Business Post: Different Kinds of Revenue (Patreon)

Coming to the end of the month, and I figured I'd talk about the different kinds of revenue an author can receive and what that means.

In this case, I'm going to break it down into three areas.

1) Currency

2) Type of Revenue and Profit Margins

3) Date of Receipt

All of these actually matter, to some extent, when you're looking at how the revenue arrives and what you can do with it. 

So let's get into it.

Currency

Did you know that Amazon pays us in different currencies? That's why I use Wise to receive my money, because they allow me to open accounts in different currencies and makes it cheaper for me to receive what they pay me.

It's also why, a lot of estimates of how much we make (both on Amazon and the various other sites) are always going to be a little off. Because when we receive the money and when we convert it will change how much we earn (sometimes by a few cents, sometimes more significantly).

It's why the currency or method of payment can be important. It's not just Amazon who pays us differently too. Ingram pays me in Canadian dollars, I get pounds and Euros from other sites as well.

On the opposite side, I often pay people in US, Canadian dollars and Euros, which means I might even keep some of those funds I receive in those currencies to reduce exchange rate fees (which can add up).

Type of Revenue and Profit Margins

Alright, another major difference is the profit margin and/or direct expenses that can be attributed to the income that we receive. 

In most cases, the royalty income we receive, whether from publishers, Amazon or Ingram is actually gross income (that is the total revenue minus expenses from the distributor taken out); so there is no directly related expenses on this revenue.

On the other hand, revenue from the Shopify store that we receive might actually be actual top line revenue. There are still costs that must be taken out (and this can mess you up on the backend depending on how you write you record your revenue). Some of these costs could include the cost of the payment processing gateway, or the cost of delivery (shipping cost and product cost) if you are sending out paperback books. If you really get into it and have PAs who might ship it out for you or the like, you could potentially attribute their labour cost there too.

Kickstarter is the same. We still have the record the revenue coming from Kickstarter as the whole amount, even if we know there are costs that can be directly related to the Kickstarter.

So, in this case, the amount you see from Amazon is almost 100% profit from the point that you receive it onwards (it's actually only 65% or so off the actual revenue but all that money is now taken out before it reaches you so you can ignore it).

BUT, with Kickstarter or the store, the profit margin is significantly lower than 100%. Say a backer gets a paperback shipped to him and sends us $55. If our cost is $30, we only get $25 of that $55 (actually less, but ignore the details). 

So, the KIND of revenue and where we are getting it from and the expenses related to it is VERY important.

If you're looking at someone saying they're making $100k on their Shopify store, make sure you check the details of their revenue. Because otherwise, you might believe it's the same as the $100k you received from Amazon. And it's not.

Date of Receipt aka Cashflow

Lastly, let's talk about date of receipt. Or cashflow considerations.

Basically, each revenue source actually delivers what is owed to us differently. This can be distressing, especially if you are looking at some of these software systems that mark when the income was made, rather than when it would arrive in your bank account.

Amazon sends money 60 days AFTER the end of the month. So it can be nearly 90 days before you receive the earnings you made (whole month finishes, 2 months after that to get the funds). 

Other retailers vary I believe, and it will vary even more when you add in companies like Draft2Digital, etc who consolidate this funds and who need to receive it first before sending to you.

Audible sends money 30 days after the end of the month. 

Shopify sends me sales within 1-3 business days. 

Kickstarter is about 21 days after the end of the campaign (IF the campaign is successful).

Publishers can be incredibly slow. Most pay at the fastest around two (2) quarters AFTER the quarter has ended. I've seen contracts for yearly payments. Nevermind the shorts that get accepted but don't get published till a year and a half later....

An Example

I make 10,000 in January. Of that, 3000 is Amazon, 3,000 from Audible, 1000 from Shopify, 2,000 from an audio publishers  (who, btw, I would not even know about how much I made till in... umm... August I think, but we're ignoring that) and we'll call it 1000 from Kickstarter that ends end January.

I first get all my Shopify income in January (or very close to it).

+1000 in bank account.

Mid-february (around Feb 21st I believe) Kickstarter pays me

+1000 (total $2000)

End of February, I now get the 3000 from Audible 

+$3000 (total $5000)

End March, I finally get my Amazon payment.

+3000 (total $8000)

Finally, in around August or so, I get my final $2,000 from my audio publisher.

+10,000! (finally!)

So, yeah. When evaluating revenue sources and income and what comes where, definitely look at these factors.

Did I miss anything? Get something wrong? Feel free to comment.