Figuring Writing Investment Return
The topic tonight comes from a couple people asking how a writer could figure ROI (Return on Investment) on their writing without following the numbers. More on that below.
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THE DAY
Slept late, raining solidly here today. Nasty kind of rain, not our normal dump and then the sun comes out. I did errands, snail mail, bank, grocery store, other things, then got to WMG offices around 5 p.m.
Worked there until 6:30 on Smith’s Monthly, then home to cook dinner, then back to WMG to work on Smith’s Monthly and do some work on the new store.
Then home to do workshop assignments and e-mail. Done with all that around midnight, watched The Voice, then got back in here around 2 a.m.
I worked on another project for an hour, then went and did some walking to get past the 10,000 steps, then around 3:30 a.m. I did a session on the book. And got some stuff figured out. I thought I had put in one of my worthless loops, but as I wrote tonight it became clear that the loop was important. Ahh, good. I hope.
But only 1,100 words. Then went back to work on the other project that doesn’t entail writing. I’ll explain at some point.
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In case some of you coming here on Monday or Tuesday missed the announcement last week, we have one new online workshop starting up in December. Plotting with Depth. Details a few posts down or under the online workshop tab above. This workshop is on the schedule through March.
And also, for two months only, we are bringing back Designing Book Interiors workshop. Just December and January for this one.
December Workshop Schedule
All workshops have openings.
Class #51… Dec 7th … Advanced Depth
Class #52… Dec 7th … Character Voice/Setting
Class #53… Dec 7th … Adding Suspense to Your Writing
Class #54… Dec 7th … Ideas into Stories
Class #55… Dec 8th … Character Development
Class #56… Dec 8th … Depth in Writing
Class #57… Dec 8th … Plotting With Depth
Class #58… Dec 9th … Designing Covers
Class #59… Dec 9th … Writing and Selling Short Stories
Class #60… Dec 9th … Designing Book Interiors
Classic Workshops and Lectures are also available at any time.
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Don’t miss the last two days of the fantastic mystery bundle that I am lucky enough to have a book in. This a stunning deal for the books involved, including a fantastic collection of Scudder stories by Lawrence Block.
Only two days left!!
And if you haven’t read any of my Cold Poker Gang mystery novels, here is a great chance to do so.
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TOPIC OF THE NIGHT: Figuring Writing Investment Return
I have covered this a few times, but seems that when I told people that following their book sales numbers was an addiction, it brought up this question about how to judge their success or failure.
I suggested that writers follow their money (not sold copies) once a month, do a quarterly summary, and a yearly summary. More than enough to follow any trend and what most businesses do.
So how to understand what is a good result and what isn’t a good result when following only the money???
Fact One… Copyright is a form of property.
Fact Two… When you create a story or a book, you have created property you own.
So how much did it cost you to create that property? That’s key number you need first.
And you must count your time in some fashion or another. I tend to use $50 per hour for a reason I have explained many times. Figure out your own rate.
Count art costs, cover time, copyediting expense, office expense, and so on. Come up with a rounded-up number per title.
So let’s make this easy with a simple example.
You have written ten books. You add up the costs of all ten books and you find you have invested about $25,000 in getting those ten books out. (Not all cash out of pocket… a lot of that will be your time figured at your hourly rate, remember.)
So you have a $25,000.00 investment.
Now, you track your income for one year for those ten books. You get about $2,500 total income from those ten books in a year. (If you were tracking sales numbers, you would be depressed at that.)
Divide the $2,500 by $25,000 to show that you got a 10% Return on Investment that year. A great return in any investment world.
(Note: A 10% investment usually takes time to work up to in most investment circles, if an investment ever gets that high.)
But look at what that means per book for a moment to get that fantastic return on investment.
$2,500 divided by 10 books = $250 income per book for the year.
$250 divided by 12 months = $20.89 per book per month.
That’s all you need. Just track the money. And realize that for any property investment, 10% per year is a fantastic return.
Of course, we all want to do a ton more than that. But this simple calculation in following the money and keeping perspective will help you understand that your writing is earning a really nice return for you, even when you think your sales numbers are not great.
The key, as all indie writers know, is to keep pouring more and more investments into your investment account. (Just as you do with 401K accounts or stock accounts.)
Stop following the sales numbers. Kick the addiction and just do what normal business people do, follow the money in and out monthly.
And then figure your return on investment to keep yourself sane.
You might be stunned at how really well you are doing, even with books you are thinking “What’s the Point.”
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The Writing of GRAPEVINE SPRINGS: A Thunder Mountain Novel
Day 1…. 2,450 words. Total words so far… 2,450 words.
Day 2….5,300 words. Total words so far… 7,750 words.
Day 3….7,100 words. Total words so far… 14,850 words.
Day 4….2,250 words. Total words so far… 17,100 words.
Day 5….6,300 words. Total words so far… 23,400 words.
Day 6….2,450 words. Total words so far… 25,850 words.
Day 7….2,700 words. Total words so far… 28,550 words.
Day 8….2,100 words. Total words so far… 30,650 words.
Day 9….1,450 words. Total words so far… 32,100 words.
Day 10…2,750 words. Total words so far… 34,850 words.
Day 11…2,250 words. Total words so far… 37,100 words.
Day 12…1,150 words. Total words so far… 38,250 words.
Day 13…1,250 words. Total words so far… 39,500 words.
Day 14…1,100 words. Total words so far… 40,600 words.
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Totals For Year 3, Month 4, Day 16
Writing in Public blog streak… Day 827
— Daily Fiction: 1,100 original words. Fiction month-to-date: 45,500 words
— Nonfiction: 00 new words. Nonfiction month-to-date total: 00 words
— Blog Posts: 900 new words. Blog month-to-date word count: 12,600 words
— E-mail: 28 e-mails. Approx. 1,900 original words. E-mails month-to date: 351 e-mails. Approx. 20,100 words
— Covers Designed and Finished: 0. Covers finished month-to-date: 1 Covers
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Am I missing something here? I’m no accountant, but doesn’t the ROI in your example translate into -90%? I’m using a calculation like this: http://www.investopedia.com/terms/r/returnoninvestment.asp
Granted, your ROI should increase with time since you’re not always going to be adding new covers or doing much extra work per book, but it still appears like it’s going to take awhile to recoup the original investment, let alone make a profit.
With the ROI in the example, doesn’t this imply you need substantial savings beforehand if you’re putting out a lot of work? Either that, or you’d hope for most of your work to really take off and produce a much greater return.
Andrew, you forgot the time. In the example, cash out of pocket might be all of $300 per book. The rest is time costs. So no substantial savings needed. It is all just done slowly, as each book gets done.
The key is never think of recouping your investment. Why?? The book is still just sitting there earning. It hasn’t gone anywhere. You are thinking manufacturing, not investment. In manufacturing, getting your set costs and manufacturing costs back is critical. But in investment, the investment is just sitting there. The key is how much the investment is earning you per year.
Or, you could do as a lot of writers do, and we used to do in traditional, once the book had a short produce life, it would get tossed in a drawer. Never to earn another dime. Then we had to think of our writing as manufacturing. But now, with books selling off into the future, they can be thought of as investments.
I had a little 5k word non-fiction thing that sold a copy here and there, and continues selling at that rate to this day. I watched the sales daily, and it really got me down. Couldn’t get motivated to write making $2 here and there.
Then I added it all up after two years, and that one book which friends said I was charging too much for (given the size) had made about $100 each year, and is on track to continue doing so.
Imagine if I’d spent those two years writing more books of similar length and quality. Now, with a new pen name and awareness of the cumulative nature of royalties, I hammer out 500-5000 words a day and let the deposit notifications tell me how my fiction is doing.
(I made the same mistake with these fractal art t-shirts I started selling, but then I checked the 12 month report)
Hi Dean,
First, I applaud your ongoing efforts to get writers to approach their careers like a business (which it is).
One thing about ROIs though is that not all “I”‘s are created equal. Some Invested property, like the money I put in a retirement account, is itself readily spendable. Other investment property, like, well, property, is semi-spendable (depending on slow-moving market conditions). The key to both is that there is a ready market for the invested capital itself. Not so with the intellectual capital behind the books.
Another common business measure is how long it takes to recover your investment. In the above case, it’s 10 years, a somewhat daunting proposition for writers for whom money is hard to come by. This one does reinforce your two main keys to success as a writer: publish a lot, and be in it for the long haul. And of course you can shorten the time-to-recoup using your third – be on sale everywhere.
Best,
Michael
Another point (my inner MBA is out in full force) – your calculations above are technically for “profit” not ROI – ROI covers the life of the investment (when, in most applications, it is sold, anywhere from seconds to years after the investment starts). In your example, taking a 10 year time period, the ROI would be zero (or negative, including the time value of money). However, as you often point out, self-published books are on the shelves forever, at which point ROI would be a juicy Infinity 🙂
Michael, not talking to accountants and MBAs here. (grin) Just trying to get people with little or no business experience to look at their writing in a way that doesn’t recoup investment, but instead only focuses on what the investment is earning per year.
And you are correct in your other post, of course, about investment being semi-spendable normally. Even 401k can be pulled and spent with costs.
I try to think of a novel as a house. You build it, you lease it, it earns for you. At times you need to paint it and fix it up and it’s magic because it can be divided down (where the hotel metaphor works better) and parts rented off for short or long term.
Sure, if this was a regular house, it could be sold in total (as writers do to traditional publishers) and the writer walk away with cash, but it is so much better over the long haul to let the investment just work. So yes, I know, not exactly a ROI, but close enough that non MBAs get the point. (grin)
Thanks for the comments.
Taking 10 years to hit the break even point is a heckuva a long time. Most of us don’t have the luxury of investing our time and waiting that long to start making a profit. If you were on your own, paying rent or a mortgage, in your 20’s and just starting out, it seems like you’d need more immediate return on your time to make this work.
For people who have a full-time revenue stream and who write on the side, this is great. For people who write to pay their bills, they need a more immediate return on their time, don’t you think?
Nope, I never had it. Almost no one comes into writing rich, so you work other jobs and build your investments over time.
And I write to pay my bills. Yeah, I know, weird, huh? Been doing it for 30 years now. Go figure I might know what I’m talking about.
And I might remember the thirteen years I worked a day job, tending bar, living in a shitty apartment, so I could write more and travel and learn more.
Yeah, go figure. I wouldn’t know anything about making my first sale in 1974 and finally going barely full time in 1987.
Those who get in a hurry and think they can do a major profession like this in a couple of years just annoy me something awful, in case you didn’t get it. I’m trying to help people THINK LONG TERM and work for their art. If you do anything else, history has proven with thousands of writers that you will be gone in a few years.
Sorry you are in such a hurry to beat an international profession. Good luck on that.
This sort of thing doesn’t make sense to me either. Never has. Has anyone ever picked up a guitar and immediately started making their living as a rock star? Has anyone ever had one round of singing lessons and immediately moved to a music capital under contract? Tools are not expertise and owning tools will not make a living. Owning a wrench doesn’t make me a mechanic. Owning a blood pressure cuff doesn’t make me a doctor. And the ability to use two long strokes and a short one to form a capital letter A doesn’t make me a writer. Thanks for all you do, Dean.
As far as I’m concerned, Dean is 100% correct in his prognostications about what happens to writers who follow the numbers and try to hurry things along. How do I know this? Because I was one of them.
Long story short: For about four years, I followed Dean’s advice, which is really Heinlein’s advice, except on one point: I checked my numbers every day, and I kept track of which stories and books sold, and which ones didn’t. Early in 2014 — around March, I believe — I decided what Dean was saying was wrong. Look at all of these other Indie Writers making it big by doing exactly the OPPOSITE of what he was saying. Monkey see, monkey do. The blind leading the blind. Nine months later, in December 2014, I quit. And when I quit, I said, and I’m not kidding, “What’s the point?”
Recently, I started reading Dean’s blog again — something fun to do in the mornings, you know, like rehashing the “glory days” (a sad, sad thought, indeed) and these last few posts have been a light shining in the darkness. What I realized was this: I sold my soul for the sake of a buck.
And to put a rotten cherry on top of this rotten cake, when I think about writing again, I get that sick feeling I had so many years ago when I first started. I can’t do this. It won’t work. I’m not very good. I’m going to fail.
So writer beware.
Ahh, bummer, Jeff. The key now for you to come back into writing is to just not care about the outcome. Do the best you can and have fun, then move on.
Having fun with the writing, writing what excites you, is the key to opening back up the creative voice and running that critical voice the numbers caused to the curb.
Any questions, feel free to write me. I hope you can regain the joy of just telling stories. On this stuff, even though I have watched it more times than I can count, I hate being right. I flat don’t want to be.
So go have fun.
I feel ya, Jeff. I’m running into something similar, except it’s against my will.
When I started indie publishing, I didn’t expect much of any return. Then I started getting “pizza” money and felt great. At some point, however, I started making enough for my family to count on to cover some bills. That’s the dream, right? Except, because of a few life issues that cut my number of releases for a while, and random behavior of the market, my income recently tanked. Now I’m scrambling to bring it back, and I’m making weird decisions about my writing that I know are probably wrong, but…well…desperate.
Writing has become a drag. Some days, I actually hate it. Worse, I’m not getting a whole lot of writing done. Which increases the panic, because if I don’t write and publish, I’m not going to bring in any more income. I’ve created a nasty tailspin for myself that I’m trying to break out of.
Anyway, let me be an example of what can go wrong. I let the short term get the better of the long term. Kind of by accident, but still… If you want to continue loving your writing, Dean is right. Trust me. 🙂
Rob, not fun. And we all slide into these traps mostly by accident or life events. Somehow you got to stop making the writing important, just go have fun with it, have fun with producing a lot of stuff, which I know you can do without a problem, and then let the money happen where it does. The focus on fun and telling story after story is the key. Focus there. And hang in there.
Former CFO here.
I spend about $1500/book. If I released 10 books and made $2500, I would consider that a complete failure and look at my product to figure out why I’m not selling more. Books are not an investment. They are a product. This is not passive income–that should be clear based on the Uniform Tax Code. Unless you continue to write and push your books, they will stop selling, and you cannot depend on making a viable living, and by viable, I mean at least six figures. So your “investment” in your business never stops, even after the publication of that book. The only number that matters, IMHO, is net income. Either you’re putting money in your bank account or draining it. That is the only thing that is relevant when you have bills to pay.
Jana, at the base level, I agree. Watch net. Remember, I’ve been making my living for 30 years now at my writing. I do understand, honest. (grin) Just trying to help writers over the early years is all.