I just posted this in response to a service provider who commented on my earlier post, Ebook Madness: Don't Confuse Ebook Conversion With Ebook Formatting! In his comment on that post, this gentleman said he only charges $40-50 for the typical formatting AND conversion job, and asked if he's not charging enough.
My answer was an emphatic YES, and I'm reprinting the full response here because I think both service providers and those who seek their services need to get a better understanding of the economics involved. Here's my response, in full:
Yes, you are most definitely not charging enough to either do a thorough job or earn a living wage, though I'm sure you don't realize it.
Let's assume you begin with an MS Word file containing 300pp, which is the typical length of a typical novel. Let's say you charge your higher end estimate of $50 to do the formatting and conversion.
You can take $22.50 right off the top for self-employment taxes**, leaving you with $27.50. But you still have to pay income tax on that income, and even if we assume you're in a very low bracket, say 25%, you're losing an additional $6.88 in income tax, which means you're really only earning $20.62 for the job---and that's before taking out your expenses, as you should be doing before figuring your net income.
**UPDATE - several have questioned my math on the taxes, and since I know math is not my strong suit I'm willing to defer to their judgment. But even if the taxes are only $10 per $50 you get paid as a freelancer (and I'm pretty sure they're quite a lot more than that), you're still only earning slave wages by the time you take all the expenses, weekly hours you don't have booked with paying work, and weekly hours you spend on non-paying but necessary stuff like billing and promotion into account.
Your electricity, internet access and software aren't free. Neither is the cell phone you probably use sometimes for communicating with clients. But I'm fairly certain you're not taking these items, or the taxes, into account because if you were you'd realize you're barely earning minimum wage on each job.
Getting back to those 300 pp...let's assume you spend two hours reviewing the MS Word file and making your formatting changes. Even if you use a bunch of scripts or other automated processes to do the formatting changes, you MUST at least LOOK at every single page to be sure you haven't missed anything that needs to be reformatted to be ebook -compliant. Two hours only allows your 120 minutes total for the job, or 24 seconds per page to review each page AND make any additional formatting changes as necessary. If the MS Word file you've been given is filled with lots of funky and inconsistent Styles and/or formatting, the job will take even longer but again, you have to at least look at EVERY SINGLE PAGE to know if this is the case.
At this point you haven't even done the actual conversion step, or the (absolutely necessary) step of reviewing the converted file---again, if you're doing the job right this means looking at EVERY SINGLE PAGE---yet. Let's allow another 15 minutes for the conversion, since most of that work is done with automated tools, and another 5 seconds per page to review the converted file, which comes out to 25 minutes more: a total of 40 additional minutes, or 67% of an hour.
If you find any irregularities in the converted file you'll have to go back and revisit the formatting work and then repeat the conversion and review steps, but I'm sure your $50 price point doesn't take that possibility into account, either.
So in reality, if you're doing as thorough a job as you should be (by which I mean you're looking at EVERY page both before and after the conversion), it should take you a minimum of 2 hours and 40 minutes to complete a formatting + conversion job on a 300pp manuscript of a novel. It takes considerably longer for a nonfiction book with many images, tables, figures, charts and the like.
Since I've already calculated you're only making $20.62 total for the job after taxes, and at the minimum you should be spending 2.67 hours on the job, that works out to an hourly rate of $7.72 per hour---and again, that's AFTER taxes but BEFORE expenses.
If, on the other hand, you're NOT reviewing every single page both before and after the conversion, then I'd say your work isn't thorough enough.
So if a freelance service provider says they're willing to do your ebook formatting and conversion job for $50 or so, there are only three possibilities: either that person isn't paying him- or herself a living wage, or that person is not paying his or her taxes, or that person is not doing a thorough job on your book.
(No disrespect to the commenter, I am not familiar with his work so I can't comment on it, but most of the time what's going on with these lowball estimates is BOTH that the person isn't paying taxes AND that he or she isn't doing a thorough job. Most service providers who offer such ridiculously low prices are only using automated formatting and conversion tools, and if they bother to look at individual pages at all it's only to do some minor spot-checking.)