Demand for translation and the individual freelancer
(This article is now summarised and linked to from this blog post where you can make comments. And sorry, but some of the CSA links no longer work.)
As I write (June 2009), we are well into an economic slowdown or recession.
Businesses all over the world are cutting costs, including cutting the pay of employees or putting them on short-time working. News reports highlighting such moves by companies in the public eye has led some translators to wonder whether they should cut their rate per word, be it voluntarily or in response to a request from a client. I am not one of them, but I did decide I needed to rationalise my intuitive response, if only to check that I am not mistaken. This article is the result.
(In fact, I am not one of those people who obsesses particularly over word rates or the application of reductions in word rates because of matches and fuzzy matches in translation memories. My interest is in getting a fair day's pay for a fair day's work. I am open to any and all approaches to how that happy situation is achieved.)
At the same time, and by no means unrelated, anecdotal evidence (which is my highfalutin way of referring to translator forums and private emails) is suggesting that for many translators, workloads are not as heavy as they were a year or more ago.
Freelancers are not employees
The first obvious point to make is that we shouldn't be thinking of charging less just because companies are cutting salaries or indeed the amount they pay contractors (e.g. Barclays, Capgemini). We are not employees; we are not part of anyone’s payroll cost. Freelancers are not a labour cost. So if we do cut rates, we should not do so (or be asked to do so) for that particular reason. What we essentially provide is a product in the form of a document in a different language, and that product is essentially what companies are paying for. (For the sake of this article at this stage, let us disregard the by-products such as potential improvements in the source text, and yes, I agree we are in a service industry, but it is one that typically does actually have a demonstrable physical deliverable, which I am stressing here because it is the deliverable, not ancillary services, that many clients focus on, especially the sort that are price sensitive).
However, in addition to cutting payroll costs, clients of all kinds may be looking to cut the amount they spend on goods, products and services they bring in from outside in general. In so doing, they may seek to pay a lower unit price for the same quantity of product, or they may simply buy less of it. They read the financial pages, it's what everyone is doing...How should translators respond? (Note too that this piece may not apply to absolutely every sector, but I hope the general principles will apply to most situations where “market forces” (supply, demand, price) govern the decisions that lead to translations being ordered – commercial, government, NGOs, etc.)
Some economic analysis
In the discussions I have seen, it seems that there is often a certain lack of clarity of analysis. I would propose we need to examine the issue from two angles. First, the translation market (or one's particular sector) as a whole. Second, the individual freelancer's own situation.
Naturally enough, when considering the issue of whether or not to drop, or indeed increase, prices, the subject of supply and demand arises. Everybody seems to know, or think they know, that if prices fall, demand rises. If prices rise, demand falls. So if you are short of business, drop your rates. Simple, isn't it?
At this time (June 2009), it seems anecdotally that overall demand for translation is down. I have heard the argument (and I agree with the principle) that just because you (or I) are having a quiet month, it may not be the recession that is the cause. Random fluctuations happen to everyone from time to time. However, after a while, if enough people are having these "random fluctuations" in a negative direction without corresponding surges in demand for (the same or other) individuals' services to compensate, then clearly overall volumes of translation business are down. (I concede the counter-argument that perhaps I simply am not aware of or in contact with those who may, hypothetically, be experiencing surges in demand, not to mention that they may be too busy to report on the fact in places I am likely to see it.)
Conversely, Common Sense Advisory reported (at a now dead link www.commonsenseadvisory.com/members/res_cgi.php/090513_QT_2009_top_30_lsps.php) a total translation market in 2008 of around 14 billion US dollars compared to 12 billion in 2007. However, they did say that growth was slowing - but slower growth is not a decline. On the other hand, it is now mid-2009 and some of the companies used as the basis of the report had their financial year end in mid-2008. Which is when I personally certainly noticed that the number of offers I was receiving started to drop slightly but noticeably.
But whether demand is in fact up or down at this point, there are some basic principles governing demand for translation services, I believe. In any given situation, translation is not usually an optional or discretionary cost. You either need the translation in order to deal with the situation, or you don't. Translation rarely falls into the category of "nice to have", meaning "budget constraints permitting". (Obviously there are some, e.g. where a translation is provided as a courtesy or goodwill gesture.)
If the market (the overall market, or any one segment) is shrinking, it is not because end clients are foregoing translations in order to make sure they can still afford chocolate biscuits for the Board meeting or paper for the photocopier. It is because business opportunities overall are shrinking in number as the recession hits the world economy as a whole, and therefore the number of opportunities arising where translation is required is falling with it. It is, if you like, the other side of the coin to the situation as described by Common Sense Advisory in its report on the top 25 translation companies in 2007 (link now dead), when the world economy was still enjoying rude health, "the main driver for growth was increased sales in an economic environment favourable to international trade and relations". If the economic environment is less favourable to international trade and relations, one possible result is a fall in demand for translation.
The other point to remember here is that while translation may be essential to many projects and situations, it is not typically the reason for the project's existence. Translation is usually an ancillary activity (with obvious exceptions where translation is indeed the raison d’être for a project, such as localisation).
Back to economic theory. Under conventional elementary economic theory, if demand falls in a market, then a fall in price should be enough to stimulate demand and make everyone happy again. If demand for gloves falls, then if the price of gloves is reduced by 10 euros, demand will rise again. This kind of understanding is perhaps the basis for the suggestions from both freelancers and clients (especially some agencies) alike that a drop in rates will rectify any drop in demand they may be experiencing.
However, that is a gross simplification, because changes in demand for translation are not caused by anything intrinsic to the translation market itself. Cheaper translations are (with one or two rare exceptions) not therefore the factor that will suddenly turn a currently unprofitable venture into a profitable one, and thus generate a need (demand) for translation to be carried out.
If demand for translation is falling, it is because organisations are curbing their activities in general, and there are fewer occasions where translation is needed. Dropping the price of translation will not suddenly boost organisations' activity levels and therefore boost demand*. To return to the gloves example, if the situation is that the winter is an exceptionally mild one, then people simply won't need gloves and won't buy gloves just because they are a bit cheaper. For gloves in a mild winter, read translation during a recession.
(*That said, I concede there may be – must be – projects where the profitability is marginal, and where a reduction in any of the costs, including translation, may be enough to lead to a decision to proceed. However, I think that the proportion of project costs taken up by translation for most organisations' projects is small enough for this factor to be negligible most of the time. Equally, there may be some projects, such as rolling out software to a new country, where the translation cost is in fact a significant proportion of the costs as a whole. Under these circumstances, demand for translation is indeed sensitive to the cost of translation itself.)
So, I would contend, for the translation market as a whole, the situation is that if demand is down, it will largely not be responsive to price reductions to boost demand, because the price of translation is entirely unrelated to the reason for the fall in demand. In most situations, a client either needs a translation or he doesn't. The overall demand for translation is affected by the number of situations in which translation is needed, which rises or falls for reasons usually utterly unrelated to the cost of translation itself.
That said, of course the price an individual translator charges will affect the demand for their own individual services, but that is not the point at issue here (see later, however).
Lastly, of course, there are undoubtedly some translation sectors unaffected by recession, and some may even be flourishing. Translations that are specifically related to the impact of the downturn, dealing with topics such as insolvency, plant closures and redundancy, spring to mind in the latter category. Reading the relevant sector/industry press should give clues about activity levels in general for any given segment. Not only that, but "the economic situation" may lead some organisations to make changes (positive or negative) which themselves may lead to a demand for translation services (such as relocating to a cheaper country).
Swings and roundabouts, then, and your mileage may vary. But generalised price reductions strike me as logically highly unlikely to stimulate demand from end-clients. So there seems to me little point in reducing prices as some kind of general policy by the freelance community as a whole (such as it is). If we are noticing less demand in our particular segment or from our current set of clients, the solution most probably lies in finding demand for translation elsewhere, not in trying to stimulate demand from that set of clients by dropping our rates.
So much for the overall translation market and its lack of response to price.
The market in which a freelancer operates has a relatively unusual structure, as I said here. In a nutshell, freelancers will often (maybe even mainly, but not always) deal with agency clients, and the unusual feature of this market is that there are relatively few clients (agencies) compared to suppliers (translators). I am not going to repeat myself too much here, but the link above puts forward the theory that this market structure explains why many agencies feel empowered or entitled to set the rates paid to translators (rather than the translator, as the supplier, setting the price), which in essence is because agencies know there are plenty of translators selling to relatively few clients and too often consider translators as a homogenous, interchangeable resource.
And remember, this applied even when the world economy was going well. Even in the good old days, a large number of agencies either told translators what the rate was, or gave heavy hints ("we don't pay over x"). In that respect, being told what to charge is nothing new...
That article also suggests the solution - which is to specialise. You can then be in, or approaching, a situation where suppliers are fewer in number than clients, and in a more familiar territory in terms of economic theory; territory where, for example, suppliers routinely set prices, or at least negotiate them on a more equal footing with the client, who may still choose to go elsewhere but does not have 3,000 translators the same as you a mouse click away. It is also worth re-iterating a point made in that article, which is that for some work, that article may accurately represent the situation and for other jobs it may not. Bluntly, for some projects, the translator may well be told the rate, for others, he/she may have more control.
Of course, having stated that demand (again, I stress, overall demand - your sector may differ) may have fallen in volume, then there is, therefore, assuming the market was in approximate equilibrium at the outset, an excess of supply. Again, my evidence is not statistically significant, merely anecdotal, but I have seen more people asking for suggestions for how to fill the slack periods, which could indicate a rise in the number of translators with spare capacity. And when I say “approximate equilibrium” I mean just that – as the link suggests, the nature of translation price setting in some sectors is down to an excess of supply in the first place.
Economic theory would indicate that the level of supply will eventually fall, assuming that suppliers (freelance translators) need to be economically active. Those suppliers operating at the margins - who need, in order to survive economically, to work at a certain percentage of capacity and if demand for their services falls below that percentage, they are operating at a loss, will leave translation, and go and be economically active elsewhere. Others may combine translation with some other way to earn money (admittedly both of these are possibly easier said than done during a recession).
Yet perhaps the excess supply will not follow the course of Janet-and-John level economic theory, as the freelance translation market exhibits yet another factor that makes it different, more complicated. I have seen at least one poll indicating that perhaps 50% of freelance translators are not full-time and not the main breadwinner for the household. Their capacity is variable, able to a large extent to rise and fall along with demand (by which I mean both demand in general and demand for that individual’s services). That makes for a significant proportion of translation capacity (supply) at a stable price that can be turned on and off like a tap.
In the interests of balance I should point out that as businesses fail, some people may join the sector, especially as barriers to entry are low to non-existent (no large capital outlay at the outset, no regulation of practitioners, etc.).
But regardless of that, within the likely parameters of the current situation, I think that supply-side factors on price can be disregarded.
Much of the headline grabbing cost-cutting by businesses of late has involved areas which are significant cost items for the companies concerned, in particular employee (and contract staff) remuneration. “Significant” here might mean a relatively large proportion of total costs, or indeed not that large a proportion but simply a substantial amount of money owing to the number of staff involved. The same may apply to any area that is the focus of cost-cutting.
As I have already said, with some exceptions, for end-clients, translation is unlikely to be the primary focus of cost cutting, simply because for most end-clients, it is a cost item that does not draw attention to itself by virtue of either the relative (proportional) or absolute amount spent on it. While waste and excess are to be avoided at all times, it is simply unlikely to be the most efficient use of company resources to drive down the cost of a 2-page translation by 5 euros. Whereas if you can spend time persuading 4,000 employees to take a 100 euro/month pay cut, that is time well-spent. I would suggest that while a direct client may optimistically ask for a lower price in keeping with the zeitgeist, he is unlikely to press the point if the translator rejects the suggestion – unless the project is huge, for example, the potential absolute saving is substantial and it is cost-effective for the end-client to spend time on negotiation. The wise negotiator would also need to factor in the time required to find an alternative supplier to our stubborn freelancer – that would perhaps depend very much on the individual concerned.
However, for a translation agency, of course, the cost of translation is a key factor.
Anecdotal evidence (again!) suggests some translators are being asked by agencies to reduce their rates. Not just individually, in the way that may happen under negotiations for a given project. I am referring to agencies simply asking every translator they use to consider reducing their rates by x%. Or indeed imposing such reductions unilaterally (See also here). In other words, the agency wants the same product, they just want to pay less for it. One wonders why they did not ask the question in 2006 or 2007. I can only deduce that the explanation lies in the fact that during the good times, when economies are growing and there are opportunities around every corner, the time spent haggling over x euros in translation costs could be put to better use negotiating deals to bring in ten or a hundred times that amount for the agency (an argument that also applies to end-clients, of course).
THE AGENCY FACTOR
It is, I hope, clear that in the above few paragraphs, "demand" means the demand for translation from end clients and "supply" means us humble freelancers.
However, our industry has the intermediary of the agency to be considered. End clients are not, in practice, able to select from the entire supply of freelancer translators potentially able to meet their particular need, they will typically go via an agency to meet that need, unless they have the contacts and time to do otherwise. Freelancers likewise do not have unfettered access to and knowledge of all end clients. They will work with a limited number (relative to the total number in existence) of agencies and the effective demand for freelance services will therefore be dependent to a large extent on the number of end clients the agencies manage to secure.
I would venture to suggest that the comments made so far about demand and prices also apply if the words “freelance translator” are replaced by “agency”. The overall level of demand will not typically be stimulated by the agency charging less. End-clients are only likely to spontaneously apply downwards pressure on prices if translation costs are significant, or if they want to start a bidding war or reverse auction – which is often completely outside of the freelancers’ sphere of influence, until the request comes from the agency to reduce rates.
Agencies will and do compete to secure end clients on the basis of price alone, and some have always done so (i.e. the current situation has not changed their attitude). When it comes to supply as viewed from this perspective, I have seen several comments that there are simply too many agencies chasing certain accounts, and that some agencies may offer price reductions even when not prompted to do so by end-clients. It may be a simplistic and self-serving view, but we should remember that even where agencies are competing on price, the amount they charge the end-client is not solely made up of freelancers’ fees. They could cut costs elsewhere. But freelancers’ fees are perhaps usually the largest single cost item (even if the agency mark-up on the rate the freelancer charges is over 100%) and a ripe and easy target for cost reduction, particularly in some market sectors, as pointed out already.
Consequences for the individual freelancer
At this point, it might be worth thinking about rates/prices and freelancer earnings for a moment, independently of any other aspect. Why do you charge the rates you charge? Presumably, without going overboard on the details of rate per word and words per hour and hours per week, and taking it as read that we would all like to earn a little more and would prefer not to earn a little less, the balance has been struck between your standard of living and your earnings, and your earnings are just reward in your eyes for the time you spend working, as calculated via the rate per word. I do not mean that you (or I) view this balance as a permanent equilibrium to remain unchanged until you retire, merely that you accept your current position as an equilibrium of sorts, whereby:
rate per word x words per hour x hours per week/month/year = standard of living
Unless there is serious deflation, the costs that the freelance business needs to cover are unchanged. Most freelancers do not factor in margins (at least, not of any significance) that they can negotiate with. We typically charge what we charge because we need to earn a certain amount to pay for our standard of living as consumers, and if we earn less overall revenue then our only response is to spend less.
Naturally then, if lower word rates are applied to the formula, there are three outcomes ceteris paribus:
- accept the fact our revenue is lower, and adjust our lifestyle accordingly (and effectively accept doing the same work for less money)
- translate a larger volume of words to compensate, which would typically involve either working longer hours or spending less "time per word" (if you can imagine such a concept) than we do now
- chuck the formula out the window, leave translation and earn a living some other way.
Voluntary rate reduction?
I hope it is clear that I would argue that even if all freelance translators knocked a fraction off their word rate, that would not have the effect of stimulating demand in the translation market as a whole, so some kind of vague "I'll drop my rates and demand will increase" notion is very much a non-starter.
As regards individual direct clients, I hope the "demand" section above also made it clear that I think that any spontaneous rate reduction is unlikely to generate business. Our end-clients are either doing business (I use the term broadly) which will generate a need for translation, or they are not. With a few exceptions, as outlined above, translators offering to translate more cheaply is not going to stimulate business for them.
That said, of course, if you know that your direct client is giving work to more than one freelancer, and if you know that the demand is there and you are not being selected to meet that demand, then competing on price is one option. Although in truth, that statement applies whether the economic background is good, bad or indifferent.
And quite frankly, the same largely applies to agencies. While they may well be competing with other agencies on price, if they are not actually asking translators to reduce their rates, they must be trimming costs or their margins elsewhere to do so. However, it should be pointed out that agencies are rarely very open about the rates they pay other translators. It is entirely possible that you are more expensive than other freelancers on the agency’s books. New translators are joining the industry every day, and some will be cheaper than you (especially perhaps new starters driven into a career change by the recession and keen to start earning in a new sector) and possibly just as good. It is possible that you have just slipped down the list of people that get called when a new job comes in. I don't see how any translator can realistically find out without asking the kind of questions that make it clear they are concerned and thus, potentially, a ripe target for an imposed rate reduction. Which would be a major bummer if it really was just a temporary quiet period in your field for that agency.
And before going on, it should also be noted that (again anecdotally, although I have seen it given as a cast iron fact in one published guide to the translation business) many clients, particularly agencies, are resistant to rate increases at the best of times (for reasons not unrelated to those given here), and that when the good times return, the best way of increasing rates will probably be to change your client base - new clients at new rates - involving extra effort, of course (and commensurately potentially less time actually working, earning money).
Rates are a thorny issue at the best of times. There can surely be no doubt that translators can alter the demand for their services with existing individual clients (direct end-clients or agencies) by raising prices. I don't think I need to run extensive (and costly) tests to prove that if I put my rate up to 1 euro per word, I would be unlikely to get much more work from agencies and my direct clients would be pushed into seeking alternative suppliers. In a nutshell, we are all able to increase rates in order to reduce a level of demand that we know is available.
It is however much less clear that dropping rates will in practice cause demand to emerge that was otherwise being met elsewhere. I would suggest this depends very much on the client in question. If a translator knows or suspect that there is demand being met by other (presumably cheaper) freelancers, then it is one option. But it could be that the client (whether direct or an agency) simply does not have any translation work for you to do, because, as outlined above, activity in general in your segment has fallen.
Note that this is very much the micro level. We all understand this, but it is worth saying explicitly - in changing my prices, I am only affecting my own supply and demand, not that for a sector or the translation market as a whole. Will new clients come flocking if we just drop prices without increasing our market's awareness of the fact? No. We would need to advertise the fact. So if we are "doing marketing" anyway - why not target sectors and clients that are less price sensitive?
I might also add that none of the above is specific to recession situations.
Other arguments against voluntary rate reductions for current clients are:
- it makes the translator look desperate and ripe to be exploited in all sorts of ways
- it may imply the translator was overcharging previously and could potentially lead to a complete breakdown in the relationship with that client
- it demonstrates a lack of solidarity with the profession as a whole, contributing to a downward spiral. I don't know if a person with rent to pay and kids to feed in the short term can afford the luxury of solidarity, even if it could prove of benefit in the long term, but it is a point of view....
Imposed or requested rate reduction
I would imagine that direct clients are unlikely to ask, unless translation is a significant budget item. Or they have been contacted directly by another freelancer charging less. Or there is some new bean counter keen to make his mark.
Because many agencies assume the translation business works as described here, if they actually wanted you to decrease rates, they would say so.
I would say in both cases the translator's response can only depend on individual circumstances. If you fear you may starve to death in two months' time or so (by the time you've done your invoice and it has sat at the agency for a month or so before payment rolls around), you could accept the reduction. Anecdotal evidence suggests that sometimes a refusal to accept results in no more work ever, sometimes work levels fall but it continues to come in, and sometimes the whole issue is forgotten within 10 minutes, and things carry on as normal. I fear economic theory is of little value in predicting what will happen. But as I said, you may have 2 months before you will even feel the effect of the rate reduction in your bank account. Perhaps that time could be spent seeking new clients at your target rates. Meanwhile, I would be sorely tempted to ask for an explanation of the rationale behind the request for the rate reduction.
As I have already posited, although freelancers have access to only the merest smidgeon of the entire translation market, an agency does have far wider access to a market worth billions (of pounds, euros or dollars) and which, while it may be price sensitive to a degree, is not directly driven by price, as outlined earlier. I would suggest that an agency that wants translators to reduce prices would be advised to spend time looking for quality end clients with positive long-term prospects. Because quite truthfully, if an agency says it needs to shave (even fractions of) eurocents off previously agreed and accepted word-rates to remain in business, then:
a) there must be serious doubts about its long-term viability, in which case translators would be well advised to look elsewhere before one day an invoice remains unpaid
b) it is taking the piss, its viability is not actually in much doubt, it is merely seeking to protect or increase its profit margin. Which it is entitled to do in a free market, but I would rather it didn’t do off my back.
First, I don’t claim to have all the answers. While I don’t believe anything I have written above is wrong per se, it could be incomplete, and I may have overlooked a crucial aspect which changes everything!
Second, I strongly believe that in many areas, universal truths are rare – and this is one such area. In reading the above, you may have thought “that doesn’t apply to my situation”, in which case, act accordingly.
Third, a conclusion is liable to merely repeat the key points already given above, and this piece is already quite long.
All that said…
If your workload is shrinking, the appropriate response is probably (but not necessarily) not to volunteer to reduce your rates with existing clients. I hope I have demonstrated that there are limited circumstances where this would increase your workload (your own personal demand level), and attempting to find out whether those limited circumstances apply may leave you vulnerable to exploitation. So even if this approach is “successful”, for want of a better word, the expected outcomes are:
a) your workload does in fact increase to previous levels, but you are earning less revenue for doing the same volume of work as previously
b) your workload stays shrunk, but your clients now know you are feeling a uncomfortable, and may take advantage.
The solution, in my view, is to hunt down some new clients, at current rates (or even a smidgen more, to leave room for negotiation).
If you are requested or indeed instructed to reduce your rates, the immediate short-term response has to depend on your circumstances, the proportion of revenue that the client represents, etc. In the longer term, again, I believe finding new clients is the appropriate response.
Meanwhile, prevention is better than cure. Strive to keep the clients you have and represent good value for money rather than being competitive on price alone. Whether or not translation is a service may, as I said at the top, be debatable but quality of service is a concept that nonetheless applies. So, add some value, be easy to work with, and deliver what clients want and expect, on time, every time.
List of ramblings, musings and what have you