When I hear self-publishedauthors talk about the success of their book in the marketplace, the discussionoften begins and ends with the number of copies they’ve sold. A few of them mightboil things down to an actual dollar amount a book makes each month, but these boardmeasurements don't capture the whole story.
A book that makes $1,000but costs $3,000 to launch isn't as financially successful as a book that makes$1,000 but cost $700 to launch. At the same time, a book sold through oneoutlet will bring in less money than the same book at the same price sold on adifferent website. To help independentsget a better handle on the financial performance of their catalog, I suggestusing a simple profit and loss statement or P&L.
A Little Background
My experience with P&Ls comes from the time I spent in the media industry.Every time we released a graphic novel, DVD or other product, the businessaffairs department had to generate a P&L to predict and measure thatproduct’s potential success.
A lot of companies useP&L's to plan and evaluate their business. The banks that I deal with nowhave P&Ls that would make your eyes bleed. I've kept my version simplebecause independent publishing has a fairly straightforward business model andbecause I'm not that smart.
Determining Losses
The first element to a profit and lossstatement is calculating your loss. In publishing, this is the amount ofmoney you have to pay to get your words out into the world. It is oftenreferred to as the cost of goods sold.I've found that there are several costs that make up this number when releasinga book:
- Editing
- Cover Design
- Formatting
- Marketing
- Registration (ISBN, copyright,etc.)
- Advertising (if any)
You might have othercosts associated with the marketing or production of your books, but this listcovers the basics. (See Just How Much Does ItCosts to Publish a Book Anyway?). In this case, your total cost is the sum of everything you have to pay to produce onebook. That's the bad news.
The good news is thatdigital distribution has reduced the subsequent costs to almost zero. You payone price for the first book, but don't have to pay anything extra bookswhether it’s two more or two million more. That means the price you paid forthat first book decreases with every additional book sold. You might haveadditional initial costs when you launch a new product (bundle, audiobook,graphic novel, etc) but then you also have an additional revenue stream.
All Profit Is NotCreated Equal
Independents face a choice when it comes to distribution of their work. Theycan go with a low to generate volume sales or a high price to give each individualsale a higher impact. They can test the benefits of exclusivity with onedistributor (Amazon's KDP program), or they can give up those benefits to posttheir books on several smaller online stores for higher incremental revenue.
There are vocalsupporters on all sides of this debate. You'll have to make your own choicesfor each book you release. The one thingthat should not change is keeping track of how many books you sell and how muchyou make for each book.
Profit in independent publishing is based on theroyalty you collect for each book sold. For example, if your novel is $2.99 on Amazon, you collect 70%of the sales price or about $2.10. If that is the only place where your book isavailable, then it's fairly easy to determine how profitable your book isoverall when you look at it relative to its loss.
Breaking Even
In the simplest economic terms, a booksucceeds to the extent that the profits exceed the losses. The thresholdbetween success and failure is the break even number. If your book sells at alevel less than break even, you lost money on that book. If the book sells morethan break even, it is technically profitable. You might not be able toquit your job to write, but you're making more than you're spending.Congratulations, a lot of people never get to that point.
Using our example above,let's say your $2.99 book costs you $1,000 to release. If you make $2.10 perbook, then you'd have to sell about 477 to break even.
In terms of a profit andloss sheet, it is helpful to determinethe break even number and how much you make from each website at each pricepoint. This will not only show you which websites are better for your book,but which prices make you the most money. Does it make sense to sell 50 booksat a $2.10 royalty or 500 books at a $.35 royalty? Should you sell on one siteand sell 200 copies or spread out to five sites and sell 40 copies each? If youcompare the numbers in your P&L the answers should come to you.
Beware the Miser
A P&L has a larger benefit besides just telling you if you broke even ormade money. It can help you manage the business side of publishing. It seems tome that there are only two ways toincrease the profitability of a book; increase sales or decrease costs.Increased sales are the long term play. Because out books don't go "out ofprint"we can continue tocount on long term salesifwe continue to publish new material.Each new bookstimulates interest in the overall catalog, making your new book the bestadvertising for your old book.
Decreasing costs is theshort term play. If an author can make $500 in sales on a $250 production cost,he'll always be profitable. But it’s short sighted to reduce the quality of theproduct in an attempt to reduce the losses to zero. A low quality book will chase readers away to the point where both yourcosts and your profits are zero. (See Are Self-PublishedBooks Inherently Inferior?). The smarter choice is to produce qualityproducts within a budget you can handle. They'll serve you better in thelong run and you'll be proud of them.
Follow the Muse
It is also a mistake to use the P&L as an indicator or what to write. Let'ssay you're trying to choose between writing a YA werewolf story, a historicalromance, and a sci-fi epic. According to your P&L, your last historicalromance was profitable. Your YA book fell flat and you don't have anyprevious sci-fi to make a comparison.
Which book should youwrite?
You write the book you are inspired to writemost. The P&L is ahelpful business tool, but it isn't a creative tool. Your artistic muse is incontrol when you sit down and write, not an Excel spreadsheet. You might getcreative with costs and pricing when the book is done, but save most of yourcreativity for the book. Don't let the numbers get in the way.
Have fun.
G
