Every author’s journey begins with the launch of a book. Understanding the economics of a book launch, then planning and budgeting a successful launch is a skill set that will support your entire indie publishing career and provide confidence in the numbers behind your business. Before you worry about setting up a business, taxes or salary, you need to get your mind right regarding the finances of the book launch regardless if this is your first book or the 10th book in a series.
One of the biggest obstacles that catches authors off guard and create havoc during this process is what I call the launch trough. This is the chasm between cash outflows on expenses and when money flows back in. Most authors do not break even on launch day and require weeks or months to claw out of the trough. If your plan is to launch several books thirty days apart for example, then the depth of the trough will compound. In this article, you will gain an in depth understand of the launch trough, how to plan for it and navigate it with poise.
To begin, let’s go through some basic terms of indie publishing economics.
Revenue: cash coming into your business. It all begins with sales, but you don’t receive the full sale price of your book, nor do you receive the royalty earnings at the time of the transaction.
Let’s say you launch your book priced at $2.99 and you sell 100 books in one month; here is breakdown:
– you get paid a 70% royalty
– Your profit for month one is $209.30
Ok, so my profit is $209.30.
Profit: Revenue less expenses equals profit, and you have other expenses. For our example, if you had a cover made for $200 and hired an editor for $200. Your expenses before you even launched the book were $400. At this point you don’t have a profit you have a loss of $190.70.
Here is our first complication: while your sales report shows this money is due, you have an agreement with your distribution platform regarding when they will release funds to you. The average is a minimum of 60 days and possibly 120 days based on the timing of your launch in the accounting cycle. Meaning the cash that you are out of pocket is still $400. This brings us to the issue of cash flow.
Cash-Flow: the timing of cash inflows and outflows.
What cash-flow shows that not only did you lose $220.60, but the way it happened. First you paid out $400 in expenses, then sixty to ninety days later you received $209.30 in royalties, reducing your loss to $190.70 but you had two to three months where you were out of pocket $400.
Why is this important?
Most beginning authors are unsure of the costs of launching and are concerned for the budget and funding the book from their personal capital. You may have heard that returns can come quickly so you plan to reinvest in your publishing business. Where the conflict arises is setting an ambitious launch plan that does not have the financial support to be successful. For this article, I will use a real example: a fiction series I am writing under a pen name. You will learn that to achieve my launch goal I need a bankroll to fund the upfront costs.
Break Even Analysis: Evaluation of the number of books or page reads needed to break even.
My plan was to launch a trilogy over a four-month period.
Covers and Creative $728
To determine the breakeven can be a little complex given the plan to sell books at different prices. The first book and the intro to the series, for 99 cents each, subsequent book prices will increase.
I combined the total expenses I would incur for each book, plus the prior books produced knowing that the timing of cash coming in from book one will be after book three’s launch date.
It’s difficult to predict the exact outcome of the real world but the aim is to understand what is required for sales to get my money back. Once I have numbers to anchor my thinking, I can evaluate future performance.
The breakeven can be further nuanced by looking a not just book sales but page reads where applicable. For a book selling at 99 cents I will make more from page reads than sales.
|BREAK EVEN ANALYSIS|
|Book 1||Book 2||Book 3|
|# Books to sell||1,873||540||540|
At the end of my thirty days I have $44.13 from 83 books and 3398 page reads. I am happy with the results given this is my first fiction launch and I had no mailing list to leverage. As an aside I did a group newsletter swap with Art of the Arcane that resulted in 360 emails in 15 days in exchange for free digital copies of book one prior to it sale on KU.
Without a breakeven analysis, you can’t quantify success or failure. Without having a benchmark, you end up worrying about what is the state of affairs. Don’t fly blind!
This work won’t guarantee a profitable launch, but it will let me know where you stand financially. I know that if I wanted to launch a fourth book and expected book one to finance it won’t as I have to wait two to three months for those funds. Finally, I know that to launch the three books I need roughly $1,485 and will recover that when I sell 162 books and have a 231,109-page reads. Do you know what it will take to break even on your writing project?
Now I will introduce the concept of the Launch Trough.
Launch Trough: I came up with this concept to model and plan the finances of a successful book launch. Taking the time to create one will help you eliminate surprises and to create a baseline assumption to evaluate actual performance against. With the launch trough, we create a mash-up of the breakeven and a cash flow to provide a model that can help us determine the amount of working capital you will need and for how long you will need it.
Below is a graph of the model for my book series. Based on my assumptions I know that I will be in the hole for as much as $1485.70 (I knew that also from the breakeven) and now I know when cash flows back to me. Meaning, actually in my bank account and those funds offsetting expenses. The chart show that break-even will take six months. A big part of any model are the assumptions, in mine I am assuming month one $40 in revenue then it increases to $150 a month then $300 then $400.
If I don’t see these revenue levels, it means I need to adjust my model assumptions and it will then show me the changes to recovering my cash and the returns I should expect.
To create the chart, I use excel to build a model. I already know it is taking me longer than expected to write a book, that will impact revenues and to some extent costs since I need not advertise a book that is not yet for sale.
If you find this all a little daunting, let’s get to what counts. The adage – it takes money to make money. Along with the time and effort to create your work you need to have working capital for this business to work. Running out of capital in the middle of the launch can result in disappointing your fan base and a loss of future revenue. Hoping current sales will cover future launches without a history of doing so is not a strategy. You must be prepared to adjust given when the income is created and collected.
Working capital: This is the cash your launch will need to get off the ground. For new authors this is funded from savings. If you determine that your launch requires $1,500 but you only have $500, then adjust. Hold off on launching until you save the funds. You can still write the books you just need to adjust your launch schedule.
Proceeding with a launch without the appropriate working capital is setting up for disappointment; not just for yourself, but your readers.
Here are some things to keep in mind about crossing the launch trough safely.
- Understand the timing of your cash inflows and outflows. On a tight budget, you can really feel the squeeze of sixty days between paying an expense and when it may return cash.
- Budget the working capital you require for a launch. Save up the capital.
- Make sure your launch plan and budget align. If your plan is under-funded, you will miss your projected launches.
- Use tools like a breakeven analysis and the launch trough model to plan a successful launch.
- No matter if you’re a beginner, or earning 100k a month in royalties, plan your launch and run your business like a boss; being a creative is no excuse.
Joe Solari helps authors build wealth from their creativity. He speaks and consults with indie authors, solopreneurs, and small businesses on how to create business systems to minimize the joy -killing aspects of being a business owner. You can learn more about the business of writing at indieauthoralchemy.com