Business Post: Publishers, Marketing and Royalty Rates (Patreon)

As many of you might know, I tried my hand (briefly) as a publisher during the pandemic, in a bid to help some people put out work they could not (due to cost) in our tiny genre. I also have a few co-authors who I publish the work directly.  So, I wanted to talk about some observations about publishing, specifically from a business and marketing perspective.

Firstly, let's just make it clear I am, for the most part, making a bunch on the publishing side up as I go along.

Now, on a business side of publishing, the publisher has to play with a few things when taking up a new work:

- cost

- expected profitability

- ROI and breakeven timeline

- cash flow

Generally speaking, if you're expecting an advance, that's more geared towards bigger trad publishers. Most small indie publishers don't give advances or do minimal ones in the couple thousand dollar range from everything I've learnt speaking with others. There's a few reasons for that, but it has a lot to do with the speed and expectation that indie writers are expected to complete work.

Authors going to indie publishers aren't (generally) expected to release once every year or two years, but once every 3-4 months. So rather than give significant advances to pay for that period, it's generally none or very small.

In that sense, cost on an upfront basis can be seen (from a publisher perspective) as Advance + Cover Cost + Editing Cost + Proofing Cost + Formatting Cost. 

Assuming at $0 advance, such cost can range as low as $500 to as high as $4-5k. On average, I'd assume $2k or so per book being put out (assuming no external paid dev editing). 

Expected profitability will vary by genre, but for most indie publishers, the royalty rates are 50-70% for the publisher (i.e. authors get 30-50% of net royalty coming from places like Amazon). 

Lastly, worthwhile understanding that each business will have an expectation of when they can see breakeven and when that breakeven actually hits their bank account (don't forget that Amazon takes a minimum of 2 months to pay out). 

If you assume it takes 3 months for a book to arrive, get edited, covers to be made and published, many publishers will be at minimum 5 months (if not 6) before the first month's income will arrive. That is a major cash flow issue and needs to be planned for.

Anyway, all that is background to what I wanted to talk about, but I figured it was needed understanding.  

Let's Talk Marketing

Specifically, we're going to discuss paid promotion. And more specifically, ads. There's a lot of advantages a good publishing company can bring, including their brand, their newsletter list and their current fans (and any social media they use to contact said fans). All of that can boost a new debut author.

But that, in a sense, are all 'fixed' cost. You build that out on an on-going basis as a publishing company, so there's no additional cost (or decrease in cost) when you launch a new book.

No, what I want to talk about the other pillar of promotions, paid advertising. 

It's one of the more effective ways to do that, and for a publisher with a lot of books and a good sense of branding, it could actually help build both their brand, sales of other books and, of course, sales of your work.

But...

Royalty rates and ROI come into play here.

In general, it's hard to make paid advertising work. The rule of thumb is three (3) books in a series, nine (9) books standalone for an author before paid advertising makes sense. 

Why? 

Let's do some quick maths.

Book 1 costs $4.99. At 70% royalty rates, that's $3.50. Minus another $0.11 for delivery cost, we'll call it $3.39. 

Book 2 and 3, we'll assume is similar in terms of pricing and royalty rates. However, let's say readthrough rates for book 2 is only 70% and book 3 is 90%. 

Now, if you have one book, the most you can ever earn is $3.39. If you have 2 books, you can, (on average) earn $3.39 + (70% of $3.39) = $5.76. If you have 3 books, you can earn (on average) = $7.90 per reader. 

That's more than double when you have 3 books in that series, compared to 1 book. When you have a series of standalones, the readthrough rates from one book to another is significantly smaller, which is why you need more books (and readers).

Now, another area to think about is conversion rate and cost per click of your advertisements.

Let's say it cost you $0.30 per click on your advertisements. So for a hundred clicks, you pay $30. 

Conversion rates on a series with a good blurb, good cover, good title and well targeted is probably around the 3-5% range from my experience. So, let's assume 5 out of those 100 clicks buys.

If you have a single book, you are looking at (5 * $3.39) $16.95 in revenue generated. That's a huge loss of nearly half your income.

At 3 books in the series, you are looking at (5 * $7.90) $39.50. Minus the $30 it cost you to run the advertisement, you can expect to earn then $9.50.

Not great at all (which is, btw why people try to get CPC down to around half of $0.30 so their advertising cost is half, making even 1 book potentially viable). The other option, of course, is to increase conversion rates (but those can be tricky, again depending on genre, series, target markets, etc.). 

Anyway, the point is that with 3 books; you can breakeven with advertising. With more books than that, you can really start making money. Which is why indie authors write series.

But this post isn't about series writing... it's about publishing and royalty rates.

Now, flip upwards to see the assumption and general royalty rates you can expect a publisher to take (i.e. 50-70%). 

Assume a publisher takes 50% royalty, leaving the author 50%. That seems like a good deal for the author... except.

Look at those numbers again. A publisher CANNOT do paid advertising at 3 books, because their earnings are now $39.50*0.5 = $19.75. A guaranteed loss.

If they can bring the advertising cost down to half of that, they are looking at a small profit of $4.75 for these 3 books. Even minor fluctuations though on both paid advertising cost and readthrough rates will see them in the loss. 

On top of that, you have to consider the upfront cost paid by the publisher to put out 3 books. If this series has not broken even through organic promotions, if readthrough rates are worse, the publisher cannot afford to risk putting advertising dollars into this series at all.

It'd DOA.

They can still push the work non-organically, but it no longer makes sense (financially) for them to do anything with it. 

So what?

I'm not drawing any conclusions or suggesting authors shouldn't ask for higher royalty rates. This all assumes the publisher will do paid advertising at all (and many don't bother!). But it is something to consider.

Even the best intentioned publisher, when faced with the hard reality of these numbers cannot afford to push an authors work. Paid advertising is expensive, and getting more expensive unfortunately. 

Also, worth noting how this plays out too in terms of co-authors and royalty splits and advertising that way. Again, the implications of splitting the royalty and payments in this sense is just harsh.

Thoughts? Comments?