but it helps them know where the company is going.

In a similar vein, if you are a book author, you can work with a publisher to track book sales and look for an obvious uptick after a free article. If you haven't sold enough books as a result so the royalty more than makes up the time you spent preparing the article, then your marketing tactic may not be paying off. I say "may not" because this gets complicated. The benefit of increased sales is partly the ability to get future book assignments, so more sales today might help you tomorrow. And some will argue that you don't that the article won't attract more sales over time. Nevertheless, if the sales are up enough to help with selling a publisher on you, you're probably going to also see a significant increase in royalties, as both are directly correlated to the number of copies sold. And if the article is to act as a direct response medium, then the bulk of sales will happen within a short amount of time. If you find yourself arguing that you can't know for months what the full impact might be, I'd point you to a story my mother told me of the Truman-Dewey election, and a television commentator who, in the face of mounting evidence that Truman would win, kept saying, "But we still have to hear from the rural districts."

When considering whether to take a low-paying assignment ($L) because you like the topic or the editor, you know what a normally paying assignment for you would run ($N). Look at the difference between $N and $L ($N - $L = $D); that is the amount of revenue that you would have received for a regular assignment, but that you are giving up. Now you can decide if the opportunity cost is worth the pleasure, because you're now paying $D, by lowering your revenue, to take it.

You take a low-paying assignment to gain expertise in a topic that is new to you. Again, you can look at $D, the difference between what you are getting and what you would ordinarily get. Only in this case, you are opening a door to new areas of work. If those new areas at least meet your normally billing, then you've increased the potential number of clients. That provides a number of benefits. One is spreading your income among more clients and reducing your reliance on any single one. Maybe the share of your revenue that the average client represents goes from 15 percent to 10 percent. Should a client go under, that's 5 percent less income you need to immediately make up, making the investment in the low-paying article a cheap form of insurance.

Is a client high maintenance? You can measure the amount of time you spend versus the revenue you see. Take all the revenue and divide it by all the time the client takes up (including your ranting about the client to online forums, your colleagues, or those ever patient four walls of your office) to find the effective hourly profitability. If that number is greater than or equal to your normal billing rates, then keeping the client makes financial sense. (Though replacing the client with one that is less enervating can keep the profit while increasing your satisfaction, which might be even smarter.) Time spent chasing down money and the time value lost in late payments are other numbers you can consider.

In short, although I agree that some aspects of a business, like measuring the long term effectiveness of a marketing tactic, may not easily reduce to figures, there are many times in running your business that using numbers can help. And those numbers can help you avoid assumption-based decisions that can, at times, end up hurting you.

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