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What’s an intellectual worker’s real overhead?

Over at The Copyeditor’s Desk, TM opines that a freelance editor working from home does business with a very low overhead: a computer, an Internet connection, appropriate software, some inexpensive paper, a few pens or pencils, maybe babysitting or day-care costs.

On a superficial level, I’d agree with that. But I’d like to argue that there’s a lot more cost behind editing, writing, graphic design, programming, and similar pursuits than just hardware, software, and some office supplies. The truth is, none of us can do our jobs without one very expensive piece of overhead: education. By and large, the more education the intellectual worker has, the more his or her skills are worth . . . but the higher the person’s overhead.

Consider what a good education costs. An undergraduate degree at an in-state public school can easily run you $15,000 to $20,000 a year. We paid $40,000 a year for M’hijito’s four-year degree at a private liberal arts college.

Two years of graduate school will take you to the M.A. (assuming you’re trotting right along): add another $30,000 to $80,000. A professional degree will set you back even more: the Great Desert University, which bills its law school as “among the lowest of all American Bar Association accredited law schools,” presents in-state students with a tab of $35,041 and bills out-of-state students $47,606. At GDU, a Ph.D. in a less marketable subject, such as English, runs from $7,052 a year for in-state students to $19,606 a year for out-of-state students (not counting books, housing, food, transportation, and personal costs); attaining a doctorate can take six to eight years.

So… A bright mind, a bachelor’s degree, and a few years of on-the-job experience probably will put you in a position to freelance as an editor, a writer, a graphic artist, or a computer programmer. Let’s figure the start-up costs:

Computer: $1,000
Printer/FAX/Scanner: $300
Internet connection: $360/year
Software:$300 (e.g., indexing program, etc.; assumes MS Office comes with computer)
Student loan: $8,724/year (approx: $60,000 repaid over 10 years at 8% interest)
Office supplies: $200
Desk: $300 (Ikea or other knock-down furniture)
Chair: $100 (Ikea or other cheap furniture)
Total: $11,984

Assuming you could bill 30 hours a week (a generous estimate, indeed!) and you needed a pre-tax income of $40,000 to live on, you would have to gross $51,984 a year to get by. Giving yourself two weeks of vacation time, you would have 1,560 hours in which to earn that amount, meaning you would have to gross $33.32 an hour: consistently and steadily.

This doesn’t count items that would be in your house anyway, such as a telephone connection, air conditioning and heating, water, and access to a bathroom and kitchen. And the biggie: it doesn’t include health insurance!

If you had a low-end master’s degree that you managed to complete in only two years, you’d add $30,000 to the cost of your training (assuming you count books, living expenses, & the like). What the heck: let’s pay that back in 20 years instead of a mere 10; at 8% that would run you $426 a month, or $5,112 a year. This actually brings your annual overhead down to a mere $7,672; to get that 40 grand of pre-tax income, you’d need to earn $47,672, or $30.59 an hour over fifty thirty-hour weeks.

Hm. What if you had a Ph.D.? Let’s say eight years of graduate school at $14,000 a year, since research assistantships and fellowships usually cover most of your living expenses. Again, you pay it back at 8% over 20 years: $936.81 a month, or $11,244 a year! This puts your annual overhead at $13,804. Now you need to pull in $53,804 to end up with a pre-tax, pre-health insurance take of 40 grand: $34.49 an hour.

In any of these scenarios, you’re having to earn $30 to $35 an hour and bill 30 hours a week consistently for 50 weeks a year. That’s to bring in an amount that’s just enough to call a living wage. Sort of.

6 thoughts on “What’s an intellectual worker’s real overhead?”

  1. To pull in new clients over the long run, you’ll also need a business web site (site-hosting costs, plus site-design costs if you want it looking professional). You’ll also want to pay annual membership dues to a profession-related society, such as the Editorial Freelancers Association, for networking purposes and so that you can be listed in its online membership directory for potential clients to find you. If you’re highly specialized—for example, you’re a medical copyeditor—you’ll need to pay for some occasional continuing-education courses and conferences to keep up with your field. And you may sometimes want to advertise in publications that potential clients read and on web sites that they frequent.

  2. You might want to also think about the time you are spending on the company. Usually you need to figure how much you are worth elsewhere as well and how much that cost would be.

  3. The Great Desert University pays me about $32 an hour plus some fairly decent benefits/ TM earns a tiny fraction of that — $240/month less than she was earning as a research assistant! And as an RA, she got a tuition waiver, which about doubled her de facto pay.

    For both of us, this enterprise is a side job, so it’s not taking us away from the hours in which we would earn those amounts. For TM, a $35/hour rate represents a significant improvement on what Our Beloved Employer pays her. For me, $1,800 a month would increase my income from “just OK” to “pretty good.”

    In Arizona, very little editorial work is available elsewhere, all of it is exceptionally ill-paid (this is a right-to-work state), and none of it is so unstrenuous as to leave us time to run a business on the side. I earn more than I could make anywhere else; she earns about the same as what a real-world employer would pay.

  4. Cost of education is astronomical – when Obama/McCain say education is the answer – have they taken into account the salaries needed to compensate lost time, etc?

    For recent grads, don’t go without insurance! Certain states let you stay on the family plan, which is often cheaper than an individual plan. More info here.

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