More Thoughts on the Economics of Authorspace – It’s a business … who knew?

Last updated on February 15, 2012

Alright, I am obliged to confess to being a bit embarrassed. I run a small business, and I’ve been in charge of $100k IT budgets. So I was rather gobsmacked to read an article at “Rob On Writing”  that told me I was clueless about my approach to figuring out a reasonable price for my books. Why? Well, because I’m a production shop, and I have a cost per unit and I need to know what that is.

Huh? Wait, what? I’m an artist, right? A story teller? A creative spirit? What do you mean I’ve got cost per unit to calculate?

Go read the article, but let me give you the short version: if you’re Indie publishing, this shit’s not free. No, really! It turns out that, just like in any other small business that produces a product, you need to pay for your inputs.

Like I say, I’m a bit embarrassed. This -should- have been plain as milk to me. I almost got there in two other blog posts I’ve made, but not quite.

It turns out that the five-buck-book is a loss-leader; sold below the cost of production. For Indie presses, anyway. So here are the numbers, and then I’ll explain:

Item	Cost in $	Cost in %
author*	$450.00	17.86%
editor	$1,170.00	46.43%
cover artist	$450.00	17.86%
promotion**	$450.00	17.86%
	$2,520.00	cost of production
* … I’d like to think my contribution to the book is at least equal to that of the cover artist
** … Includes free-copy give-aways, book plates, time spent with social media (thus not writing) as well as paid-for advertising
# Units Sales	Cost Per Unit	Amazon Fees	Listed Price
250	$10.08	$4.32	$14.40
365	$6.90	$2.96	$9.86
500	$5.04	$2.16	$7.20
635	$3.97	$1.70	$5.67
750	$3.36	$1.44	$4.80
… the North American average for a first year of sales for a first release author is 500 copies. The total sales life of a first novel from a first release author is at most 2000 copies.

Let’s go over this and y’all can tell me where I went wrong. Or if I’m making sense.

First, the assumptions:

• We’re collectively looking for a first year return on investment (ROI), so pricing that takes two years to cover our costs is a bit thin.
• We need to explicitly factor a certain amount of cost for our time. Yeah, I’m a weirdo, but I don’t write for free. I also do not expect to have a run-away hit that will sell 10k copies. I expect I’m average so my compensation has to come from my initial year of sales.
• We are working with other indie shops out there, out-sourcing all our skills so we can focus on what we do best, our writing. If you happen to be good friends with a professional editor or graphic designer who works for free or a round at the pub, good on you.
• The editing price is based on my own novel for two line edits and a developmental edit as quoted to me by a couple of editors I have talked to. It’s an average.
• The biggest stumbling block to be overcome is having people find out you even exist. Thus, there must be money in place that reflects a commitment to marketing your book. It makes no sense to spend almost half a grand on cover art if no one ever sees it.
• Free is not free. Free is zero revenue, and thus the cost per unit is coming out of your pocket. That’s part of your promotion budget.

Make sense so far? I think so. This is all stuff that applies to any business. The resulting addition of the factors from those production costs is your total cost of production (COP).

The common Internet wisdom from various writers forums I’ve scanned is that 500 copies in your first year for your first book is an average performance. In other words, you can expect to ship 500 units.

So, the cost of production divided by the expected number of units sold gives you your cost per unit to break even. That’s not make a profit, that’s to just not dig a hole.

See the problem that chart reveals? The five-buck-book is either below cost, or -something- either is getting scrimped on or isn’t getting paid for.

Likely, at the very minimum, it’s the author. The collective wisdom seems to imply that we should work our butts off to do this, pay everyone else to help us and then just -hope– we see some coin for our efforts. I’m not convinced. If I pay the cover artist but not me what does that say about the value I place on my own work?

I can hear you now: “Yeah, but you’ll keep making money on your book with all your sales! So you have long-term revenue.” Again, we’re trying to hit a one-year ROI. If I don’t factor my cut in as part of production costs, that means that for the first year, I’m the only person that doesn’t get paid for the sale of my book. Unless I’m freakishly successful, of course.

Being the only person who is not sure to get paid after spending a hundred-plus hours on a project seems silly to me. What about you?

Alright. So it turns out that our five-buck-book costs us a fiver plus four clinks to sell. We can take a four cent loss per unit, right?

Wait. You’re not selling that book at $5. Amazon takes 30% off the top. So if you sell it at $5, you only make $3.50 and you run a $1.50 loss per copy. So to -make- $5.04 a book, you have to -sell- the book for $7.20.

Now, I’m going to remind you something about averages… half of people do worse than that. Until you’ve seen your numbers for real, you need to keep in mind that you might be one of the folks that will sell in at ~300 copies their first year. That means it’ll be two years to recoup your costs.

This is why new writers want a publisher. They need to get the risk of a two year ROI onto someone else’s shoulders.

This is why publishers don’t take risks. They need to make sure they cover all these costs of production, plus things like lights, heat, rent, staff costs, communications, etc.

So what’s it all mean?

Well, first, it means the five-buck-book as it is done right now is either ignorant suicide, or willful acceptance of an 18-month ROI. There is nothing -wrong- with the latter, if that’s what you -intend-. If you’re in the ignorant suicide category, however, you might consider considering.

Secondly, if the author cost being equal to the artist cost represents ~18% of the COP, then any small press offering you 70% royalties is potentially drunk at the wheel.

30% royalties means you’re going to get $900 on 500 units, with a list price of $8.50. Which is interesting, given “Rob On Writing” advocates an $8.99 Kindle book.

My gut tells me that an $8.99 on a new author listing isn’t going to sell. Sure, we might spend that much on fast food and specialty coffee, but in those scenarios the customer already knows the brand and knows the product.

They don’t know you from Bo, and thus that price asks them to assume a lot of risk. Obviously you can mitigate a lot of that risk by giving a three-chapter/ 25% preview so they can make an informed buying decision. That puts some of the risk back on your shoulders.

From my own personal perspective, this is an interesting problem. I’m really not in a position to drop $2500 on getting a book to market. I’m even in less of a position to lose $2500.

My likely plan will be to put “The Sauder Diaries – By Any Other Name” (Book 1) back on the market for ~$5.65 with the idea of using that revenue to finance the release of “The Sauder Diaries – A Bloodier Rose” (Book 2). Due to the circumstances around Book 1, I’m going to have to be content with hoping for my brisk sales to continue once its back on the shelves.

I’m currently running a poll on my Facebook TSD page to see what folks who read Book 1 think that a fair value for Book 2 would be. I’ll let you know what the results of that are at the end of next week. My guess is that the “socially acceptable” price is going to be in the $6 – $7 range. We’ll see.

If you’re an author, are you charging above the five-buck-book for your work? If so, is it working for you?

If you’re a reader, can you see spending $7 on a new book? What about a book with a some good reviews? Or where you get to read the first 3 chapters/ 25% and decide you enjoy it?

Let me know. I’d love to hear from you.