Think Like a Publisher: Chapter 3: Projected Income

Here we go with Chapter Three, the last of the “Early Decisions” set up chapters.

It’s been some time since I wrote the first version of Think Like a Publisher. Since I wrote those first chapters, Scott William Carter and I have taught three workshops by the same name, plus an advanced workshop helping indie writers make more money from their books. This fall I will be teaching a POD workshop on all the aspects of designing and selling paper books. (Watch for the announcement.)

And during those workshops and from comments and from hundreds of sources I learned a ton more information.

Plus the publishing company I helped start (WMG Publishing) now has a full-time employee and has published over 240 different book titles.

And the overall publishing business has changed as well. Amazing numbers of changes, actually.

As traditional publishers grab for more rights and become even more difficult to work with, more and more writers are moving to indie publishing. As they make the jump, they ask basic questions on how to do it, how to be treated with respect as a publisher, and even how to do simple things like setting up a publishing business.

An indie publisher is still a publisher, the same as any traditional publisher.

Think Like a Publisher 2012 is an updated version of the book from over a year ago, including some of what has changed and what I have learned over the last year or more. I’m sure in another two years I’ll do a third edition. Some things are changing that fast.

Every three or four days I will post a chapter for free here with a link under the tab above. But the entire 2012 edition is now available in both trade paper and electronic editions in all electronic bookstores (Kindle, B&N, Smashwords and so on) if you want to jump ahead of these posts. (B&N link also has the paper version through Barnes & Noble.com) Make sure you get the green cover. The red cover is the first edition.

Comments on each chapter are welcome and help us all learn, but keep the comments focused on the topic of the chapter, please.

I hope these chapters help you get a jump on learning how to be a publisher.

 

Chapter Three

Projected Income

To actually get a profit-and-loss calculation for a book project, you must now make some pricing decisions and projections of income.

Yeah, I know. I know. This is all so new, how can anyone predict how much money they will make on any project? Well, you can’t. Not really. But you can try. And you want to know a dirty little secret. New York traditional publishing can’t predict how much they will make on any book either.

But they try.

And that’s the key. To really act like a publisher, you need to understand what you are trying to gain. You need to know how many sales will get your expenses back. And you need to know at how many sales will you start making a profit.

So this chapter is about why you need to try to determine set income ranges, and how to do that at this moment in 2012.

This is the last of the basic three set-up chapters. After this one, we start getting into more detail on specific areas.

Caution!!

Here we go again, back into pricing. Remember, this discussion is about acting like a real publisher, not a hobby writer. Real publishers are in the business to make a profit. That’s the focus now, so please keep that in mind. If that is not your intent, fine.

Pricing

To determine any kind of income and sales potential, you must first make some pricing decisions. And you must decide as a publisher what your long-range goals are.

(Holy smokes have we had discussions about this topic here on the blog. Feel free to bring up the old questions again if you feel they have not been answered yet.)

Those of us involved with the starting of WMG Publishing sat down and talked about long-range goals. We all wanted WMG Publishing to become, down the road, a decent mid-sized publisher of fiction of all types from many, many authors. You might decide that your publisher is just to publish your work. That’s normal for indie publishing and nothing wrong with that at all. Or maybe your business mission statement isn’t to make any money, but to have a lot of people read your work. Fine as well, if you are clear for yourself on that.

The choice of mission statement will also determine your standard pricing. And your pricing will determine also how you sell books, both electronically and in paper editions.

(Ignore for the moment promotion discounts. I will cover that in a later chapter.)

The values we set for WMG Publishing changed over time, which is also natural, especially in a growing and changing market like this one.  But the values I will be using for this discussion on setting income are as follows:

Electronic Publication (2012)

Short story: $2.99.

Gross Income Expected: $1.80 to $2.00 per sale. Use $2.00 for rough calculations.

(Note: If you don’t feel right about pricing a short story at this level, especially the shorter ones, add in an extra bonus story. Then add the first story as a bonus story on the second. Just to get the world length up and the value up.)

Short Novels, Short Collections: $4.99.

Gross Income Expected: $3.25 to $3.50 per sale domestic. Use $3.25 for calculations.

Regular Novels (over 35,000 words), Long collections: $5.99 to $7.99

Gross Income Expected: $3.24 to $3.49 per sale domestic. Use 70% of the retail price for calculations.

(In the above calculations, Gross Income is after the fees and costs taken out by the bookstores and providers of electronic sales.)

 

POD Publication (2012).

Short Collections, Short Novels: $7.99 to $9.99 trade paperback.

Novels, Long Collections: $15.99 to $17.99 trade paperback. (Might vary upward with extra long books.)

Gross Profits on both are in the range of $3.00 to $4.00 per sale. Use $3.25 for calculations.

 

Why Pick These Prices?

These electronic prices are under traditional publishing ranges, yet not too far under to seem to be a discounted price. Trade paperback prices are normal traditional publication prices for trade paperbacks in the size range indicated.

For the trade paperbacks, the price range also allows WMG Publishing to do catalogs and give 40-50% discounts to bookstores as well.  (More on that in later chapters in Think like a Publisher.)

As I mentioned in the first post, there are three types of publishers. Discount publishers, high-end publishers, and middle ground publishers. We wanted WMG Publishing to be in the middle ground with the mass of most traditional publishers. To do that, the prices had to be in that range as well.

Also the price range we picked allows for promotional pricing at times when needed.

Again, all pricing decisions are based on the early mission statement and the hope for the future for WMG Publishing. With your own press, think about what kind of publisher you want to be, then figure your prices to fit in the range of that decision.

Also, keep some basic math in mind. If your motives are profit, you must sell ten books at 99 cents to make the same amount that you would make when you sell one book at $4.99. And since almost no traditional publishers do 99 cent novel pricing except rarely as a short-term promotion, a 99 cent price for a novel will label you as a discount or hobby publisher.

Calculating A Project’s Projected Income

Now comes the fun part. Hang onto your math brains. And let me stress again that not even traditional publishers know this number for a fact. If they did, publishing would be a very simple business without risk.

In traditional publishing, publishers have some tools to use in this area. For example, they can look at a book and then (like shopping in real estate) they compare to other books of the same length in the same genre with the same basic author recognition. So if a similar book sold 20,000 copies, then it is pretty safe to use that sales number in the current books calculation.

They also use an author’s track record. If the author’s last book sold 50,000 copies, then it is pretty safe to do a profit-and-loss calculation with that as the sales range. (And that projection then sets the author’s advance.)

But as an indie publisher, with no real track record yet, (and a world that is expanding into electronic publishing faster than most people can keep up with) how is it possible to make any real projections of sales?

Bottom line: It’s not.

Traditional publishers have functioned under the idea that a book is only active and available new to readers for a short time. Just like fruit in a grocery story. But unlike the produce model of traditional publishing of paper books, where books spoil and get pulled from limited shelving, electronic publishing doesn’t have that issue.

Our books don’t spoil. And we have unlimited shelf space to display our books until readers find them. And in this area, that makes all the difference. And we don’t print paper books ahead of time, but only to order, so we are not trapped into warehousing and shipping costs.

Traditional publishers had to hit their projections within a certain selling time frame before the book was pulled and another book took its place on the shelf. Indie publishers have no real time restriction at all. So instead of trying to guess at a total sales in a set time to determine the amount of money that can be spent on a project so that the project makes a 4% profit, indie publishers can calculate a different number entirely.

The Break Even Number

(Or… At what number of sales does a book starts earning a profit?)

Actually, traditional publishers have that “break even” number sort of in their calculations as well, but pay little attention to it.

Indie Profit-And-Loss-Calculation

For traditional publishers in the produce model, this profit-and-loss calculation is done on computers and has many varied factors. And actually, you also can set up this sort of program on a computer to plug in all your factors on every book as well if you have that bent. Art costs, layout costs, overhead in your office, time it took to write the book, and so on.

I don’t care to do that much work, to be honest. But I do want to know at how many copies sold will the book or story start earning a profit for WMG Publishing.

And I want to know that number BEFORE I start into a project.

If the projected expenses are such that a book would need to sell 100,000 copies to start earning a penny, I’m going to back away from that project quickly. Too many things could go wrong and I sure don’t want to be like traditional publishing where a book that sold 50,000 copies could be considered a failure. (It happens more than you can ever imagine.)

So an “Indie Profit-And-Loss Calculation” would run simply like this:

All Actual Costs plus Time Costs plus Overhead Costs divided by Gross Income Per Book equals NUMBER OF SOLD BOOKS NEEDED TO BREAK EVEN.

A Sample: A 5,000 word short story.

Your only actual cost is $10.00 for some art. Your time to write and launch the story is ten hours at a rate of $20.00 per hour. Your overhead costs for that ten hours are less than $20.00 so use $20.00.  You are going to add a bonus story to the story and sell the story for $2.99, so you get $2.00 per sale.

$10.00 + $200.00 + $20.00 = $230.00 divided by $2.00 = 115 books sold to break even.

If you average about 5 sales over all the sites over all the world per story per month, it will take you 23 months, or just about two years to break even on the short story and be into pure profit.

Of course, I am NOT COUNTING any income from a collection the story might be in.

Calculating Basic Average Sales Rate

My attitude about sales is that even though there are more outlets than I can count worldwide, (not counting bookstore sales of the POD) I want to do this calculation on the bottom of any sales I can imagine. My bottom calculation is 25 novels sold total per month across all sites around the world. And as I said above, my calculations for short stories are 5 short stories sold total per month average and 5 collections sold told per month average.

Now, at the beginning of an indie publishing career, that might sound slightly high, especially if you are only watching Kindle US numbers. But remember, before you even begin to see the sales for, say, January from Australia through iPad, it’s going to be seven or eight months later. And that is not counting that it might take three or four months for the book to even reach those Australian shelves through all the systems.

So, give things time to grow and don’t panic and get in a hurry. You are growing a business. (Again, a topic for a coming chapter.)

Just use the above math to figure how many books you need to sell depending on the price of your book to make back your expenses at the base rate of 25 sales per month for novels and 5 sales for short fiction and collections.

What happens next with the novel or story?

In traditional publishing, after 3 years you would have been paid your novel advance, the novel would have been published and vanished except maybe trickling along at 25% of net income for you from a few electronic sites.  And years and years would go by before you could even think of getting your rights back. Even if you signed a great contract. And that is very, very rare these days.

But for me, with my indie-published book, my novel or story is still just out there in thousands of stores worldwide, in a growing market, still selling. It has been there as inventory while I write and publish more and more and more books and stories to join it on my unlimited shelves.

The book just keeps on earning me money. Even bouncing along the bottom at 25 sales worldwide every month, I will have a passive income every month. For doing nothing.

Let me say that again. For doing nothing.

At some point I will have been paid for my time, my expenses, and then the book or story just keeps on earning.

And in this new world, there is no telling how long that passive income could flow. No way of knowing. None.

But the key up front is to try to give yourself some basic income projections when deciding on a project. And if the costs are too high for the project to ever earn back, move on. That’s what any publisher would do and you are now a publisher, remember.

Learn to think like one.

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Copyright © 2012 Dean Wesley Smith

Cover Photo by Edward Fielding/Dreamstime.com

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This chapter is now part of my inventory in my Magic Bakery.  I’ve talked about the Magic Bakery a few times in various posts, but just think of this column as a pie and I am allowing samples of the pie here. Understanding the Magic Bakery is critical to making good money as a publisher. So I will talk about it in these chapters coming up as well.

If you feel this helped you in any way, toss a tip into the tip jar on the way out of the Magic Bakery.

If you can’t afford to donate, please feel free to pass this chapter along to others who might get some help from it.

And I would like to thank all the fine folks who have donated over this last year. The donations and the comments both after the posts and privately are really keeping me going on this. Thanks!

Tip Jar: Go To Paypal

 

 

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15 Responses to Think Like a Publisher: Chapter 3: Projected Income

  1. Joe Vasicek says:

    Thanks for the post, Dean. One question: where do you get the 6 to 7 month reporting lag from? I’ve published through Amazon, B&N, and Smashwords, and the lag for the channels distributed through Smashwords is only about a month or so (including Apple).

    • dwsmith says:

      Joe, I don’t know about you, but I have yet to be paid through Smashwords yet for stories I sold on Apple last November because of their silly quarterly reporting at Smashwords added to the lag on payment from Apple. November through May 1st is 6 months I’m afraid. Reported, sure, but paid, nope. Smashwords gets to hold my money for a very long time in a business sense. Smashwords needs to change this payment stuff to monthly pretty soon. Mark is really smart in so many ways, and is helping us all in a ton of ways, but he has little or no public perception sense. I gave up trying to talk with him about how writers out here were talking about some of his problems because he just kept yelling at me in return. And I hate being the dead messenger.

  2. I’ve got 18-20 self-published titles posted now, some of which have been up for over a year (others of which have been up for barely a week). I track monthly sales on an Excel sheet in hopes of finding patterns I can learn from.

    So far? NO PATTERN DISCERNIBLE! Drives me nuts.

    I kept my expenses low when getting into my e-venture, and I went into profit early. Those decision have continued to work well for me–and since I started out with a long-range plan, I’m still using everything I spent money on last year (software, ISBNs, cover images, etc.) and have VERY few expenses at the moment.

    I don’t factor my time into my expenses or investment the way Dean does. I don’t think of this profession as an hourly-wage gig. When being offered advances, I contemplate whether the sum being offered is sufficient compensation for the months it takes me to write a book, or the days it takes me to write a short story or article, taking into account additional factors, such as: what I already make or normally make for similar work, how much I want (or not) to do the project, how much I want (or not) to work with the people or company involved, how much I do (or don’t) need cash at the moment, whether I think the project will (or won’t) help my career. (IOW, something that’s not on my career path and doesn’t sound that appealing to me has to offer a really good sum to be interesting to me; otherwise, it’s just not worth the time, effort, and focus it’ll take me to write it.)

    With ebooking, I’ve only worked on backlist so far, so there’s much less time investment that there would/will be for writing new work for self-publishing purposes. Deciding how to factor that time-ratio (writing new material) into my choices is something I’ll be contemplating after my backlist is all done (a goal which is still months away), but I won’t be using an hourly-wage scenario, since I always think of my work in terms of days, weeks, and months, not hours.

    And I have always treated my time very much the way I treated my initial investment in my e-venture, and the way I contemplate the prospect of taking money out of profits for future expenses in my e-business: How much time–or money?–am I willing to gamble on this project? When a publisher offers an advancem, that makes the bet a lot easier to decide. When ALL earnings are based on royalties for unknown sales patterns in the future, as is the case with self-publishing, that makes the decision tougher–and one for which I have not yet made any firm choices yet. It’s something I’m currently mulling for the future, rather than a current decision I’m wrestling with now. And I have to factor in that I get paid good advances by a publisher where am happy and which really wants me to write faster. So any gamble I make on writing new material for self-publishing -also- has to take into account how much time I’m willing to gamble on taking away from advance-paying work?

    A year ago (let alone 2 years ago!), I wasn’t interested in that formula. Now I am. Now I want to experiement with it. So now I’m thinking about it. With a lot of factors to contemplate, no decision yet.

    • dwsmith says:

      Thanks, Laura. I agree, which also answers Jim’s question about art. I have gambled up to $350 for art for major novel projects, some around $150.00 for major novel projects. But note I said “gamble” just as Laura did and I mean that word. Most of the time I spend between $5.00 and $20.00 for art and feel comfortable with that gamble.

  3. Jim Self says:

    Hi Dean,
    I haven’t seen your take on this, so let me ask. Everyone else seems to emphasize getting high quality cover art, even if it costs $200+ to hire an experienced professional. If the art is strong enough it makes sense that it would drive better sales. What’s your take on investing in cover art?

  4. Jim, apart from the obvious fact that getting a good cover (one way or another) is very important, I think what you (using the generic “you” here) spend on covers depends on what makes sense for your situation and your business plan.

    I knew from the start that I had about 25 backlist books to e-publish in the first year (or so) of my ebook venture. I wanted a business plan plan that would cover my whole 25-book backlist, not just the first 2-3 books and then wait-and-see.

    At $100-$300 per cover, that would have been a commitment of $2500-$7500 -just- on covers–without, at the planning stage, having the faintest idea how much this venture would earn. I felt that was too big a sum for me to gamble. So I crossed that solution off my list fairly early in the research/planning process. I also felt that in instances where designers’ prices were low enough that I could afford them, I didn’t think the samples I saw were good enough to merit my spending a total of $600-$1300 for 25 covers. Eventually–and since I had a little prior experience at it–I decided the best solution would be to do my covers myself. This was a considerable =time= investment; but doing -25- covers also ensured I got more skilled at it (and later went back to redo some of the early covers), so the initial time investment amortized, in a sense. And this saved me =thousands= of dollars on my start-up costs.

    If, by contrast, I had no backlist–if, say, I was self-publishing one finished book and writing another… I’d probably hunt for someone good at about $150/cover, and lay out $300 for my two book covers that first year, rather than spent (a LOT of) my spare time learning to -create- just 2 bookcovers for myself. I think with so few covers needed for the first year of the venture, the time-or-money ratio would be different from my perspective, and so I’d make a different choice.

    I did pay $100 to use an original drawing for the art on one book cover. Although I love the art and love the cover, it’s one of my least-commercial backlist books and lowest earners. I don’t regret getting that art (since I am, overall, well into profit), but it certainly doesn’t demonstrate that spending more makes a difference in sales. I’m also not at ALL sure anyone could pick out, looking at the 18-20 covers I’d posted so far, which one contains a piece of original art I paid $100 to use, rather than iStock art I got very, very cheap.

    Currently, there’s one book cover which I’m not satisfied with, and I haven’t been satisfied with any new versions I’ve tried to create. So after the whole first phase of my venture is done (i.e. all 25 backlist books posted), I’m thinking I might take $100-$150 out of my profits and pay a designer to do a new cover. I(Alternately, I’m thinking of writing a sequel to it, and THEN paying a designer to give me a multi-book package deal. So we’ll see.) Because it’s a specific problem (I just can’t come up with something I’m satisfied with) and a LIMITED expense (it’s 1-3 books), and it will come out of PROFITS, I’d spend that much on this scenario. (But I am very thrift, so probably more MORE than $150/cover.)

  5. Meg North says:

    Hey Dean, I’m going to mull over your post for awhile, so I won’t comment on it just yet.

    But …

    THANK YOU for clear-cutting the difference between a hobby writer and a professional writer/publisher. Years ago, my mother greatly insulted me by calling me a hobby writer (it actually altered our relationship), and you have just squashed that dreaded bug. I’ll never think of myself like that again.

    I want to make a profit. I am a professional writer.

    You go, Dean. You’ve made a real difference in my life today.

    ~ Meg

    • dwsmith says:

      I’m in Vegas working at the Superstars conference and having a blast. I’ll answer long comments when I get back.

  6. Dean, for WMG’s print books, do you guys allow returns? I understand that places like B&N will only stock a book if they can return it if it doesn’t sell.

    • dwsmith says:

      Still in Vegas… Will answer stuff tomorrow and Thursday. Matthew, will let your comments through when I can answer.

  7. Jim Self says:

    Thanks Dean and Laura for the answers. I don’t have a 25 book backlist, so getting people to notice my titles as they come up is important to me. I can probably con someone I know into doing it cheap.

    How about editing? My wife isn’t a famous editor, and good editing seems to be priced at about 2-3 times the cost of a cover (and up). Everyone says you can’t do it yourself, and I don’t have a writing group or alpha reader to speak of.

  8. Nelson says:

    Interesting. Something I have not done is do this calculation. Will start. Quick question on the Smashwords lag. Their site says reported through (for most of the retailers, like Kobo etc) Mar31st as of today. That means what I think it does, correct?
    Last I checked that number updated itself about quarterly. I’m registering zero sales across the board. Does this mean that the amount of books they report sold comes sooner than the sales they attribute to your books?
    Would like some clarification on this because I’ve asked them and didn’t receive much in the way of an answer.

  9. “How about editing? ”

    Zero advice from me in that area, since I haven’t dealt with this yet. I’ve been focused wholly on self-publishing old backlist (while writing frontlist for my publisher) for the past 18 months (and will still be so focused for several more months). And with backlist, I’m dealing with the MSs that were finished in terms of story-editing and sent to the copy editor in this condition. So now I’m just doing the copy edit (also a new line edit) myself–and the distance of time (years!) means my eye is fresh enough to do the copy edit.

    But in terms of editing issues with brand new works that have NOT been edited for story, and wherein I’m too close to the work to do the copy edit? I haven’t dealt with that yet and–given everything else I have to think about NOW–haven’t decided HOW to deal with it at such time in future as I work on something -new- for self-publishing purposes. So I don’t know yet and wouldn’t presume to offer advice. (Except to say that, in my own case, back when I was a new writer, I needed heavy story editing and line editing on my books, and I imagine that most other new writers need such help, too. There are also writers who never stop needing heavy editing, throughout their careers. So I don’t think I’d ever be likely to advise: “Oh, skip it.”)

  10. Matthew says:

    Dean – Heads-up on your wife’s website. When I tried to visit it through Google, it was redirecting to a Russian malware site (Google blocked it). Same behavior happens whether I search for an older article or simply kriswrites.com

    I have not tried to visit her site directly, due to this. But it certainly is happening through trying to visit it any way except for as a cached site when going through Google.

    Hope you can get it fixed without too many problems.

  11. Just noticed the same thing about Kris’ site. For me, I can get to her homepage, but then when I click on links to read full articles, it takes me to Google’s homepage.

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