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.
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.
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.
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.
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.
Copyright © 2012 Dean Wesley Smith
Cover Photo by Edward Fielding/Dreamstime.com
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.
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