Cost model for transcription · Dec 3, 02:58 PM by Ken King
I recently posted a response to Michael Arrington’s thoughts on podcast transcription.
In that post, I discussed some background about our pricing, which focused primarily on the topline and questioning whether it would make sense to provide transcription services for 33¢/minute as per Michael’s proposal. I’d like to elaborate a little more on the cost model for transcription and the reasons why I believe $1/minute is currently the market rate.
At first glance, $1/minute seems high – “Wow, that’s $60/hour!” However, there’s a lot more to the story, and I’ve attempted to tell some of that story below:
Audio time vs Transcription time
The first thing to consider is that the rate is based on audio timecount, not the actual work required to transcribe the podcast. A professional transcriber with appropriate equipment and software typically transcribes one minute of audio in about 3-4 minutes. So, right off the bat the topline is $15/labour hour (25¢/minute) in the best case scenario.
Labour costs – contractor model
In my experience, most service businesses have client billing rates at least 3-5 times their labour costs for contract labour that is only paid for billable hours, and therefore purely a variable cost. This is simply a rule of thumb, but the differential exists to ensure that the company has enough gross margin to cover marketing, R&D and other overhead and, of course, profit for the owners.
Applying that model here, we’d end up with a contract rate of at most $5/hour. Bear in mind that this is for freelance work with no guaranteed paycheque and requires investment in specialized equipment and software in addition to having a computer and broadband access. Freelance rates typically range from 2-4 times fulltime wages (which helps compensate for the lack of guaranteed hours). We’d therefore be looking to do the work in a country where skilled, educated labour appropriate to this work would normally earn $1.25-$2.50/hour at a full-time job.
Labour costs – full-time staff model
The alternative method is to work with full-time staff, lowering variable costs but increasing overhead. If you start with one full-time person doing transcription, the cost would work out as follows:
Start with 2000 hours available (50 weeks x 40 hours/week). Many service businesses use 80% as a target for billable hours, but the real number is closer to 50%. Using 70% as a middle ground yields 1400 billable hours per year, which translates to 21,000 audio minutes (4 labour minutes per audio minute) or $21,000 in gross revenue at $1/minute.
Evaluating the trade-offs
If we were to go with an assumption of $2/hour as full-time labour cost, the cost of transcribing one minute of audio would be 13¢ ($2/hr=$3.3¢/minute x 4 minutes of labour) vs 33¢ for contract labour ($5/hr = 8.3¢/minute x 4 minutes of labour). The break-even point for going with full-time staff instead of contract labour would be 20,000 minutes of audio (20¢ differential in gross margin divided by the full-time salary of $4000/yr).
Considering how close this is to the employee’s capacity (21,000 minutes of audio/year), it’s difficult to make the case for full-time staff in this situation, especially given other considerations such as being completely dependent on a single source for the work.
Sources of Labour
This raises the question, then, of where the labour can be sourced at rates that make $1/minute viable (let alone 33¢/minute). Dr. John Rutledge posted some information about manufacturing labour rates. Bear in mind that the $1/hr and $2/hr rates listed for India and China respectively are for manufacturing labour. I think it’s fair to assume that the rate for skilled labour would be somewhat higher, and so we’d be pretty close to the bone in paying the rates discussed above.
Transaction costs
Payment processors (like PayPal) want their cut of the action. This typically works out to about 4-6% of the transaction. For example: the starting rate for a low-volume business at PayPal is 30¢ base fee, plus 2.9% of the transaction. For a $10 transaction, that works out to 59¢, or 5.9%.
Conclusions
There are none, really, other than to provide some backup for the existing market rates for transcription services.
