Tuesday, December 20, 2016

The Economics of Publishing



Being an author is an unusual profession and often shrouded in mystery. Readers are frequently surprised to discover just how little an author makes, and how many writers rely on "day jobs" because writing doesn't produce a living wage.

I think part of the problem comes from the fact that discussing income isn't favorably looked upon in many circles, but that lack of information makes it darn hard to know what you are getting into if you're considering writing for a living. Thankfully there is Jim C. Hines who has been good enough to share his income on his blog.  Here's a chart of Jim's data (compiled from several posts).


There are some interesting things to take note of regarding Jim and his data.
  • I'd classify Jim as a "solid mid-list author." Which is to say one that has had a good amount of success, but not so much as to be considered an outlier. In other words, he nicely represents what is possible for authors that write well and keep producing.
  • Jim spent a decade honing his craft. He started writing novels in 1995, and his first published book was in 2006. That's pretty much on par with many authors, myself included.
  • Jim writes popular fiction (fantasy) with a major publisher. He sells well enough to earn out his advances, and he has significant income from foreign language translations. With his most recent series, he's graduated to hardcovers. The format used by publishers for their top authors. 
  • Jim quit his day job in 2015, after releasing his 11th book.  He's now one of the rare breeds of writers who earn a living entirely from their craft.
  • The fluctuations in Jim's income is typical. Because of the way advances are paid (more on this in a minute), a strong year can be followed by several lean ones.  Jim had a great 2008, but if he had quit his day job then, he would have found 2009 - 2012 to be a financial struggle. Once he had several years producing more than $50,000 he finally cut the cords to his day job. Smart man.


A pie with many pieces

One of the reasons authors earn so little is the large number of fingers in the proverbial pie. I'm going to set aside a discussion of advances for now,  but we'll circle back to it. So, let's look at money from the perspective of the amount spent by the reader and who gets what.
  • Royalties (a small amount of money earned every time a book sells), are what provide authors their income. Standard royalties are as follows:
    • 10% - 15% of LIST price for hardcovers
    • 6% - 8% of LIST price for paperbacks
    • 25% of NET (the amount paid to the publisher) for eBooks
  • Agents earn their money from the author's share (15% for books sold in the US, and 20% for books with foreign language translations)
  • The publisher bears the financial responsibility for creating and selling the book. They incur initial investments to produce the product (editors, cover designers, author advances), and also  the cost of goods sold expenses such as printing, discounts provided to retailers, warehousing fees, shipping, and the losses from returned books too damaged to be re-sold.
  • Retailer fees can run 50% - 60% for print books and 30% - 35% for electronic books.
  • Printing costs depend on the size of the print run. Larger print runs have a lower per unit cost, but they require a higher initial investment. For instance, 2,000 trade paperbacks might cost $5,000 to print ($2.50 a book), but 10,000 copies might run $12,500 ($1.25 per book).
  • Warehousing fees include storage costs (based on the volume of product stored), and distribution fees for picking and shipping books to retailers as orders come in. These costs could run 15% - 20% of the book's list price.
  • Shipping costs are not the fees to ship a book to a consumer, because he retailer bears that responsibility. But the publisher has to pay the expenses to move the books from place to place: printer to the warehouse, warehouse to retailer, returns (unsold books) sent back to storage (many of which are too damaged to sell again), and so on. 
Okay, with all that in mind, let's look at a $25.00 hardcover printed in a relatively large quantity and bought from Amazon.
  • Amazon: $13.75 (some of this money may be passed onto the consumer through a discount)
  • Printer: $1.50
  • Ingram (warehouse and distributor) $3.75
  • Book overhead: shipping, damaged books, and books provided free for reviewers: $0.49
  • Author: $2.13
  • Agent: $0.38
  • Publisher: $3.00
eBooks simplify matters considerably as there is no printing, warehousing, or shipping fees to contend with. The breakdown for a $9.99 ebook sold on Amazon would be.
  • Amazon: $3.00
  • Author: $1.49
  • Agent: $0.26
  • Publisher: $5.24
In summary, the author earns 8.52% for hardcovers and 14.9% for an ebook.


Advances

The best way to think of advances is that it is a loan against future earnings. That's not entirely accurate, since an author doesn't pay back the advance if the books don't sell well, but it's a close analogy. When an author's royalties exceed their advance, a book has reached the earned out status. In that case, the author will get a payment twice a year for the sales above the advance that sold in the previous six-month period. Yes, successful books result in two paychecks a year, and that's part of the reason it's had for authors to manage cash flow. I should note that most books never earn out (only about 20% do), so in most cases, the advance will be the only money an author receives.
  
The other thing to mention about advances is that not all publishers are offering them these days, or if they do, the amounts are significantly less than they have historically been. For those that do, the author doesn't receive all their money at once.  Depending on the contract the advance is divided into three, four, or five payments (larger advances are spread out more than small ones).  Here are some typical divisions:
  • 1/3 when the contract is signed.
  • 1/3 when the book has been edited to the "acceptance" milestone (meaning the publisher will definitely be publishing it).
  • 1/3 when the book is released.
A book with a larger advance might be divided thusly:
  • 1/4 when the contract is signed.
  • 1/4 when the book is accepted.
  • 1/4 when the hardcover edition is published.
  • 1/4 when the paperback edition is published (or sometimes based on some time period after the hardcover release, one year is typical). 
Now the big question is how much of an advance can an author expect? Well, that depends on many factors: the size of the publisher, how "important" the book will be in a particular release season, past sales history, and publisher's income potential projections. Publisher's Marketplace is a venue where agents regularly report book deals and they divide sales into a number of levels:
  • $1 - $49,999 = "a nice deal"
  • $50,000 - $99,999 = "a very nice deal"
  • $100,000 - $249,999 = "a good deal"
  • $250,000 - $499,999 = "a significant deal"
  • $500,000 and above = "a major deal"
About 80% of the debut authors will fall into the "nice deal" camp, and I'm sad to say that the medium advance is around $10,000.  John Scalzi (a higher than mid-list science fiction author) and a few of his author friends came up with what they think is a better breakdown of advances. You can read the whole post here. But it goes like this:
  • $0 - $2,999 = "a shitty deal"
  • $3,000 - $4,999 = "a contemptible deal"
  • $5,000 - $9,999 = "a "meh" deal"
  • $10,000 - $19,999 = "a not bad deal"
  • $20,000 - $99,999 = "a "shut up!" deal" (said in an envious tone by fellow admiring authors)
  • $100,000+ = "I'm getting the next round deal" because you can buy and sell all other authors at your drinking table.


Self-publishing: cutting out some middle men

One of the reasons why self-publishing has become so popular is because more of the reader's money is kept in the author's pocket. The important thing to note, however, is that in this case the author is doing multiple jobs and act as both the author AND the publisher. Generally, self-publishers utilize POD (print on demand) which has a higher per book price but eliminates the need for warehousing, shipping, and book returns as printing only happens once orders are placed.  Also, because no agent is involved, the author gets to keep that money as well. Let's look at the breakdown in self-publishing.

For the following calculations, let's assume a 350 page novel that is sold on Amazon for $14.95 (trade paperback) and $4.95 (ebook).  Using print on demand, the paperback distribution of money would breakdown as follows:
  • Amazon $5.98
  • Printer: $5.05 (assuming CreateSpace - slightly higher for Ingram Spark)
  • Author: $3.92
For ebooks the breakdown would be:
  • Amazon: $1.49
  • Author: $3.46
So the author/publisher earns 26.2% on print and 70% on ebooks. That's a 300% increase on print books and and 470% increase on ebooks over traditional publishing. But again, keep in mind the author has now assumed all the costs of producing the book including editing, cover design, and layout.


Self-publishing & self-selling: highest income potential

Robin has come up with a crazy idea. It's not her first, and it won't be her last. It's because of her crazy ideas that (a) I've signed 12 books with two of the big-five publishers (b) I've self-published 7 books (c) neither of us have needed day jobs to pay the bills since 2011 and (d) we have a future that is more secure than when we worked for others. For these reasons, and many more, I'm willing to go along with it.  What's the idea? Well, she cut out publishers and agents through self-publishing, and she now wants to remove even more middle men by removing the retailer. The goal is to eliminate everyone except the reader and the author. Okay, we can't actually trim back that far. We're not going to be laser printing books and binding them in our basement, but we can get the process down to just the printer, writer, and credit card processor.

As some may know, I'm currently writing my fourth Riyria Chronicle, and we've already sold the audio rights to that book to Audible Studios (it's how we maximize audio income in that venue). They've already done an amazing job with the release of The Death of Dulgath (more than 20,000 copies sold in it's first year) and their production quality is top notch -- oh, and, of course, Tim Gerard Reynolds will be the narrator - we've made sure of that!

Anyway, the advance for that audio book is enough to allow for a safety net of sorts, so we're going to release the 4th book in a really unusual way...it won't be in stores. Yes, you heard right...you won't be able to get it online or in brick-and-mortar stores-- well at least not initially.

You see, books (especially when in a series), have a huge sales spike when they are first released. After a few months, sales fall off considerably. For some authors, they earn 90% of the lifetime income of a book in the first 4 weeks! Given that, it makes sense to maximize the income as much as possible on the early sales.  People will still be able to get all formats of the book: audio, hardcover, trade paperback, ebook, even limited edition versions, but they'll get them directly from us. We've already done something similar in the past (both by using Kickstarter and selling books directly from my website), but those were always supplemental sales and the bulk was purchased through the retail chain, and they took their massive bites from the overall pie.

To do this will mean a lot of up-front investment for editors, cover designer, layout, formatting, and a good-sized print run. To help with that, we'll run another Kickstarter, which  is a great way for people to pre-order copies while helping to to cover these up-front costs. If the Kickstarter doesn't fund, we'll still go ahead with our plans to sell direct, the only difference is there won't be hardcovers and we'll have higher per book costs due to the use of print on demand. Let's look at some of the possibilities:
  • $9.99 ebook - $0.59 credit card processing fee = $9.40.
  • $14.95 paperback with print run ($2.00), warehousing/fulfillment ($1.50), and credit card processing fees $0.43 = $11.02
  • $24.95 hardcover with print run ($3.00), warehousing/fulfillment ($1.50) and  credit card processing fees ($1.02) = $19.43
  • $14.95 paperback using print-on-demand ($5.05) and credit card processing fee ($0.43) = $9.47
So the % going to the us increases to 94% for ebooks, 73.7% for trade paperbacks, 77.9% for hardcovers, and 63.3% if we use print on demand. If we can manage it, that'd be an amazing case study and could blaze a trail to convince other authors to do likewise. If others are able to make more than a few percentage points, maybe many of them won't need their day jobs.

Now, the buy-direct model will be temporary, and eventually the books will be offered through the retail chain. I'm not 100% sure when we'll cut over. I've committed to at least a six-month period of "no retail ebook and print" with Audible (to reward them for providing the seed money to try this experiment). Also, not having a new Riyria boos in the retail chain helps with the non-compete clause in my current Del Rey contract. A lot will depend on the sales numbers for both the Riyria books and the Legends novels, but they will eventually be for sale (at least online). Until then, readers can get any format they want, and since they'll be coming straight from me, they can get them signed!

If you are interested in supporting this experiment, please sign-up using this link. That way you'll be notified when the Kickstarter goes live, and if Kickstarter isn't your thing, then you'll get an email for when and how you can buy the book direct.  It'll be an interesting experiment. I'm cautiously optimistic about it's possibilities. I hope you are as well.

2 comments:

  1. Great idea given your level of popularity. It's something, I think, every author should try when they have reached a certain level of saturation in the market. New authors still need every sale they can get on amazon (or other chains) to help with exposure to new readers.

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  2. I am so happy for you! It is truly amazing to see how well you have done with all of that work. I have enjoyed your stories and continue to read what you have (sometimes several times!) Patiently awaiting anything you may write in the future!

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