Friday, February 18, 2011

The Numbers Game

So I just got off the phone with an acquaintance of mine. She's a writer whom I met last year at a conference, and she called me asking for advice.

First some background. She's hit the extended NYT list several times in both hardcover and mass market, and has a backlist of ten books. She was just offered a contract from one of the Big 6 for $200k a book, for a two book deal.

The royalties offered are industry standard 25% for ebooks on net.

She's thinking about releasing the book herself, and needed some help crunching the numbers. She's had several previous contracts for $200k a book, but so far none of her books have earned out their advance, even six years later. (This is common, by the way, even though she's had multiple printings. If I'd been paid $200k for Whiskey Sour or Afraid, I wouldn't have earned out either.)

Here's what I told her:

The 25% the publisher is offering is actually based on net. So you're getting 17.5% of the list price. (Amazon gets 30%, they get 52.5%--which is obscene)

When your agent gets her cut, you're earning 14.9% of list price on ebooks.

For a $9.99 ebook, that's $1.49 in your pocket for each one sold.

If ebook prices go down (and they will) it would be 75 cents for you on a $4.99 ebook

If you release a $4.99 ebook on your own, at 70%, you'd earn $3.50 an ebook.

Let's say you sell a modest 1000 ebooks per month at $4.99.

That's $9000 a year you'd make on ebooks through your publisher vs. $42,000 a year on your own.

Now your $400k advance the publisher is offering is paid out over three years. That means, after your agent's share, you're making about $114k a year, or about $57k per book per year.

We'll assume that will be all you'll earn, $57k a year for 3 years, because you have yet to earn out any of your previous advances.

My current best selling ebook is selling over 3000 a month, though on average, my novels sell about 1600 a month.

If you sold 1600 copies a month of your next book at $3.99 each, you'd earn $53k a year. That's a bit less than the $57k the publisher is offering.

But you'll earn for more than three years if you self-pub. You'll earn forever.

Forever is a long time.

Traditional publisher in 3 years: $171k
Self pub in 3 years: $159k

Traditional publisher in 4 years: $171k (because you won't earn out the advance)
Self pub in 4 years: $212k

Traditional publisher in 7 years: $171k
Self pub in 7 years: $371k

Of course, these numbers assume ebooks sales will stay flat. I have two years of data that show ebook sales are growing.

It also assumes they can sell as many ebooks at $9.99 as you can at $3.99. That's wrong. You'll greatly outsell their $9.99 list price if you price it lower.

Taking print out of the equation for a moment, let's take a guess at $9.99 vs. $3.99, based on my numbers.

At $9.99 you've shown you can sell 800 ebooks a week during the first 8 weeks of your release. You'd earn $1200 a week through your publisher on ebooks.

At $2.99, I've shown I can sell as high as 3000 a week. If your ebook was $2.99, you'd earn $6000 a week. If it was $3.99, you'd earn $8370 a week.

Obviously, you need to also factor in print revenue, though whether bookstores will still be around when your novel is released in Spring of 2012 is open for debate.

But you can release your book through Createspace and have a print version. You won't sell as many books as a traditional publisher would could, but those sales will go toward an advance you'll never earn out.

If you priced a 6" x 9" Createspace trade paperback at $13.95, you'd earn about $3.56 a book. For my bestselling Createspace titles, I sell 50 a week, or about $9200 a year. Not nearly what you'd make through a traditional publisher, but not bad for passive income.

That means, assuming your book sells like mine sell, it would make you about $62k a year, just through Amazon. This doesn't count Nook, Smashwords, Apple, Sony, etc.

It also doesn't count time lost.

Your book is already written. Your publisher wants to release it in 15 months. You could have been earning money from your ebook during those 15 months. That's a nice chunk of potential dough, unearned.

Now, maybe you won't sell as well as I do. It's possible. You've got more fans, a larger name, a bigger brand, but maybe it just won't fly.

It's also possible that you'll outsell me.

But does it really matter if it takes you 2 years, 5 years, or 8 years to do better than the publisher's offer? Because ultimately, you WILL do better on your own. And you won't have to deal with any of the stuff you hate about the publishing world, won't have to tour, will have full cover and title approval, will be able to release books at your own pace, and will be in complete control.

Now a publisher offers more than just creating and distributing books. They also edit, do the cover art, do the printing, shipping, and uploading.

But do you want to pay them 52.5% forever for those services?

Michael Stackpole just had a wonderful quote:

"You do not pay a royalty to anyone who is doing day-labor. All book production should be done for a flat fee (and there are plenty of folks who will do it for very reasonable fees). Paying a royalty to someone for prepping an ebook is akin to paying the kid who cuts your grass a percentage of the purchase price when you sell your house."

Read his whole article HERE.

When I got off the phone with my friend, she was still worried and not quite ready to jump into self-pubbing. This is understandable. She has no personal data to fall back on. I have 2 years of self-pubbing experience, and when I started I didn't expect it to become my main source of income. It also took me over a year, even with the data, to come to the conclusion that signing with a traditional publisher is a bad idea.

But now I'm convinced. Signing with a traditional publisher, even being offered $200k per book, is a VERY BAD IDEA.

And I believe these numbers back me up.