economics of self publishing

Intro

Writing is not a way to get rich.

Writing is not even a way to have a decent middle class lifestyle.

Writing is (for me, at least) torture that is worth enduring if you’ve got a story trapped inside of you that NEEDS to get out.

Let me explain. And, because I am a type-A analytical nerd, let me explain using a spreadsheet.

First, let me distinguish between “writing” and “self publishing”. A lot of people call themselves “self publishers” when they write something and then upload it to Amazon.

That is not publishing ; that is writing.

Definitions

Authoring: coming up with a plot, expanding it into a long story, sending that story in to the publisher.

Publishing: accepting a submission from an author, sending it out to a few trusted readers, getting feedback, giving that feedback to the author, getting the author to make revisions, taking the next draft, getting it copy-edited, selecting cover art, calling in favors and soliciting reviews from big names, purchasing a block of ISBN numbers, designing the cover, typesetting the interior, using capital to have a large quantity of physical copies printed, and generally keeping track of all the details that separate a worthy first draft manuscript from a book.

Retailing: paying for a large quantity of physical copies (or e-copies), taking cash from customers, putting physical (or e-) copies into customers’ hands.

Each of these is a valuable step composed of lots of hard work – I come not to bury Caesar, but to praise him. 99% of the time when you hear someone rant about “cutting out the useless middleman”, you’re listening to someone who’s never done the hard work of BEING a middleman and delivering a lot of hard-to-specify-but-easy-to-detect value.

You say you just want a cold Coke…out here on the beach…and you don’t know why you should have to pay three times the price Costco charges?

…because a lot of people are in between you and Costco, making sure that ice, Coke, and labor meet at the right time and place to put that cool beverage in your hand right when you want it.

The Pie Chart

When you drop $25 on a hardcover, where does it go?

The author does hard work.

So does the artist.

Editing isn’t easy.

Owning and operating printing presses isn’t cheap.

Think running a warehouse is easy? I could tell you stories.

So, anyway, when your typical author says “I’m a self publisher!”, what they mean is that they’re doing the “authoring” task, not having ANYONE do the “publishing” task and letting Amazon do the retailing task.

The fact that they’ve cut out a lot of the valuable publishing stuff doesn’t mean that they’re publishing their own book. It means that no one is publishing their book.

This is why most self-published manuscripts suck, and sell about three copies.

Because I am a lunatic (and because I have already launched two businesses), I am thinking about not just authoring, but actually publishing, and I’m even flirting with the idea of retailing my book.

Fixed Costs and Variable Costs

If you’re buying warm Cokes at $1 each and selling them cold at the beach for $3 each, what does your business look like?

Tons of profit, right? Buy for a nickel, sell for a dime as Proposition Joe from The Wire used to say.

Well…wait. It’s not that easy.

Let’s say that the business is already set up and running, so there are no start-up costs.

Every day, no matter how many sodas you sell, you need to spend:

  • $20 push-cart rental
  • $50 ice
  • $13/hour x 8 hours = $104 labor
  • taxes (FICA, UTA, etc.) = $10
  • insurance = $10

So, before you’ve sold your first soda, you’re already $194 in the red.

How many sodas do you have to sell to stop losing money?

Yes, that’s right – I didn’t ask how many you have to sell to make a profit. I asked how many you have to sell just to break even. To make the whole exercise just barely not worth doing at all.

If you’re making a $2 profit per Coke, you’ve got to sell 97 of those, just to avoid being poorer at the end of the day.

Over an eight hour shift, that means that every five minutes you have to sell a soda to avoid

If you sell 100 sodas?

Congratulations! You’ve made $6. All day.

The nice thing about the break even calculation is that as soon as you hit that magic number, suddenly your per-unit profits really are profits- they’re not just digging you out of the hole.

Let’s define a few more terms.

Everything that you buy up front and doesn’t scale with the number of transactions you do is a “fixed cost”.

The $1 you have to spend on each Coke you sell is a “variable cost”.

In the ideal world there’d be no fixed costs and all variable costs. That way you never lose money. You either make $0 (if you sell nothing), or you make positive money. No paying clerks to stand around with nothing to do, no paying rent on empty warehouses, etc.

Well. Maybe.

There’s one reason we sometimes like fixed costs: as Adam Smith and others have been pointing out for hundreds of years, with the investment of capital we get specialized tools and specialization of labor, and that can drastically drop prices.

Would you rather buy your soda from someone who owns a soda factory, or from someone who stumbles off into the forest looking for ingredients every time you want a bottle?

Guaranteed, the first soda’s going to be a lot cheaper. (See also: “I, Pencil”).

The economics of publishing

OK, you’ve stuck around, reading all of a very long blog post. Thanks!

Now: here’s the pay off. “POD” (Print on Demand) sounds awesome, but it really sort of sucks.

There’s no investment in the fixed costs (plates for an offset press), so you’re stuck with inefficient technologies…like laser printers.

Laser printers are not cheap.

I’m in the midst of revising my novel (which has now grown to span two books). If I use Lulu print-on-demand technology to print out two hardcovers, each one costs me somewhere around $26.

This makes it pretty hard to sell them for $25 (granted, if I got a government bureaucrat involved, I could manage to do it… but even then, not at a profit.).

So, how do I print these books and make a profit?

I pay a press to set up plates and run off a bunch of copies.

If I want one copy run off, that costs $100 per book ($200 for a set of two novels in the series).

If I want 200 copies, that costs $14.08 per book ($28.16 for a set of two novels in the series).

Wow. Already we can see how one can make a profit here – buy for a nickel $28.16, and sell for a dime $50. That’s a $21.84 profit right there.

Well, wait.

Remember how we selling cold Cokes just a moment ago, and the first coke we sell made a $2 profit…except we had to pay down the fixed costs of pushcart rental, labor, ice, etc.?

There are fixed costs for publishing a novel.

I’ve done a ton of work myself, busted my butt to find good suppliers, and more, and here are the utter bare minimum cost:

And, in fact, these numbers are already out of date, so you wouldn’t be wrong to double, or even triple them.

So, with that said, how many copies of my novel do I have to sell to break even?

With POD it’s basically impossible – there is no number where the equation works.

But if I print my own?

A digression: printing presses have their own fixed costs

Recall when I said

If I want one copy run off, that costs $100 per book ($200 for a set of two novels in the series).

If I want 200 copies, that costs $14.08 per book ($28.16 for a set of two novels in the series).

Well, it turns out that printing presses have their own fixed costs (it’s economics all the way down!).

Creating the printing plates, paying for labor to attach them to the press, paying labor to start feeding the paper in, paying for a shipping clerk to deal with your own particular delivery of books – this all costs money.

Presses know that clear transparent numbers result in the smartest decisions, so they pass these details along to the publisher, in a way.

That’s where the “1 copy for $200, 200 copies for $14.08 each, etc.” numbers come from. You can go to any press and just get quotes – many of them online.

So, anyway, suddenly the clean line between fixed costs and variable costs gets a little muddy.

The easiest way to handle this is to decide on what size pallet of books one wants to have printed, then think of that as part of the fixed costs. Now the variable costs are just fees and cost of shipping.

My decision: how much can I make publishing my own books?

So, here’s the spreadsheet for my series (click for bigger):


What are we looking at here?

First line: if I order 200 copies of book #1 and book #2 in the series, then that costs me $8,405 between fixed publisher costs (cover art, editing, etc.) and the palette of books delivered to my doorstep.

If I sell a pair of books for $55 ($25 each + $5 shipping), and I subtract out my $6 shipping costs, and I subtract out the $6 in fees that Kickstarter and Amazon payments charge, then I have $44 left. …but that physical pair of books isn’t free to me. I have the fixed cost of the entire pallet of books.

So, still in that first row that starts with “quantity 200”, how many books do I have to sell in order to pay for the pallet?

Uh…257.

Wait. Something is wrong here.

Or, rather, good initial research has shown us that one can’t do a conventional print run of 200 books and make a profit.

So, let’s look at the next line: “quantity 300”.

Here the per-unit price from the printer has fallen from $14.08 to $12.87, and that difference of around $1.25 makes a difference. If I sell out a print run of this size, I can make a profit. Of $2,555.

As we go further down the chart, the economics get better. Each row assumes more revenue flowing in…and gets us a cheaper cost of goods sold (COGS).

The “quantity 500” row is nice – if I sold 500 pairs of books, I’d make $8k.

If I sold 1,000 pairs of books, I’d make $29k.

Twenty nine thousand dollars!?!?!

OM*G!?!?!?!

Except. Wait.

Two things:

1) As of right now, I find it hard to believe that 1,000 people will want to buy a pair of hardcover novels from me dealing with libertarian rebels, open source software, artificial intelligence, computer programming by uplifted super intelligent dogs, and anarcho-capitalist philosophy.

2) If, despite that, I do manage to sell 1,000 copies of the series, how hard did I have to work to earn my pay?

To answer the second question: How long did it take to write this pair of novels? 1,500 hours?

Hmmm…that works out to $11/hour. More like $9/hour, after taxes (because, recall, this revenue is all at the margin, after I’ve already earned my first dollar at the day job).

So now writing a novel – if I have stunningly good luck and manage to sell a thousand copies…pays me less than I pay other people to stick goods in boxes.

Hmmm.

Conclusion / recap

Like I said at the top:

Writing is not a way to get rich.

Writing is not even a way to have a decent middle class lifestyle.

Writing is (for me, at least) torture that is worth enduring if you’ve got a story trapped inside of you that NEEDS to get out.

So what am I going to do?

Add http://morlockpublishing.com to your RSS feed, and follow me on twitter at @MorlockP to get updates on the decision process.

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6 Responses to economics of self publishing

  1. Dan says:

    I don’t see anything in there for distribution, which is going to be different for you selling directly to readers, than it would be for a publishing house selling to bookstore chains? Also, for reasons that seem obvious to me, selling the books as a pair is crazy…

  2. Dan says:

    (sorry, by “there”, I meant the pie-chart – though I see now you’ve got it in your spreadsheet)

  3. eddie says:

    Stay tuned for Part Two: In Which Travis Builds A Printing Press

    (“I, Pencil, my ass” he is heard to mutter.)

  4. lelnet says:

    Keep in mind, as you run numbers, those of your readers for whom the electronic edition is now the preferred purchase, and the physical one merely what we settle for when publishers refuse to make an electronic edition. (Yes, some of us would even pay the whole hardcover price _just_ to get the Kindle-ready eBook. Those less fanatically devoted to the cause would pay less, but still probably a sufficient sum to make it worth a reasonable amount of additional effort to convert the electronic document you’ll have to produce _anyway_ into a MOBI file. Of course, that might cannibalize your hardcover market somewhat. But as you no longer have the option of not spending the 1500 hours writing the story, that time oughtn’t really figure into your revenue maximization calculations today.)

  5. Aaron C. de Bruyn says:

    You’re forgetting an easy way to increase value. Sign and/or number them.

    I’m sure there are quite a few former blog readers who would pay a significant mark-up to get a signed copy of one of the first 500 books.

    As an example, if I were to get signed book number 42/500 with the note “George Washington didn’t…”, I may go as high as $250…and then I’d have to buy a second ‘regular’ copy that I’d actually read…

  6. Gus says:

    “So what am I going to do?”

    Market the heck out of it while it’s on Kickstarter and base the initial print run off of that?

    I certainly think it could sell 1,000 copies and beyond. The hard part is finding and informing the correct audience that it exists.

    And, as noted above, definitely you’d want to come up with some Kickstarter rewards at higher values.

    To Dan’s point – I think selling as a pair totally works on Kickstarter (though maybe the 2nd book should be getting released later than the second? That might have been part of what he was getting at…) But on HI and elsewhere, you’d want single/pair options.

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