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Is sex work a profitable business?

A diagram of Michael Porter’s Five Forces based on an image from Porter M. E., Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985), page 5.

I once had a lady come and visit me for the day in Christchurch from Wellington because she wanted to interview me to figure out whether or not she should be a sex worker. She already had a great job which she loved, earning a salary of around 65K, and had just become engaged to a lovely man who was on a 6 figure salary. While she was with me, she took a call from her fiance (who knew that she was visiting me) and I heard him say “I’m just really worried about losing you if you do this.”

(She was) a really lovely, good person though and would definitely scrub up well enough and gain the confidence to provide a great service as a #sexworker.

I was honest with her about how much I earned and what was required, and yes, she really loved sex and lots of it and liked the idea of leaving her job and becoming a full-time sex worker. She was around my age, pretty – not stunning as her fiance had told me before I met her but attractive enough – and seemed quite intelligent, although she didn’t have an especially lively personality. A really lovely, good person though and would definitely scrub up well enough and gain the confidence to provide a great service as a sex worker. I told her I thought she would do reasonably well.

I have noticed that many sex workers talk up how much they earn and how long they can keep doing it for.  I like to look at any business opportunity more logically so I’ve decided to put Sex Work through the Porter’s Five Forces analysis.

#Sexwork is indeed a great way to make quick, easy (if you enjoy it) money, but the conclusion is that initial profitability on entry into the industry is not sustainable, even in New Zealand where it is legal.

Sex work is indeed a great way to make quick, easy (if you enjoy it) money, but the conclusion is that initial profitability on entry into the industry is not sustainable, even in New Zealand where it is legal.  This is possibly why it is difficult to get a loan or mortgage from a bank if a lady is exclusively a sex worker.

Looking at sex work in terms of Porter’s Five Forces, it is arguably not a profitable business.

1. Threat of New Entrants

The most attractive segment is one in which entry barriers are high and exit barriers are low. Sex work has got to be the easiest industry for a lady to enter, especially now that it is legal.  Hardly any money is needed upfront, if any.  At the most basic, a lady just needs a corner to stand on, sometimes she doesn’t even need to be good-looking.  Otherwise she can walk into any massage parlour or escort agency and ask for a job.  Given the difficulty some have retaining staff, it is likely that she will easily get a shift.

Government Policy: Even though it is illegal for ladies without residency visas, or who are not New Zealand or Australian citizens to work here, the fact that Immigration New Zealand does not seem to enforce this adds to the ease of entry into sex work by many more than the number on New Zealand sex workers legally able to work here.  It has been estimated that at any given time, illegal workers out-number the legal ones by two to one on New Zealand’s largest online advertising directory.

The more profitable the industry, the more attractive it will be to new competitors. Sex workers trying to make a living have a high threat from new entrants on an ongoing basis.

Industry profitability: However, even without this issue of illegal working girls being more or less condoned, the more profitable the industry, the more attractive it will be to new competitors. Sex workers trying to make a living have a high threat from new entrants on an ongoing basis.

2. Threat of Substitutes

A substitute product uses a different technology to try to solve the same economic need.  For example, street-based sex workers or ladies in walk-in parlours can be substituted by independent ladies who advertise online; or those in an online escort club such as Private Arrangements (where apparently clients pay $600 a year for the first year of membership, and $300 per year after that where they can access attractive, mostly mature ladies who charge no more than, say, $120 per hour); or one of the Sugar Daddy websites such as Seeking Arrangement.  Any of these can easily provide substitute products for clients who wish to purchase sex services.

I have not included other online services or apps such as dating sites, Tindr or casual “hook-up” sites like Ashley Madison, as the product on offer while it is assumed to be sex, is not sex for money.

In the USA, where #sexwork is mostly all illegal, there are still substitutes available - consider the abundance of Cam Models.

Buyer propensity to substitute… Legal barriers are also effective. Except in the case of New Zealand where the illegality of some sex workers are ignored.  However, in the USA, where sex work is mostly all illegal, there are still substitutes available – consider the abundance of Cam Models.

Relative price performance of substitute. If sex work providers seem more attractive and happen to be offering services for less money, clients may switch to those providers.

Buyer’s switching costs. There are no costs to switching escorts, regardless of the higher or lower prices of competitors. Clients are never legally locked in to seeing one service provider with a financial penalty to switch.  An exception is Private Arrangement, which as I mentioned, charges a fair bit to have access to the ladies, which may be a disincentive to switch to a substitute.

Number of substitute products available in the market: For example, when the market has lots of ladies available in situations such as the number of options I listed above, substitution is very easy.

3. Bargaining Power of Customers

Buyers’ power is high if buyers have many alternatives. It is low if they have few choices. The ability of customers to put a [sex worker] under pressure, also affects the customer’s sensitivity to price changes. For example, it can hurt sex workers who try to raise their prices to seem more desirable than other sex workers unless they are significantly better as far as appearance, service, or at least the perception of this goes. It can be a hard one to pull off, and many a lady has been forced to put her prices back to where they were when the phone stops ringing post price rise.

I believe the impact of clients’ ability to put sex workers under pressure, because of the amount of competition local sex workers have, is to blame for the number of clients who ring around asking for natural services or dirt-cheap services. Of course, some clients will always argue that the sex work market should have as many ladies as possible because the market should be free, (allowing for more buyer bargaining power.) As you would.

(Having a differential advantage) is the same premise as in niche marketing where long-tail keywords are used, except that with #sexwork, the ratio of buyers locally to local providers is still a factor.

Differential advantage (uniqueness) of industry products: If a lady has a unique quality, such as an exotic race, or few other ladies advertising in her age bracket, or offering a unique kink, this has the potential to impact on bargaining power of customers who want only that service. This is the same premise as in niche marketing where long-tail keywords are used, except that with sex work, the ratio of buyers locally to local providers is still a factor. Niche marketers selling intangible products, or tangible products which can be delivered all over the world, are a different kettle of fish.

4. Bargaining Power of Suppliers

Suppliers of raw materials, components, labor, and services (such as advertising) to the [sex worker] can be a source of power over her when there are few substitutes. Suppliers may refuse to work with the [sex worker] or charge excessively high prices for unique resources.

There are many things that a sex worker needs and she can be held to ransom unfairly because of this. An example which many ladies cite, is the apparent monopoly that one of the online advertising websites has, with comparatively high prices compared to other online advertising directories, and their insistence in the past that the ladies they advertised were exclusive to them, foregoing all other online directories (I believe this exclusivity policy has since been changed, although I feel it makes little difference to sex workers, due to the dominance the main one has fairly and squarely in the market). There are actually many other online directories, but the one I’m referring to has many useful add-ons, such as an active reviews forum which brings punters in and allows ladies the opportunity to increase their profile and network, and in my experience, this directory produces excellent results for my advertising dollar.

Likewise, accommodation providers can have the upper hand turning ladies away or charging a lot for the extra towels sex workers need because they know that there is nowhere else who will allow them to work.

If a #sexworker gets banned from the advertising service she uses, or the agency which her regulars frequent will not give her the number of shifts she needs, it can seriously impact on her #sexwork earnings.

Go-betweens such as agencies, also have bargaining power. If a lady works at an agency because she has a perception that being an independent would be too difficult or unsafe, the agency can take a cut that ladies may think is unfair, but may be reluctant to argue with.  If a sex worker gets banned from the advertising service she uses, or the agency which her regulars frequent will not give her the number of shifts she needs, it can seriously impact on her sex work earnings.

It is possible for sex workers to leverage their knowledge of the industry as an insider to address the threat of suppliers by becoming one.

For example, some sex workers go on to become suppliers of advertising, starting their own escort directory websites, or buying into brothels or massage parlour businesses, selling photography services, or supplying accommodation in their houses which means that they never have to pay these costs themselves and they reap the other obvious benefits of an extra income source.

5. Competitive Rivalry

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Having an understanding of industry rivals is vital to successfully market a product. Positioning pertains to how the public perceives a product and distinguishes it from competitors. A business must be aware of its competitors marketing strategy and pricing and also be reactive to any changes made.

Sustainable competitive advantage through innovation: Most independent sex workers who are serious about remaining in the sex industry strive to set themselves apart from other sex workers as better and more desirable. Excellent reviews from clients help, as does gorgeous advertising imagery and an enticing persona, which can include developing a twitter or forum personality, (or abstaining from networking in this way and retaining a sense of mystery). As well as that, unique services are desirable, and a reputation for hygiene and good health is mandatory.

Powerful competitive strategy:  Many sex workers create innovative services and ways of working to suit their best clients and create more business, particularly where big chunks of money can be made more quickly.  These may include seeing more people in one booking and offering extra services, such as anal, which not all ladies wish to do.

I have also seen escort agencies offering Orgy events, where a limited number of men pay an amount of money to have sex in an open situation with 4 or more escorts, all safely of course.  I also know of an agency who put on stripping events at a local lounge bar with a large door charge.

Level of advertising expense: The most expensive advertising in New Zealand costs $500 per week and very few ladies seem to take this option up. I have not ever tried this myself as the prices I charge do not justify such an overhead, and as there is only one of me and I can not work more than I already do, I am happy to stick to the advertising I use which gets the results I wish for.  I do occasionally advertise elsewhere for free, or less money, and will expand on my advertising experiences in another blog post.

However, the point is for independent sex workers, we can not advertise for more work when we already are at our capacity so there is not much point spreading our advertising too far if we already have enough work for the one person that is ourselves to supply.  However, higher advertising spend when our prices are higher, or when we are offering higher priced services, e.g. offering other services as mentioned above which are more highly priced or specialist services, (dominatrix services, for example) improves any business when spent correctly and in the right place.

Touring is a strategy that some independent sex workers employ, basing themselves in one city and regularly travelling to other centres where they soon acquire regular bookings from clients who prefer the variety of touring ladies to the locals. However, touring requires a lot of money for accommodation and travel and, unless she is able to see more clients than usually possible in her home town, touring is not really worth it for the cost and effort that it takes.  I tend not to tour except when I have lots of clients in that area asking me to visit, or I have another reason to be there anyway.

As well as that, ladies often feel vulnerable working from motels or hotels and if they are working from accommodation that is not working girl-friendly, trouble from the hoteliers is likely to ensue, since the volume of visitors arriving and leaving alerts staff to what is happening.

In every area a #sexworker goes to, she is in the position of being new to that area, as well as not being available for long, which is a psychological motivation for many clients to spend.

However, a successful sex work tour can really boost ones coffers as well as increasing ones profile in those places. And travelling frequently means that in every area a sex worker goes to, she is in the position of being new to that area, as well as not being available for long, which is a psychological motivation for many clients to spend.

Intense competitive rivalry does not allow for much profitability. One way to be profitable is of course not to have the basic expenses in the first place, a very large one being income tax, GST etc. So ladies who avoid paying tax have a huge advantage – including those who travel to New Zealand and work in the sex industry illegally, who also have the differential advantage of their uniqueness, so they can easily cause clients to substitute the product of sex available from locals with their own product as a sex work provider.   Lack of intervention by visa enforcers seems to ensure a smooth and profitable ride, although there is still an approximate 3% chance of being caught and deported according to estimations based on the ratio of deportations which have been publicised to the likely number of illegal ladies who openly advertise in New Zealand.

The benefit that New Zealand sex workers miss out on when overseas ladies come to New Zealand and work in our sex industry is that they are unable to travel to the countries where the illegal international sex workers are from because sex work is likely to be illegal there, or limited to sex workers in their own countries or in the case of some European countries (where sex work is legal), limited to sex workers with passports from the EU.  I recently heard from a New Zealand citizen who attempted to do sex work in the Netherlands, and was arrested and kept in jail for five months.  If there was a reciprocal arrangement between countries like the one New Zealand has with Australia and the European Union countries have with each other, it would go some way to balancing the numbers of sex workers in each country.

Local ladies who avoid paying tax also have a short term advantage supposedly by having extra income but only if they earn such a small amount of money that they do not plan on banking it or using it in any way.  Often clients ask me if I pay tax, and I happily tell them that I do pay tax on every single dollar.  When they ask why I don’t keep some of it out and use cash, I tell them that if I did that, the money is no good to me as I can not use it for any long term benefit of mine.

Presumably the reason for agencies not collecting schedular tax is to protect the privacy of the #sexworkers, although agencies must check their photo identification when they start working there anyway.

Interestingly, although “entertainment” is a category where business owners are required to take schedular tax from their contractors, the sex industry seems to be exempt, and ladies who work in agencies are expected to take care of their own tax situation, which contractors must do anyway, with the owners of the agencies not collecting schedular tax.  A case which two former strippers lost in the employment court, found that strippers (and therefore other sex workers) are indeed contractors, not employees, but this point raised the question (in my mind) of why, in that case, has schedular tax had not been collected by the owners of the establishment?  Presumably the reason for agencies not wanting to or not having to collect schedular tax is to protect the privacy of the sex workers, although agencies must check their photo identification when they start working there anyway so that they are not breaking the law by receiving income from underage sex workers.

How to Fix Unprofitable Sex Work in New Zealand

If sex workers had a registration system before being able to advertise online or anywhere, like they do in Victoria, Australia, and which was monitored and enforced by the all-powerful Inland Revenue Department, this would help to make sex work a more profitable situation for those in the industry who comply.  This is because all five forces would be affected.

  1. It would be more difficult to enter the industry as registration before advertising would first be required, immediately eliminating illegal overseas and trafficked sex workers and underage sex workers;
  2. Substitution of registered sex workers with non-registered sex workers would be less easy unless advertising sex workers were replaced with non-advertising sex workers, for example, ladies who are street-based and therefore don’t require advertising and would not need to be registered.  There are already fewer street-based sex workers than independent sex workers who advertise online, due to the difficult conditions of working outdoors, so threat of substitution is less relevant;
    For ladies who are being trafficked and working against their will, traffickers would not be able to advertise them and their #sexwork business would not be busy/profitable, which could be a disincentive to traffic…

    There may be an “underground” of non-registered sex workers who don’t advertise, but as they don’t advertise, clients would find it difficult to find them (unless they have an existing relationship with them).  If they are ladies who are being trafficked and working against their will, traffickers would not be able to advertise them and their sex work business would not be busy/profitable, which could be a disincentive to traffic sex workers to New Zealand.  It would likely also be less attractive for law-abiding clients who don’t wish to be in the thick of any dodgy goings-on, as it would become obvious which legal ladies they can choose, as these ladies will be able to register and advertise.  As well as that, enforcers looking to rescue trafficked ladies would know that they do not need to bother investigating registered international ladies who can advertise openly, and can make more effort breaking into any underground operations.
  3. Bargaining power of customers by those who attempt to procure unsafe services and haggle prices would be much lower, as there would be fewer sex workers available and those that are working legitimately, can truly set the terms and prices that they need;
  4. The bargaining power of suppliers possibly remains the same, although if online sex worker directories were forced to run the advertisements of only those legal sex workers who have a registration number included in their advertising, a large number of advertisements (an estimate of 66%) of those unable to register would have to be dropped, leaving the main online advertising directory slightly vulnerable for a time, which could result in sex workers paying lower advertising prices, and/or other online escort directories having an easier crack at capturing a bigger share of the market. This would be an advantage for one smaller online directory in particular which is run by a sex worker and her partner, whose policy of not allowing any illegal workers to advertise with them would mean the number of advertisers would be unaffected, (even though they are on record as not supporting Section 19 of the Prostitution Reform Act (2003) where sex workers from other countries are not allowed working visas*), because most of their present advertisers would legally be able to continue advertising once registering;
  5. The competitive rivalry remains the same, except that the playing field would be evened out when the competitive advantage of having more income when the large chunk of money that is not being paid to the IRD would now be paid, would be the same for everyone.

* The issue of Section 19 of the Prostitution Reform Act (2003) where sex workers from other countries are not allowed working visas could possibly be changed to allow sex workers who wish to work in New Zealand legally to be able to work here by applying for a work visa, if Section 19 was changed to allow for that. I agree that it is discriminatory for sex work to be excluded from the work visa category, however, it is not a good idea to lobby for this change, in my opinion, until a registration system is in place for advertising, because clearly it is already too difficult to monitor and deport illegal and trafficked international sex workers as things currently stand, and a change to Section 19 would further complicate the situation.

The extra some people can possibly earn from #sexwork is not worth it considering time, money and effort spent raising their profile by getting great photos and spending money on advertising etc

Back to the lady from Wellington, what did I advise her to do? I told her that with all the information about her situation and how sex work would change things, she would be best to stay put working where she was, as after opening my books and showing her my latest financial statements, after paying tax, GST and all my touring and working expenses, all I had paid myself was just over 65K. The extra some people can possibly earn from sex work is not worth it considering time, money and effort spent raising their profile by getting great photos and spending money on advertising, accommodation and travel when touring etc.  Of course, I am a mature escort, but mostly I take as many bookings as other ladies from a variety of age groups who I have worked alongside.  There are others who earn a lot more, and many who also earn a lot less.

As well as that, from talking to her fiance, who thought his sweet, gentle fiance was his perfect lady, I think that the changes which sex work inevitably brings to ones self, ones life and even ones appearance, may have impacted on their relationship in a bad way.

The honest truth is that not everyone is cut out to be a #sexworker and if they sat down and thought about it, they would realise that they will be worse off in the long run and should just not go there.

It turns out that they got married and bought a house. I was lucky enough to catch up with her at a social event we both attended. We had a brief chat, sex work was not discussed or referred to as we were not in the company of other sex workers, and she is very happy with her life in general from what I could tell and is busy living happily ever after with her loving husband.

I have seen lots of sex workers come and go. Some have hated it. The honest truth is that not everyone is cut out to be a sex worker and if they sat down and thought about it, they would realise that they will be worse off in the long run and should just not go there.  On the other hand, for some ladies it is the best thing they have ever done and their lives and that of their families would be shit without sex work being legal.

To maximise sex work profitability, new sex workers should make a plan to leave the industry and before then, to work as much as possible, especially at the beginning, keeping a tight rein (reign!) on their spending so they can save as much money as they can.

Italicised comments of the Porter’s Five Forces framework are taken from the Wikipedia page. Michael E Porter is a Harvard Business School professor.

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