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Friday, 11 April 2014

Billing Systems

The subject of rates and billing units keeps popping up every now and again. Tonight, after seeing some posts about it on Corinne McKay's blog, I ended up leaving a looong comment and decided, hey, why not post it here! So without further ado, here's the most important thought I wish to share in connection with billing systems:

Be pragmatic!
It often doesn't cost you to be flexible while it may help your client a lot. Besides, being reasonable is good for business. Doing business with reasonable people is much more pleasant than doing business with people who are not reasonable. For example people who are so set in their ways that they are unnecessarily rigid.
And always try to walk a mile in the client's shoes! 
Billing systems are only tools, so use them like the tools they are, don't become inordinately attached to them, and certainly don't allow them to rule you and hold you hostage and hold you down and hold you back and uhh... They are really not worth discouraging your current or prospective clients. If making a client happy is as easy as changing your current billing system, then you really should count yourself lucky[1]. (For the record, allowing a client to choose the billing system is not the same as allowing the client to choose what to pay you. Which actually works for lawyers, though not really for translators, not that I'm not tempted to try.)

Current standards

There are two core types of billing units used in the translation 'industry':

  • text volume: word, line or segment (~50-55 characters), standard page (e.g. 1125, 1500, 1800 characters, with or without spaces), publisher's sheet (40,000 characters) — i.e. how much text is there;
  • time: hour, day, month etc. — i.e. how much time it takes you.

CAT tools will typically mean per-word billing. Per-line rates are popular in Germany and standard pages in Central Europe or in traditional circles. Publisher's sheets probably don't see much use outside literary translation; even book translation is often priced in smaller units. Editing, proofreading, reviewing and revising is sometimes billed hourly, but those hours are not necessarily clock hours. For example, sometimes an 'hour' is just a set number of standard pages. Per-day rates are probably limited to interpreting or the kind of translation tasks which require physical presence at the client's. Per-month rate is basically salary or subscription.

What billing units are based on

Apart from supply-demand mechanics driving how much you can actually charge, rates can be based on either of the two things:

  • some sort of value, e.g. client value, fair market value, value of the transaction in which the translation will be used
  • production cost + profit, where your primary cost is your own labour and you don't care about the client's profit or loss in the transaction — the price is based on how much time and perhaps other resources it takes to produce the translation
The difference generally comes down to focusing either on the client's side or the translator's side of things. Or, sometimes, the end result of production versus the investment of resources in it (time, money etc.).

Volume-based units

Pros. Interestingly, our text units seem to combine some of the best features of both worlds, in a sort of compromise:


  • The volume of the text provides objective measure of how much the client receives. Note that what the client receives is not the same as what the client can make of what the client receives. It also reflects, vaguely, the amount of work you have put in for your client. Work calls for pay.
  • It also makes sure you're somewhat safe to be compensated for your production, although the exact return on your time will be variable, and you may occasionally take losses.
  • However, unlike in time-based billings, the client is not put in a position of having to pay for your time regardless of how little value may have been produced during that time. As long as you charge per-source and not per-target, your client has no reason to challenge the volume.
Cons

  • Clients may be uncertain of the size of the text and how much it will cost.
  • … Especially if your pricing is based on target volume rather than source volume. (This is something you can change easily! Per-source is better for you as well.)
  • Sheer volume of text does not necessarily correspond to transaction value.
  • Production-based units may commoditise your work, especially if they are small and cheap.
  • You take risks if you can't adjust your per-word or per-page rates to reflect the difficulty of the text.
  • (Edited in later:) Per-volume pricing encourages fast-paced work and discourages careful checking.

Now it's necessary to say that the cons result not from anything wrong with your business, nor even necessarily from any inherent flaws of per-word or per-page billing. Rather, the problem is often with the clients' perception. For example:

  • It's not your fault when a client writes more text than the matter is worth.
  • Urgency — with a corresponding rush fee — may not be your client's fault, but it certainly isn't yours.
  • Nor it is your fault when translation is more expensive than writing was (including when an inhouse writer was used, costing less than buying a service on the market).
  • Large texts used in small matters are often templates. The value of a template lies in its potential for reuse in multiple matters and transactions. It's not your fault when a client does not or even cannot reuse the template.
  • The above is similar to translating a large body of legislation or even a book for someone who will only need to read it once.
  • If the transaction value is $15,000,000 will your client pay you a modest transaction-value-based commission fee, say 1% at $150,000 — for 10,000 words, i.e. $15 per word?

I'm not saying it's not a problem that translation just sometimes doesn't pay. I'm saying translators are not to blame. For the record, the solution is to explain things, explain value, not just cut your rates.

Remember at least to consider per-source pricing rather than per-word. Your client gets a definite response, gets its faster, you appear more reasonable and accommodating, you get your own certainty too, and in two ways: 1) you know exactly how much you will make, 2) there will likely be no challenges to a pre-approved volume and rate. Basically, you have pretty much a flat fee with all its benefits.

(Edit:) The drive to work fast rather than slowly and diligently is a problem when you charge per-word or per-page and especially the rate is not too high. There seems to be no reward for slowing down, especially as clients can't really appreciate quality — because they aren't normally equipped to see the difference — and especially as positive feedback is relatively rare from direct clients and very rare from agencies. Slow work is ungrateful work. Per-hour billing encourages the opposite. However, it may be impossible to set one's per-hour rate as high as what can be made in one hour in some per-word or per-page setups.

Time-based rates

Pros

  • Lawyers, accountants and consultants charge per hour. The rate is somewhat prestigious.
  • A number of service professions use per-hour billing to charge for labour. While rare in some lines of business, the system is known to everybody.
  • On the other hand, it is disconnected from production (unless you're producing billable hours to sell) and more personal.
  • Can't argue against the idea that spending time deserves compensation. Traditional ethics favours rewarding people for work done rather than e.g. manipulating capital for gain or playing with supply and demand equations.
  • Per-time rates encourage diligent work and careful checking.

Cons

  • Clients don't know how much the job will take.
  • You often don't know either.
  • Individual jobs are actually often unpredictable — if you cap the hours, you can take losses if the job proves more complicated than it seemed before. You won't make up for that on jobs which prove simpler than expected because then you will be charging for however much time you really took.
  • Hourly rates can be challenged on the ground that something supposedly took more time than it should have. Or, in some cases, that the higher-charging professional was overqualified for the task.
  • Not all hours of work are billable.
  • People may compare hourly rates out of context, leading to hasty conclusions and misconceptions about the relative seniority of two professionals.
  • Hourly rates are already disliked for rewarding slow workers.
  • They are also disliked by people who work with lawyers for supposedly being disconnected from value (I believe law clients get that one wrong).

To mitigate the first three cons, you can keep statistics, learn to do better estimates, assess risks, inspect jobs carefully before confirming them, keep some safety valves in your contracts so that perhaps you can be paid more but you'll need to contact the client beforehand and explain why the job is going to take more time than normal. In any case, some safety devices will probably be necessary in your contracts.

Regarding time challenges, you'll need to record your time somehow and to describe what you do in some detail, especially when it isn't just translating. For example, a laconic terminology research next to a large figure might not to. As for when your rate gets challenged as opposed to the time record, it may be reasonable to point out that while your rates are higher, you complete tasks faster than less experienced people with lower rates. If not, there is a chance you just simply do more (which the client had better be aware of).

As for tasks which you don't need to be doing personally and for which you are overqualified, it would be a good idea to make appropriate arrangements with the client beforehand. Use the client's own support staff. Hire yours. Purchase goods or services on the market and reinvoice them to your client or include them in the bill. In any case, get the client to approve the solution, so that it can't be challenged later to get you to clip your billing.

Finally, there are some tasks you can't really bill the client for, for all sorts of reasons. Their value need to be reflected in your hourly rates or signing-up fees. You're better off having a slightly higher hourly rate than billing your client for invoicing formalities, for example, while you just can't bill your client for analysing whether the job is worth taking... Still, it may be a reasonable idea to explain somewhat what things are not billable to avoid the impression that they would be billed.

Flat fees

Pros:

  • Easy to handle
  • Difficult to challenge
  • No paltry units

Cons:
  • May be difficult to justify
  • Differences between jobs may be tricky for clients to identify

Frozen flat fees are good in how they give the client the budgeting certainty but remove the ability to engage in an endless discussion of the propriety of your billing. They also help you avoid losing prestige by dabbling in small units.

To deal with the cons, you may want to explain where those flat fees come from, such as volume, deadline, and any individual difficulties or complications connected with the particular job. It won't be easy for clients to spot differences between variously priced jobs which appear similar to them, especially in size, so some explanation will probably be in order. What factors influence the price, how much do they matter, did they pop up in this particular job, and so on. Especially anything which can make a drastic difference, e.g. rush fees or repetition discounts.

Sample estimates

Regardless how you do your billing, it may be a good idea to gather a solid number of examples — for example in a brochure or even somewhere on your website — to give your clients something to put their hands on. It will serve to make the system less unfamiliar and unfriendly to them. Try to explain that it's reasonable.

So, for example, a 500-word simple marketing leaflet will cost X. A large distribution/procurement contract at 10,000 words will cost Y over a week and Z overnight. Then an article of 5000 words for publication would cost this, a just-read-it-once working translation of incoming mail would cost that. And so on and so forth. Choose representative and educational examples.

If you develop those samples into proper case studies, you can explain what was particularly good for the client in the billing system and rates chosen. Also, you can integrate affordability and savings into your broader case studies, e.g. those little stories — similar to expanded testimonials — which lawyers use (and translators should also begin to use) to communicate to their prospective clients how they have been able to help their current and past clients. Doing things cost-effectively certainly counts.

Know where your rates come from

You should have an idea of where your rates come from: It is the usual range for someone with comparable qualifications. Or: This is a premium rate, and it includes X / reflects Y. Thus, if your rates are high (and not only a per-hour rate), it can make sense to explain why your work is worth more (otherwise your prospective clients may not even know that it is).

On the other hand, if your rates are somewhat on the low side, it may be a good idea to explain what enables you to charge so low. I am not driven by profit so much. Or: At this stage in my career I aim to acquire experience at a fast rate. Or: Lowering my rates by 10% was cheaper than my advertising budget. Or: My overhead is less. Or: I use low-cost and high-yield technologies or tools.

As for surcharges, they typically correspond to a more difficult or onerous task or longer hours at work, or work at night, or some other complication to your or benefit to your client. If they result from a supply-demand ratio, that will be more difficult to explain.

Grace under pressure

Don't lose your calm when a client disputes your quotation, especially if the client disputes the method of calculating your fees it may turn out it's the billing system which is the problem and not the final amount to pay. There's no harm in proposing an alternative billing system. In any case, communicate calmly and courteously that the rate reflects your education and experience. Refer to any business standards and average figures that your rates are consistent with, especially when you charge less than what is considered average or fair for that type of work and your qualifications.

Explain how long and hard you will need to work, all the things you do which are not just typing. Go beyond sheer production and mention the things you take responsibility for, the opportunities you create or help tap into, the dangers involved in cutting corners and skipping some of the things which you do for your client. Perhaps crack a joke near the end to unload the tension. Don't take it personally and don't make it personal. Don't give the client a reason or even excuse to walk away. And don't show the client that you'll back down easily, don't make it look as though you'd tried to rip the client off when you first quoted.

See the difference between clients who can't pay and clients who won't pay (this often includes our policies and our budgets, which are still ours, i.e. theirs), clients whose budget is just a little shy of your quotation from clients who undercut you to optimise their own profits (savings, markup etc.), from clients who just simply haggle, period. (If your rate is already affordable, you can tell them you've already optimised your rates for your clients and point out this saves time for both you and them.)

And, once again, make sure your clients don't mistake their vague impressions of the value of your work, or any existing budgets disconnected from how much goods or services wanted actually cost, for fairness of your rates. Those are two different things.

Finally, I recall reading on a legal blog somewhere about a firm who said something to the effect of: we are proud of our rates (...). I've said something similar once, too. Some other time, I heard about a translator who recommended a competent but less experienced colleague who charged more within the range the client was prepared to pay. That enabled the client to get the work done and probably put it in some of the best hands possible within the available budget while helping a junior colleague fill the calendar. Class act! ('LOL, I'm so good I charge 2x what you pay,' would not have been class act.) Some really classy people also express regret that the client is unable to meet their rates and invite the client back when there's a larger budget. Try if you haven't yet! In a certain sense, that's similar to the class act of some agencies who won't take on an unexperienced translator but still invite the rookie to come back in a couple of years. No need to burn bridges and waste potential relationships.

[1] Yes, luck doesn't exist.

6 comments:

  1. Congratulations, man! Very clear and informative.

    ReplyDelete
  2. This is a clear story, the first I have seen for a long time.

    ReplyDelete
  3. I thought this one would be interesting: http://alldaycreative.co.uk/blog/copywriting-price-per-word/

    It offers some insight from a copywriter's point of view, together with a couple of smart arguments.

    ReplyDelete
  4. And one more from the same author as above. I really like the way he's knowledgeable and has it structured in his head. This is valuable information, especially if you're a marketing translator but also if you sometimes translate for high-value transactions without being paid special rates:

    http://alldaycreative.co.uk/blog/how-much-is-fair/

    ReplyDelete