Are You Breaking Even?

As a freelance writer, you need to be aware of your finances or you won’t last long. Part of that is knowing your break-even point. This figure gives you a sense of how much you must make under certain conditions to cover your cost of operating with no loss, and unfortunately, no profit. It is  not really a place to stop, though. Breaking even, especially in these times, just isn't good enough.

So that you can move forward, you should do a break-even analysis which will allow you to consider the changes possible in your business—changes which might increase your profits or stop the drain on resources. To figure a break-even point, you must separate fixed costs—rent or mortgage, car payments, etc.—from variables.

Your break-even point is defined as that point where revenue equals cost. You need to separate expenses into fixed and variable costs. Fixed costs are those costs that remain constant over a short period of time. Variable costs are those costs that change proportionately to any changes in the volume of your business.

Dividing variable costs by sales revenue gives the portion of each sales dollar that is required to cover variable costs. This is known as the variable cost percentage. Subtracting this amount from a dollar will give you how much is left to cover fixed costs and profit, otherwise known as the profit-volume ratio. Since profit is zero at break-even, the division of the total fixed cost by the profit-volume ratio gives the dollar amount of sales required to cover all fixed costs.

Once you know this amount, you’ll need to do some income projections. Since you won’t be getting a weekly paycheck, you’ll need to know just how much work you’ll have to do per week, month, or quarter in order to reach your break-even point. In the beginning, you’ll probably project work for a month, but as you move forward, you may want to expand that to three months or a quarter.

List all work that you’ve lined up and add any other jobs that may appear once the quarter has started. Add up all the income you expect to receive, then subject the amount you figured above to cover fixed costs. This will leave the amount you need to cover variable costs.  If you come up short, figure how much and then find work to fill the void. If you don’t, you’ll have to carry over the shortfall to the next quarter.

When you get paid for each job, insert the amount to the right of the projected amount. At the end of the quarter, add up all the paid amounts to figure your actual income.

Do You Need an Agent?

It’s true, a writer gains a certain amount of prestige by having an agent. But before you go there, you need to pay your dues. And an agent can’t help you with that. It’s all up to you.

An agent is for a writer who is too busy to sell his or her work. And even if you have time to market your writing, an agent can seek out better paying markets for you. But having an agent doesn’t guarantee that you’ll get more money or that you’ll even get published. So if you’re a beginning writer, forget about getting an agent and get to work.

If you’ve been writing and publishing for a while, this may be the time for you to seek out the services of an agent. But do you really know what an agent can do for you?

A good agent knows which publishing houses are in the market for what sort of book or writing project. They know which publisher will pay which advance and whether, when the time comes, which will release which rights. Often an agent will know just who to send a proposal to and which ones are likely to go forward with it.

A good agent also is in constant touch with those who buy ideas, books, movie treatments, scripts for TV shows, and subsidiary rights. To many writers, an agent is also their best friend and professional confidant—part father, part salesman, part lawyer, and part literary critic. But most of all, an agent can lend a sympathetic ear. He or she understands how a writer feels.

Agents save editors time and money. They save them the hassle of going through piles of terrible manuscripts by directing them to the good ones. In essence, an agent acts as the first reader—as a person who has the experience to tell the great from the terrible. And then, of course, there’s the growing tendency for publishers to refuse to read anything that comes in unsolicited. They often give preference to material coming from an agent to manuscripts that come in cold.

Generally, while agents negotiate book contracts and subsidiary rights, they also negotiate lots of other deals for busy writers—deals that the writer may never have thought of. Depending on the arrangement you make, your agent may handle all of your work, only your books, or only certain kinds of writing. Some agents will tell you up front what they will and won’t deal with.

Agents usually don’t handle short pieces of writing like articles and short stories. They’re in it for the big bucks. Let’s face it, after you’d pay an agent his or her 10-15 percent commission, you’d be left with much less than if you sold your shorter pieces yourself.

Your agent can also act to resolve conflicts between you and your publisher. They push for timely advances—they don’t get paid until you do. And, more importantly, they’ll help you sort out hard-to-read book contracts which if not understood properly can cost you dearly.

So do you need an agent? Yes and no. Writers sell nearly a third of all literary works by themselves, without the help of an agent. By negotiating your own contract, you may just walk away with more money and more perks. But that’s only after you’ve been in the business awhile and understand the nuances of contractual agreements. An agent can help you wade through the contractual mindfield. They know what to look for and you don’t.

Royalties Don’t Always Amount to a Kingly Sum

It seems every writer wants to write a book. While writing one may give you a great ego boost, it probably won’t make you rich. In fact, it will probably pay less in the long run than shorter writing projects. Income from books traditionally comes from royalties. But understanding royalties in today’s market can be difficult.

Besides negotiating for an advance, you'll be negotiating for royalties on your book or a percentage of the retail price of the number of copies of your book sold by the publisher. The publisher adds the amount of the percentage to your book contract after the two of you agree to it.

Traditionally, the escalating royalty schedule for adult hardcover books has been 10 percent for the first 5,000 copies sold, escalating to 12 percent for the next 5,000, and then to15 percent for all copies sold after that.

The traditional practice was to compute these royalty rates and the author's earnings from the list price of all copies sold. So if sales totaled 3,000 copies at a $20 list price and a 10 percent rate, your royalty earnings would be $6,000. However, times have changed.

Today, publishers have a number of different distribution outlets open to them, some of which are through  chains of bookstores and other outlets to which the publisher sells your book for less than the list price. As a result, some standard contracts now provide that your royalties will be computed on net proceeds from the sale of the book rather than the number of copies sold—the money that the publisher collects after deducting costs for shipping, distribution, and miscellaneous services, generally about half the cover price. Though such contracts aren’t necessarily bad for you, nevertheless you should be wary of them.

Your contract may also contain a second set of royalty rates for "Special Discount Sales” to Amazon, Barnes & Noble, and such.  These percentages are usually half what the full royalty pays—if your full royalty pays 10, 12, and 15 percent, your special discount royalty might be 5, 6, and 7 percent. This scale will apply to "sales made at a discount greater than 58 percent, but not more than 75 percent of suggested retail price. And let’s face it, many more readers purchase books online, so that will lower your royalties substantially.


But the larger volume of sales made possible by wholesale deals may more than compensate for a smaller earning per copy. The important thing is to read carefully and fully understand what your contract actually provides and negotiate from that basis without illusions or misunderstandings about what you have agreed to. Today, there are wide range of royalty arrangements for books, and knowing that, you need to balance your idea of the book's potential against the mathematical results.

The best way to do this is to compute what you’d earn in various hypothetical cases if your royalty was based on list price, weigh that against earnings on net in the same cases, then decide from your result what you want to try for as far as royalties are concerned. You may want to ask your editor to give you  figures based on the publishing house’s sales department's projections.

Royalty rates for paperbacks may differ slightly from hard backs. Normally, they range from 5 to 20 percent, with 10 percent more common. But escalation rates are less standardized than for hardcover books and therefore require more negotiation. Don’t assume that because marketing techniques are different with paperbacks, escalation clauses are negligible. While a paperback publisher may count on selling what he can of his first print run—say from 100,000 to 250,000 copies—and then drop the book from his list, it just as often happens that after a number of years, he may reissue the book with another  large printing. You deserve a greater share of the profits from the reissued book and should have it provided for in the original contract.

Unlike trade-book publishers, those who publish textbooks can more accurately forecast sales. They base negotiation and contracts on previous experience with relatively stable school markets, so there's usually less flexibility in dealing with them. It's also easier to predict what you'll make for your work, so the whole process of contracting is less stressful.

Textbooks have a relatively fixed market, depending on the subject and the number and kind of schools in which they may be used. The competition from comparable texts is easier to identify than with trade books. A textbook publisher usually plans to market his books over a number of years.

By using simple calculations, you can work out the potential advantages of various royalty arrangements which might be acceptable to your publisher. Obviously, a text with a chance for a nice share of the national high school market for 10 years will call for different royalty arrangements than one which will be used only by special students or scholars for say 20 years, Thus, a typical college literature book, published in paperback, pays a royalty of 8 percent of 80 percent of list price on copies sold.

So if your book doesn’t have the potential to sell a lot of copies, you better negotiate for a reasonable advance and take the money and run because you’ll never see any additional funds from royalties, no matter how much you negotiate for them.

Payment in Advance

As a freelance writer, there aren’t many opportunities to get paid in advance. Book writing is about the only one.

The advance is the money a publisher pays you for the time and effort put into the writing of a book. Traditionally, the advance has been perceived as a loan made by the publisher to you to keep you alive and producing until the royalties from your book begin to come in—at which time the publisher will recoup his or her loan by withholding the amount of the advance from your share of the royalties.

The advance also reflects the book’s potential for sales. The better the potential, the bigger the advance. If the book has a smaller target readership, then the publisher will offer a lower advance. In this case, there’s no way you can live on just the advance while writing the book. It’s important to remember that during your negotiations.

In the case of many books, where the royalties don’t amount to as much as the advance, the advance serves as an out-right purchase price by the publisher. So it’s important to negotiate for an advance which represents either a fair return for your labor as a writer or the best return you can reasonably expect since you most probably won’t see any more money. When negotiating your advance, point out that the publisher is going to get a far better book if you’re free from money worries and can concentrate on your work.

Some publishers will tell you their advance is small because they expect to invest heavily in promoting the book and that, therefore, you’ll be money ahead in the long run if the contract promises larger than usual royalties to make up for the skimpy front money. But in reality, publishers aren’t doing much promotion today, especially small ones. That means you’ll be out begging people to buy your book just to make up the difference between your advance and your royalties.

Today, publishers sell many of their books wholesale to book distributors, so the royalties from them amount to only a fraction of what you’d receive from retail sales. And competition from the digital book market clouds the situation further.

Your publisher may try to recover all or part of your advance when, for any reason, he or she chooses not to issue a book. Yes, after all the work you put into your book, it just may not get published. Perhaps the market for that topic collapsed or there’s a downturn in the economy. This is clearly unfair if you have kept your part of the bargain faithfully. So, at a minimum, make sure that the language of the contract shelters you against recovery attempts. If you deliver your work on time in the form and content specified, you have every right to the advance money.

Book contracts can be very confusing. Make sure that there are no penalties for not meeting your deadline. So safeguard your advance by making sure the contractual deadline gives you enough time to meet all your obligations.

The book advance isn’t the only way you can finance your book project. You should also consider possible perks like expenses. How will you pay extra costs for travel, extensive research, artwork, photographs, charts, computer printouts, periodicals, books, photocopying, researchers, or secretarial help?

Your publisher will expect you to cover most of these expenses, so it's up to you to ask for help. Will the editor send you books for research that she has on hand? Ask for anything that would help. It can't hurt to try. But ask early. Realize there are limitations. Give your editor time to justify your expenses with the editorial board. Some publishers regularly agree to such arrangements with authors, others seldom if ever. And keep in mind that it's sometimes easier for an editor to justify such expenses as these than a more sizable advance, especially for new writers.

Looking to the Ivory Tower

If you’re looking for a way to subsidize your writing and earn extra income, you might consider teaching. Teaching has always been a traditional financial base for writers. It’s often the first route freelancers explore, and for good reasons. The time you devote to it is relatively flexible. Let’s face it, the ivory tower can beckon invitingly after several years of scratching out a living as a freelance writer—the chase after editors, the haggling for peanuts, the worrying over the paying your mortgage or rent can all be debilitating.

What's waiting for you, if you decide to pursue this possibility? Aside from the benefits mentioned above, there are a few problems you may encounter as well, mainly stiff competition in a tight job market. If you want the kind of security that comes with a full-time position, you'll need an advanced degree. Without it, you'll face an uphill struggle. But if you seek a full-time position, will you have time to continue writing? Chances are once you get used to a regular paycheck, you’ll not want to go back to earning a living as a full-time writer.

The answer is to seek part-time employment, but not just any job. The work that will give you the most benefit and will fit nicely into your schedule and creative side is teaching continuing-education courses at local school nights, community colleges, and universities. Pay for these jobs generally runs from a low of perhaps $20 an hour teaching courses at community school nights to $40 an hour teaching at universities.

Most writers gravitate toward teaching the obvious—writing and journalism. But it's possible to devise a course based on a specialty of yours. If you’re an expert on money management, for example, you could offer a beginners' course on budgeting and finances or even tax preparation. If you also do photography, consider a course in basic digital photography. If you’re a science writer, you might create a course based on a fascinating topic, if you handle it broadly enough, might appeal to a wide assortment of students.

If you write travel articles and books, why not put together some travel lectures based on your articles and travels. These can be done individually or grouped into an armchair traveler series. Whatever your specialty, take advantage of it.

Before you plunge headlong into teaching, do some market research. It’s not unlike what you normally do to sell your writing. Ask someone in college continuing-education departments what types of courses students request most often. Find out what they’re looking for before you approach them with your own suggestions.. Plan ahead and prepare your resume to impress.

Remember, academics will be impressed that you have published. They’ve faced the publish- or-perish syndrome for years. The simple fact that you’ve managed to get your words in print can be a big plus for you. Today’s students want courses taught by people in the field. They seek first-hand advice and expertise. If you do teach a writing course, they’ll seek your insight into the latest techniques.

The fact that you're going to give students as much opportunity as possible to talk with you, a successful writer, about how you do things, what your frustrations are, how joyful it is to be your own boss and see your name in print, will give you a decided advantage.

In continuing education, there are no rules. It’s usually up to you how you want to put your courses together. You’ll need to produce a simple course proposal that includes a description of the course and a weekly outline. Most continuing education courses run from one or two weeks to as long as ten weeks. Each class usually runs from an hour and a half to two hours. You’ll be paid by the hour and only for the time you’re actually teaching, so take that into account for any writing courses. Remember, it takes time outside of class to read students’ work—time for which you’re not paid.