The Math Publishers Don’t Want Authors to Know! (Part 2)

Let’s assume you are publishing a simple book that is 6″x9″, 250 page, B&W interior, full-color cover. The cover price is $19.99. This is the same example used in part one of The Math Publishers Don’t Want Authors to Know!

When do you start making a profit?

You only have to sell around 270 books to cover all your start up cost. That’s all—even though you’re following publisher best practices by actually hiring a professional editor and designer! Sell just 270 books and then you’re on your way to making a profit.

The initial costs (editing, design, etc), plus the first 300 printed books look like this:

300 x $19.99 = $5,997

 

Editor                                             $1,500

Pre-press                                   $2,280 (Design, page layout, file prep)

Printing and shipping            $1,620 (The POD print unit costs is $5.40. 300 x $5.40 = $1,620)

Total cost                                  $5,400

$5,997 – $5,400 = $597 divided by 19.99 = 30 copies

300 – 30 = 270 copies to break even.

$5400 divided by the cover price $19.99 equals only 270 books sold before you start making a profit. (This assumes the books are ordered and shipped 100 copies at a time. If for example, all 300 books were ordered at once, the print costs drop to $1441.93. This slight savings changes the equation like this: $3780 + $1441.93 = $5221.93 divided by $19.99. Now only 261 books need to be sold before making a profit.)

After selling 270 books, your only remaining costs are printing and shipping more books to your office. The next 300 books (ordered 100 at a time) costs $1620.27. Sold at $19.99 each, the total income is $5,997, leaving a profit of $4,376.73. Remember, when the publisher sold 600 copies, you made only around $420. In fact, with 4000 books sold by the publisher, you only made around $2800. To make the same amount, you only have to sell 463 books, which is 3,537 fewer books than the publisher! If you publish independently and sell 4000 books, you get $54,576.40!

What if you sell more than 4000 books?

Let’s assume the book is a great success and you start selling more than 4,000 copies. Here’s the math based on the model outlined above (initial costs of $3780, plus low-risk print-on-demand method for 100 books ordered at a time costing $540).

Net profit after costs:

4,000 books sold = $54,576.40

10,000 books sold = $145,891

100,000 books sold = $1,458,910

If the book proves too difficult to sell, you can cut your losses early by not ordering more books. However, because you only need to sell around 270 copies to cover your costs, it is unlikely you will lose money.

Let’s now assume that you want better printing. Instead of print-on-demand, you decide to use offset printing to get better overall quality and more special print features, such as a gate-fold cover (French flaps), a metallic ink or gold foil title, embossing, a second color in the interior, etc. Unlike print-on-demand, you need to print more copies, usually more than 1000 copies to make it worthwhile, so you have to invest more money up front, but bear in mind that the total overall investment is less, even though you are getting much higher quality.

You decide to spend $12,000 on printing 4000 copies. With the similar editing, design, and a few additional costs (special effects templates and print management), the total investment is now $16,000 or $4.00 per book. Profit per book is $15.99, almost 15% higher than when using print-on-demand. You now make 15% more and the book is a much better quality product that will be much more likely to make a good impression and sell.

$16,000 divided by $19.99 means 801 books must be sold before profitability.

This leaves 3,199 books in your inventory. 3,199 books sold at $19.99 = $63,948.01 total profit. This is $9371.61 more profit than you made selling the print-on-demand books.

When many people think about profits from publishing, they are only looking at the book sales. For business owners and entrepreneurs, the profits from the book sales are often just the beginning. In fact, some businesses and entrepreneurs can profit from publishing even if they give away the books. Be sure to see read my post Benefits of Publishing for Businesses and Entrepreneurs and The Most Important Thing to Do When Publishing.

The Math Publishers Don’t Want Authors to Know! (Part 1)

We have all heard stories about authors who receive million-dollar advances. Unfortunately, the author deals with huge advances are extremely rare. Around 300,000 books are published by the better-known publishers each year in America. Few become best sellers, some never get carried by bookstores.

Typically, an author makes only 7–10% net from the sale of a book. Net sales are the actual profit from the book after wholesaler discounts, distributor fees, and retailer fees. Retailers typically take 40–50% of the cover price. So 7% net is not 7% of the cover price.

Your Royalty from a Publisher

Let’s say, for example, you spend a year writing a book and a publisher agrees to publish it for you. The cover price is $19.99. The publisher prints and sells 4,000 copies over a period of four years before no longer promoting the book. The publisher sells 1200 copies the first year, 2000 copies the second year, 600 copies the third year, and 200 copies the fourth year. Sales peak the 2nd year and then sharply decline the following two years. After the fourth year, the book is old news. The publisher is focused on selling new titles and, if your book is reprinted soon (unlikely), it is only selling a few copies per year—small pocket change with regard to royalties. Bear in mind that small publishers are more likely to print 2,000–4,000 books, rather than 10,000 or more.

When the books are sold the distributor/retailers will usually take 40–50% of the cover price. The publisher is then left with the remaining 50%. Of that 50%, the publisher pays out a royalty to the author of 7%. How does this add up?

4000 copies sold at $19.99 = $79,960 gross profit (profit before publisher expenses)

Distributors/retailers take 50%, leaving $39,980

Your royalty is 7% of $39,980 = $2798.60

The publisher has expenses, but likely netted around $30,000–35,000, while the author only got $2798.60. This is why publishers who publish many books with short print runs can still make a worthwhile profit, whereas most authors never make enough to cover their time.

A 7% return is on average, $699 per year over the course of the four years. This assumes the publisher didn’t offer any discounts on the cover price that reduce the profits and royalties further, as often happens. In total, the author makes $2798.60. With only 200 copies selling in the last year, the publishers doesn’t have enough demand to justify a new print run. The publisher controls the license agreement and will hold on to the book until there is an opportunity or enough demand to print more copies or the publisher may decide to sell the license agreement to another publisher.

In comparison, the total return on the same quantity independently published by the author and sold directly by the author at the full cover price ($19.99) is $54,576.40 (the profit after basic expenses). Which would you rather have: $2798.60 or publish it yourself and get $54,576.40?

Here’s another way to look at this: The publisher sells around 4,000 books and you get $2798.60 or on average $699 per year for four years. You personally sell only 35 books and you already get $699 minus your own publishing expenses.

Your Royalty if You’re the Publisher

Let’s take a closer look. Assume you have a simple book that is 6″x9″, 250 page, B&W interior, full-color cover.

You could do it yourself—the editing, cover design, and just flow the texts onto the pages with no regard for layout problems. Instead, you decide to follow publishing best practices. You hire a skilled editor for $1500. You hire a creative and skilled book designer for $2280 to do the cover and interior design, plus typesetting and professional press-ready files. You use print-on-demand (POD) to only print and ship 100 copies at a time, shipped directly to your home office. Just counting printing and shipping, the unit costs (cost per book) is $5.40. Let’s now scale this up to match the publisher who published 4000 copies.

The total unit costs for 4000 books is:

Editor                         $1,500

Pre-press               $2,280 (Cover, interior design, page layout, and professional press-ready files)

Printing                 $21,600 (printing 100 at a time, including shipping and handling)

Total                         $25,380 (editing, design, pre-press production, press-ready files, and printing)

Remember, you don’t have to write a huge check for $21,600. You only print 100 books at a time, so the costs are more likely around $540 each time.

These are average prices that could vary depending on the book’s complexity and print method used. (In this scenario, I’m using print-on-demand. I will discuss the advantages and disadvantages, best uses, and when not to use POD in another blog post.)

Based on these estimated costs, the total investment is $25,380. The per book costs (unit costs) including editing, design, and printing is $6.34, and the cover price is $19.99, so the profit is $13.65 per book. This means the maximum possible net profit is $54,600 (meaning profit after editing, design and print costs are deducted).

 

Cost per unit book                        $25,380 /4000 = $6.34

Net profit per unit book            $19.99 – 6.34 = $13.65

 

Therefore for a 4000 print run

Gross Income                        4000 x $19.99 = $79,960

Total Cost                               4000 x $6.34 = $25,360

Total Net Profit                    $79,960 – $25,360 = $54,600

A note on shipping costs: In this scenario, the assumption is that you, the publisher, are selling the books directly at workshops, seminars, and events and not through bookstores. If any copies are sold online, you are doing the order processing (known as “fulfillment”) and the buyer is paying for the shipping from your warehouse (which might be your home office). If, however, you were doing all the sales through your own website, you could eliminate all up-front printing cost and the costs of shipping books to your home office and just allow the POD provider to do the order fulfillment and print the book “on demand” as orders are made by buyers.

Be sure to read Part 2 of The Math Publishers Don’t Want Authors to Know! to find out how quickly independent publishing can become profitable.