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.
This is the last of the basic three set-up chapters. After this one, we start getting into more detail on specific areas.
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 profit is not your intent, fine. Different strokes for different folks.
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 over the years. 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 Incorporated 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 (2015)
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, that is your decision. No one is forcing you to value your work at any level.)
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 50,000 words), Long collections: $5.99 to $7.99
Gross Income Expected: $4.20 to $5.60 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 (2014).
Short Collections, Short Novels: $9.99- $12.99 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 $2.00 to $4.00 per sale, depending on where sold. Use $3.00 for calculations.
Also, I am not counting Audio editions at all. But that is a vast source of income coming into 2015. Do them yourself or use ACX, either way, audio is worth the effort, but calculate the costs just as with others forms.
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 and sell to distributors 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. A huge factor.
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.
Also, during the last two years, the 99 cent price range developed a reputation for low quality among regular readers overall. So caution there unless you are using that price as a discount short-term price. Readers love short-term discounts.
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.
This, as the world shifts, had become a deadly tool. It has missed so far lately that even though traditional publishers have used it over the last few years, they have become cautious of it and are offering advances far under what their “best-guess” for sales might be.
They also use an author’s track record. If the author’s last book sold 50,000 copies, then it USED TO BE 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 again, with sales changing so quickly, traditional publishers are having a huge problem with this.
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.
And neither does the new world of Print on Demand trade paper.
Our books don’t spoil. And we have unlimited shelf space to display our books until readers find them or we push the book to customers with promotions. 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.
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 producing 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 + Time Costs + Overhead Costs divided by Gross Income Per Book = 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 get $2.00 per sale. (You have no paper edition.)
$10.00 (art) + $200.00 (time) + $20.00 (overhead) = $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.
If you book only sells one copy per month somewhere, it will take 115 months to break even. But it will still break even and keep going. That’s the key to remember.
Of course, I am NOT COUNTING any income from a collection the story might be in. That would bring the break-even point in even closer.
A side note for short story writers. You can often get 6 cents per word and up for a short story to a good market. A sale to a good market also helps you advertise your other work and most short fiction markets return rights within a year. Worth considering for any short story. Do the math and add in ad value minus the lost income for the time spent marketing. Selling a story to a major magazine is worth the time, folks.
Example: 5,000 words x 6 cents = $300.00. $800 value of 1/2 page ad in Asimov’s = $1,100 value.
Cost of doing the story is $220 (no art) plus two years lost sales time. (5 sales per month = $10.00 x 24 months = $240.00. Cost out is $460.00. Value in is $1,100.00. See why I say it has value to sell short stories to top magazines? That advertising value makes all the difference.
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, very, very, very, very, very rare these days.
In other words, you sign a contract for a standard genre book these days, you will never see those rights back again. (35 year rule will be your out, for those of you who understand copyright.)
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. I will have a passive income every month. For doing nothing. And if I figure out a way to promote it every year or so, or bring out other novels similar to it, that income can go up. For basically 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.
Copyright © 2014 Dean Wesley Smith