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Finding Your Break-Even Point

Last week, the second episode of Concept to Shelf dropped, where we talked a bit about the math of publishing and how to price your book if you go into retail. Here’s the time: it’s slightly deceptive to leave it at that. The math has multiple facets, and that math says “here’s the ballpark for my book.”

We’ll start with the math from the episode. You don’t have to listen to the show to see the math breakdown; it’s in the show notes.

You’re selling a book at $20. At the three-tier consignment shop model detailed, you’re keeping 44%, or $8.80. In the episode and on the notes, we talk about the percent you have after remove your per-unit costs of your book.

Where This Math Works

This is a way to check and make sure that you’re actually bringing in money to cover expenses beyond the printing cost of the book. To say “make sure you have around 20%-25% of your cover price after accounting for the physical product’s cost” is a good way to make the numbers fit your head.

When I published Finis, my per-unit was around $6.50 and I initially sold it for $20. While that was find for direct sales (leaving me with $13.50 to cover other expenses and then ship the rest to charity), for retail sales it was harsh.Getting $8.80 for a book that cost $6.50 meant clearing only $2.30 per book, barely more than 10%. Ouch.

When I adjusted the price down to $15 to better reflect the fact that it was a small book in a market that doesn’t like to buy fiction…that was pretty bad. By then — hang on, I’m getting ahead of myself. (The topic of price adjustment is better as a future post.)

Where This Math Doesn’t

But the real world doesn’t work like that. You have to deal with up-front costs and periodic costs. It’s not like the printer is taking the single per-unit costs with each sale. You’re paying for that right away. That means we need to see the math differently: calculating your break-even point.

You’ve got your $20 book that brings you $8.80. Your initial print run is 300 copies. How much did it cost to make?

Your printer’s quote is for $1200 — $4/book. (You could always get a better rate by printing more, but that’s for later.) Add, say, $50 for shipping.[1] Current total: $1250.

To break even at $1250, you need to sell ($1250 / $8.80 = 142.045) 142 copies. I’m rounding down because 0.045 is a small sliver of a book.

If that’s your only expense, then you’re in the red until you’ve sold 142 copies. Are you confident that you can sell that make copies?

Let’s add other expenses:

  • $500 for art[2], including a decent cover and getting some stock art from the Internet. That $500 takes 57 books to recoup ($500 / $8.80 = 56.81). Current number of books you need to sell in order to break even: 199.
  • $300 for developmental editing[2], along with some free proofing from friends and fans. That $300 takes 34 books to recoup ($300 / $8.80 = 34.09). Current number of books you need to sell in order to break even: 233
  • Deciding to debut at Gen Con. Okay, that’s its own post, because fuck, that’s expensive.

With those expenses, you’re looking at getting return starting at book 234. That’s 77 books that are “profit.”[3] That’s $677.60.

Further Deception

You won’t sell all of your books. Some will get lost in the math, or damaged and need replacing. Some will be comp copies you give to contributors or reviewers. For whatever reason, even if you sell your entire print run, you won’t see money for 100% of your books. But getting into this topic is also yet another post.

Your Numbers Will Vary

This gets more complicated when you have multiple methods of selling: direct sales, through consignment shops, at conventions, etc. That makes your break-even point defined as number of books fluid. But the dollar values you’ve already spent aren’t, so keep that in mind as you see checks come in for your book.

The Two Questions To Ask Yourself

Once you know your break-even point, you have to ask yourself two questions:

  • Are you utterly confident that you can sell at least that many books?
  • Are you happy with these numbers?

If you answer yes to those, sweet! Here’s a third question you really need to keep in mind:

  • And how long do you think that’ll take? (In other words, how long will you be riding in the red?)

In the example above, I wouldn’t be happy. If it takes more than half of my print run to pay all my costs, I feel like I’m doing it wrong. (And honestly, for small runs I’d still rather it take a third, but sometimes that’s tough to float.)

If you’re happy with that answer, by all means push on. But if not, you need to rethink how you’re doing this. This could mean:

  • Raising your cover price and hope you have enough customers buying it still. (And hope that they don’t bitch too much about the price, because that creates a negative emotional context for the book from the first moment. Suddenly, the book has to “justify” its high cost.)
  • Finding a way to lower your expenses. Shop around for other printers. Do trade-for-work for your art or editing. Things like that.
  • Seek out other ways to monetize. Like, say, PDF sales. (Which, as someone in Evil Hat, isn’t a path we take strongly, since all of our print products come with a free PDF. Still, some buy just the PDF since it’s cheaper.)
  • Not selling into retail. Now, you will have fewer books sold this way, and less exposure, but if you can’t afford to sell into retail and you can’t change the numbers, selling into retail is a bad idea.

Another Perspective on Pricing

Gareth-Michael Skarka posted some great thoughts on his app-pricing model experiment, and why he’s no longer doing it. Really great stuff here.

Please Tell Me If I’m Wrong

Hey, publishers doing this thing, am I off? Please leave comments calling me on bad math and other bullshit.

Thanks!

– Ryan

[1] This number is totally out of my ass here. I haven’t had to deal with shipping like this in years.

[2] Other numbers pulled out of thin air. Your numbers will vary greatly.

[3] Which is in scare quotes because, if you’re looking to continue making your book available, that’s capital being saved up for your next print run. If you can justify another print run, of course.

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13 Responses to Finding Your Break-Even Point

  1. Hal Mangold says:

    Pretty good, overall. I usually estimate usuing 35% of cover as the number, both because it’s an extra hedge, and because sometimes if you use a fulfillment house, that’ll account for the extra fees they shave.

    • Fred Hicks says:

      Yeah, everyone has their percentage number for this stuff. I go for 40% because I usually sell to distribution (whether it’s via IPR’s method or to someone like ACD or Alliance) at 44% — the shaving plays in, there, for sure. But even if I was selling at 40% of cover to those guys, I’d be getting some solid padding in the other direction too, with direct sales (where I get like 90-95% of cover) and no-per-unit-cost sales such as the PDF market. So that tends to balance out that which is normally represented by shaving anyway.

    • Hal Mangold says:

      That’s a sensible approach. It’s all about what makes you comfortable, and how much you think your PDF and direct sales can feed into that that break-point number.

    • Ryan Macklin says:

      Hal, Fred,

      Thanks for the numbers!

      The reason I used 44% is because that’s the current IPR numbers, and many of the folks I’m talking to are looking at this more or less as neophyte hobby publishers. We don’t talk about the math enough, in my opinion.

      I love seeing this info, too. Seeing what it’s like going forward as your scale increases and your ability to find good printers increases is pretty interesting. And how expecting 40% or 35% becomes doable with scale and better resources — that’s pretty sweet.

      – Ryan

  2. Fred Hicks says:

    This is a great post. I have some comments and thoughts.

    PDFs still do pretty well for us precisely because there are a bunch of folks out there who aren’t just buying PDF because it’s cheaper, they’re buying it because they’re keeping the clutter down in their lives. As tablet use gets more widespread, I expect that segment to continue to expand.

    One perspective that can be useful, here, is to recognize that your print run once paid for is a sunk cost. You’re not getting that money back, really, save by generating income off of what you printed. But even then, what’s a break-even point? It’s the point at which you have back in hand the money you paid out for the print run in the first place. If you’re looking to do this 200-300 copy print run every 2, 4, 6, 12, whatever months, as a kind of “evergreen” or perpetually-in-print strategy, that break-even dollar figure is largely the dollar figure you’ll be paying out each time the low-stock warning bell goes “ping”.

    This, I think, more than anything, is why it’s important to do all of the things — especially right-sizing your print run to meet demand within a reasonable time window, and making sure your “break even” dollar figure is half or less than half of the income generated by a total sell-through of your run. Because that break even money is lather/rinse/repeat sunk-cost money — if you’re in it for the long haul, you’re always re-spending those dollars. So making sure you end up with additional cash beyond that forever revolving chunk of change is the only way you’ll be sure to have the resources to grow your publishing business, short of spending more money from an external source (i.e., your own personal pocketbook, etc).

  3. Steve Segedy says:

    That all looks pretty solid to me, Ryan. A few things to consider:

    1) This is modeling your worst case scenario (selling through retail) which is appropriate. However, you’re likely also going to be selling part of your stock as direct sales, meaning that your margin on those books is much better (50% to 70% of the cover, instead of 44%).

    2) Even if you’re doing a print+PDF guarantee, don’t discount PDF sales. We see pretty good sales of Fiasco through both IPR and DrivethruRPG— some folks just prefer the electronic version, and as a product, your margins are better.

    Thanks for posting this. It’s a reminder for me to crunch some numbers on our next book!

    • Ryan Macklin says:

      Steve,

      Part of why I didn’t get further into “oh, and direct sales will change this up” is because those numbers are even more chaotic. You by chance know what your initial couple quarters were like, direct vs retail (and maybe that vs convention)?

      – Ryan

  4. This is good stuff, Ryan, but it doesn’t address at all the leanest way to avoid losing money: dump the whole cost of print. The entire pre-print model is still really up in the air — it’s by no means clear that this is the best way forward, especially given the small and easy-to-reach community of RPG folks. PDF you mention, but Diaspora made its first $10k in clear profit from print-on-demand with zero pre-print investment and no PDF option available.

    During this period, we constrained retails sales to the small (about a dozen in the end) vendors that were okay with taking a smaller cut from cover than they would normally and dealing with them directly. In this way we absolutely controlled our profit while retaining a B&M presence in an elite set of stores that we repaid with poor profits but constant attention (call-outs and links on our main page, frequent mentions in social media). We simply bought 4-10 copies of our own books from the POD vendor (Lulu in our case) and shipped them to the stores in question.

    Once the title had demonstrated itself, it became possible to satisfy the larger vendor market with a print run, and even then we chose to leverage (ie. pay) someone else (Evil Hat, though there were other suitors after the ENnie) to manage that risk, which is another sort of option if you can swing it.

    • Ryan Macklin says:

      Brad,

      By design, that’s a point I didn’t wanted to call out in the post. (As it was, it was getting long, and this post is a foundation for other ideas: why to do/not do retail, why to do/not do print, why to debut/not debut at Gen Con, etc.)

      while retaining a B&M presence in an elite set of stores that we repaid with poor profits but constant attention (call-outs and links on our main page, frequent mentions in social media).

      It’s worth noting that said stores also got poor to no margin beyond costs. We mentioned Diaspora in our podcast episode, and why Chris took it on even though the margin did nothing for his bottom line. The math on his end is interesting as well.

      – Ryan

    • Yeah, in the end our retail sales during that period didn’t wind up netting us much (if anything) after costs either. It didn’t contribute to our bottom line except as a generator for attention and further sales. I bet our math (and motive) looks similar to Chris’ actually. :D

  5. Josh Roby says:

    It’s also worth noting, in a “this is a whole blog post by itself if not a series” sort of way, that Kickstarter changes EVERYTHING.

    • Fred Hicks says:

      This is true both in the way that yesteryear’s pay-in-advance preorders were a great thing for micropublishers (here are funds for you to do your thing), and in the way that establishes whether your idea for a product is something the market is actually interested in (here’s funds *if* there’s enough interest).

      Given how difficult it is to do market research as a micropublisher (and even as a mainstream publisher) the idea that now you can get your dollars and interest assembled in advance does indeed change the game.

      It’s not the only way to proceed, but, man, it’s something.