Chapter Two:
Expected Costs
The first chapter was “The Early Decisions” which included picking a business name, setting up checking accounts, and so on. There were no real costs at all in those early steps unless your state had a small fee for registering a business name. Checking accounts are free, so are PayPal accounts, and so on.
So, the question on this second basic business-planning chapter is: “What are your expected costs?”
For those of you with a basic understanding of business, you can now see the structure of how I am setting up these chapters. Before starting into a business, there are certain things that need to be figured. Set-up costs, projected production and business costs, and projected income. You have no real data on the costs or the income, at least not accurate data, but anyone with a lick of sense who is starting a business will sit down and try to figure these factors out to some degree.
It would seem that expected costs should be tough to figure. But actually, in this business, they are not. At least for most levels. It just will take a little homework is all.
So, let me first divide this discussion into three major areas.
Cost in Money.
Cost in Time.
Set Costs.
All three areas are critical to figuring overall expected costs of producing a product.
In the first two categories I’ll divide the discussion down into three major ways of running your company: 1) Do All Work Yourself. 2) Do Some Work Yourself, and 3) Hire all work done.
And, of course, the categories cross over. If you find your time more valuable than your money, then hiring things done will be more of an option. And so on.
Cost in Money
1) Do It All Yourself: For Electronic Publishing
No costs. None, zero, zip. No actual costs that I can see at all if you want to do everything yourself, and I do mean everything. You lay out the book in some free program, lay out the cover in some free program, find free art at public domain sites or free photos or take your own electronic photos with a camera given to you as a gift at Christmas on a computer given to you for your birthday.
There is no cost at all to upload a file to Kindle, B&N, Kobo, iBookstore, and Smashwords (which then gets your story out to Sony and others). Use the free ISBN feature on Smashwords and Kobo and use the free tracking numbers (which are like ISBNs) for Kindle and B&N.
So, do all the work yourself and there are no real expense costs per project.
However, most of us buy our own computers, some of us have bought software we use to format books, and so on. There are all kinds of accounting tricks depending on how you set up your business (see Chapter One) to get some of that early expense money back when you start making money. (Talk to an accountant for help with business taxes if you do not understand taxes.) But for this discussion, let’s just assume you had the computer and the software before you formed this business and can use that equipment at no real cost to the business.
So, bottom line, there are basically no direct costs if you do all the work yourself and put everything up electronic and pod for print through CreateSpace. (I am not counting overhead at the moment, so accountants, stop shouting. I’m trying to be real basic here.)
2) Do Some Work Yourself: For Electronic Publishing
A few large warnings in this area that we have talked about in the New World of Publishing series. If you are going to hire help, do it the way you would hire day labor. Simply put, if you want to have a hedge on your property trimmed, but you don’t feel you have the time or the knowledge or the equipment, so you hire a gardener and pay him or her for the job. A one-time fee. That’s day labor.
Never give anyone a percentage of your property for a single task. Your copyright is a property (basically), so giving someone a percentage to do a simple job such as doing a cover would be like giving that gardener part ownership in your home for trimming a hedge one afternoon. When put that way, it sounds too stupid for any writer to do, right? Well, the stupidity of writers never ceases to amaze me when it comes to business, which is why I am saying this bluntly right here.
If you pay for a task to be done, pay a set price. Period. There are lots of new start-up businesses that offer a menu of tasks for set prices.
But let me also say this clearly right now. If you are worried about money, spend the time to learn how to do this yourself and have no real costs. This is not rocket science.
Now that I have been clear, there are some tasks you might not have the equipment to do. For example, I have a bunch of old books and short stories that at some point I will want to republish electronically and/or in POD form. But I do not have a good scanner and software to scan the book. I can clean it up afterward to a degree, but I will pay someone to do the scanning for me on a one-time fee per story or novel. (And don’t offer. Thanks, but I already know whom I will hire.)
So sit down, do the research (the homework I mentioned before), find the people, the businesses who can do what you need for a single fee, then compare prices, shop around, and mark the price down.
3) Hire All Work Done: For Electronic Publishing
In this area you have a lot of work to do to find someone or some other business to do all the work for you. (Giving a percentage of your property is again just silly. It may sound good, but it is too stupid for words.)
But if you do plan on hiring everything, do your homework, find the costs out, and then get the costs totaled and written down for all size projects you might do. You will need that number for the profit-and-loss statement you will be doing later on.
Print On Demand (Trade Paper)
1) Do Everything Yourself: Print on Demand (POD) Publishing
When we get into POD publishing, we start running into some costs and projected project costs. First off, just the POD publishers have some basic per project costs. CreateSpace is by far the cheapest to start and learn. CreateSpace is free to do plus cost of proof and they even give you free online proofs. WMG Publishing usually gets a book done and approved for under $25.00 per book, counting the $10 ISBN and proof costs.
As far as software and computers, you can do it yourself on any number of programs as readers have made clear in the comments sections of The New World of Publishing. WMG Publishing has gone ahead and invested in a top-line Mac computers, InDesign, and Photoshop for everyone. In fact, we have six of them on desks now around the building. Not cheap, but considering we are a full publishing company, a needed expense.
Again, talk to an accountant (which will cost as well) for how to figure in the capital expenditures of buying computers and such. But for per-project figuring of a POD book, the costs can range between basically free at CreateSpace to a lot more. Estimate and research before you start to know which way you would like to go.
2) Hiring Some Help and 3) Hiring it Done Completely: POD Publishing. Do your homework. Get estimates. Then make sure you have those figures handy for figuring out a profit and loss calculation later on.
Cost in Time
1) Do It All Yourself: Cost of Time For Electronic Publishing
Wow, is this going to be tough for you to figure. Unless you already have book design skills and some cover skills, the learning curve will be painful and frustrating at times.
Again, this is not rocket science, but there is a learning curve, and learning not only takes time, but feels uncomfortable. Just ask anyone who has taken our cover or interior or electronic book design courses.
The early books and stories will take the longest amount of time. And you will make a lot of mistakes. But the book can always be changed later. That’s one of the values of electronic publishing.
As you learn, the time spent on each project will be less and less. Honest, it will. But how do you figure your time? That’s a calculation you will need to figure out.
As I have said before, I like Mike Resnick’s saying. “If you aren’t earning $500 per day, you are not having a good day.” Since I work over ten hours per day, I just divide the $500 by 10 and get $50.00 per hour. That’s the number I use in my calculations and on any profit and loss calculation. It works for me. And I can tell you that some of those early stories I put up for WMG PublishingInc. will never earn out my wage because I was in major learning curve mode. Expect that.
However, I have another way of looking at this:
Your early projects are just school.
You don’t expect to get a direct return on an hourly basis from going to class or college to learn a skill. Think of the early books as learning classes and don’t charge your time against them. WMG Publishing had a meeting and decided that we all needed to develop skills, so we only did short stories for the first six months, just practicing, as if we were in school. Now the novels and other real projects are up and thanks to Allyson, they look a ton better. And we are making some money on those practice projects as well, but wow do some of them need to be switched out. We’ve been working on doing just that, but we don’t see the light at the end of that tunnel until late spring of 2015. From there on out, everything we do will be new.
There are workshops you can take at local universities on how to do this, or online. This is something that can be learned.
2) Hiring Partial Help and 3) Hiring it all Done: Cost of Time for POD Publishing.
This is where you as a publisher need to balance your available money with your available time. My suggestion to you is hold off on POD if you don’t have the money to hire help until you have the electronic sales earning money for you. And also, by then, you’ll be more comfortable with book production and can do it yourself.
But if you have enough money, again do your homework. Expect help on POD layout and covers to cost more because it takes longer. Get quotes per job and shop around. And then try to figure out how much time it will take you for each project, even with someone else doing some or all of the work. Each project will be different.
Set Costs
Set costs are expenses set by your work situation. Your computer connection fee, your electric bill, your office rent, and so on.
Best way to figure these costs if you are set up at home is set up a room or area in your home only for publishing. Then figure what percentage square foot of your house your office is. (Example: 1,200 square foot home. 200 square feet of dedicated office space. So 1/6th of all your home expenses are office expenses.)
Do not ignore these set costs. They mount up and should be calculated.
At first, these costs will be tough to figure in a per-project basis. But you need to try. For example how many projects can you get up per month? If your set costs are say $300 per month and you can manage 3 projects per month, than you need to put $100.00 in set costs against each project.
Given time you’ll catch the hang of all this. It doesn’t have to be to the penny, but do count set costs to act like a real publisher. And if you do, you’ll save money in taxes and such.
My Suggestions About Expenses
Back in 1987, Kris and I started Pulphouse Publishing Inc. because it seemed like a good idea at the time. And I was in a hurry, so instead of making sure I had the money first, I went out and borrowed enough money to get the business off the ground. And from that moment forward Pulphouse seemed to always have higher expenses than it had income.
Let me simply say: NEVER AGAIN!
So my suggestions from the school of hard knocks are:
1… Do it yourself.
If you can’t do it yourself, wait and keep learning until you can do it yourself. (I think this is the most important suggestion I will ever give you.)
2… Don’t spend one extra buck you don’t need to spend.
All successful business people are cheap. They spend only for needed expenses or learning.
3… Don’t put money pressures or expectations on the business and the sales of any project.
Sleeping is a lot more fun and you won’t sleep if you are constantly worrying about what you are doing wrong or trying to sell as many copies as some other writer.
4… Do Not borrow money to start this up.
Too much pressure. Let the money build slowly in the business account and only spend what you have available and then only after careful thought. WMG Publishing Inc. now has lots of help in the office. But we waited, even though we needed a ton of help, to hire anyone until we had a full year’s expenses in the bank. I did everything and we did it all from home.
5… Remember, if you do this yourself completely, this is a production business that has no real project costs beyond set costs.
Sure, as a writer, you have time and writing costs and office costs and such, and all that needs to be figured in. But you have no real production costs per book sold through your online stores. And you can make up to 70% of retail. Let the money build. There is no other business I know like this one.
6… Do Not get in a hurry.
Sure, I know this sometimes still feels like a gold rush, but those days are long past. This is the new normal and nothing much is going to change over the next few years besides minor details and problems on the traditional publishing side of things. Books do not spoil and readers do not vanish. You have the time to learn.
7… Think of the early projects as a form of school or class.
They are practice. Figure a profit and loss for them as well as practice, but don’t sweat that they might not make a profit until 2015 or 2020. Call them practice. Remember that copyright is for your life plus 70 years, and books don’t spoil.
8… Keep learning everything you can about publishing and business.
I’m afraid this does not mean listening to the other beginners on the Kindle Boards. It means talking to real business people who are running successful real-world business. Talk to them, ask them questions, ask them about bookkeeping and how they keep track of set costs and so on. Find people, not just publishing people, who run a successful business in your area and pick their brains. You will be stunned at how much you will learn.
One Final Reminder:
Keep having fun. If this isn’t fun, if writing isn’t fun, what is the point? Every time I get a new book in the mail, it’s a thrill. This is fun.
So have fun.
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Copyright © 2014 Dean Wesley Smith
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