Priceonomics

Editor's note: This is a guest post by Carter Phipps based on his experience publishing his first book.

15 Billion. That’s the total net revenue that U.S. publishers took in last year. By some measures, it’s a great deal of money—representing the hundreds of thousands of trade hardcovers, paperbacks, ebooks, and audiobooks that get bought and sold annually in the United States. By other measures, it’s hardly a blip on the multi-trillion dollar economic landscape, a pittance of a percentage of the American GDP. To put it in perspective, it’s about one-tenth of Apple’s revenue and barely more than one-third of Apple’s profit over the last fiscal year. In 2012, Apple made enough money to purchase all the books in the industry and still have billions left over in change.

What the book industry lacks in economic might, however, it makes up in intellectual mindshare. When it comes to culture, the book industry punches way above its weight. Just think how many major movies, culture-changing ideas, global trends, historically significant movements, and unforgettable characters were born in the pages of a book. Five hundred years after Gutenberg’s breakthrough changed the world, books are still, we might say, the intellectual unit of culture. They remain a critical medium through which ideas and memes propagate across our cultural landscape, and we all have a stake in how well that medium is functioning. 

Without question, the digital revolution has already changed the face of the book industry. Amazon’s rise, Border’s bankruptcy, the decline of the independent bookstore, the rise of ebooks--creative destruction is a force many in publishing are intimately familiar with.  

“Call me a pessimist, call me Ishmael, but I think that book publishing is about to slide into the sea,” wrote popular humorist and writer Garrison Keillor in the New York Times. “If you want to write a book, you just write it, send it to Lulu.com or BookSurge at Amazon or PubIt or ExLibris and you’ve got yourself an e-book. No problem. And that is the future of publishing: 18 million authors in America, each with an average of 14 readers, eight of whom are blood relatives. Average annual earnings: $1.75.” 

Authors may not be quite as bad off as Keillor humorously projected. It says something about how fast the industry is changing that in the three years since those words were written, BookSurge has become Amazon’s CreateSpace and PubIt was effectively shut down. But just how are authors adapting and surviving amidst the technological changes that are revolutionizing the media landscape? Are they making money in today’s publishing industry? 

The Book Author’s Guide to Fame and Fortune

This particular author has some personal experience in the book industry. In 2012, I published a non-fiction book with one of the Big Five--the five largest publishers. It was a long, arduous, and intellectually rewarding journey. But my experience demonstrates how even a well-received and modestly successful book is no guarantee of financial success. 

Back in 2006, I wrote an article that everyone told me should be a book. In publishing, if you want to sign a book contract with a major or mid-tier publishing house, you have to write a book proposal. It’s not just a plot summary. Proposals often run 15,000-25,000 words in length, including sample chapters and specific information about the author’s plans for marketing his or her work. Essentially, a book proposal is a business plan for your book. And unless you’re a celebrity with an already guaranteed audience, the publisher is going to peruse it closely. 

A good book idea will only get you past an editor, if you’re lucky. At some point in the acquisition process, the marketing and finance team will have their say. A book proposal is how you show them that you’re not just a brilliant writer but also a savvy marketer who has thought long and hard about how and to whom you are going to actually sell books. This is the phase of the publishing journey in which you constantly hear discussions of “platform” and whether or not you have a sufficient one. Authors are expected to have a core audience eagerly awaiting their books, if not an already established public persona. Without one, it will be difficult to get a book deal from a good publisher.

But before a publisher ever looks at a book, the true gatekeepers of the publishing industry have their say--agents. Generally, publishers don’t just accept submissions from any aspiring author. They go through agents. So you must first convince an agent that you will be a lucrative investment. As a rule, agents take 15% of everything you make from a book. 

I had a small but respectable platform as the editor of a national niche magazine with a dedicated subscriber base, and therefore my book proposal convinced an agent to sign on to the project. She shopped the proposal around to her contacts and connected it to an interested editor at a top five publisher. They agreed to publish the book and offered an advance. 

An advance is just what it implies: an advance on future earnings. In many cases, the advance is what you will make on the book. Royalties only kick in when you have sold enough books to earn out the advance. While advances have declined in recent years, as publishers have become more risk-averse, they can run into the hundreds of thousands for the top publishers, particularly if a savvy agent generates competition, leading to an “auction” between publishers. Celebrity authors can earn millions. Small or mid-sized publishers, on the other hand, might offer $5,000-10,000 for a book they believe in. Most small publishers offer no advance at all. 

I received a $20,000 advance--a small investment for a top-tier publisher. My book was a little fish in a big pond, with all of the prestige of being published by a big house but without the kind of money that could support an author as he or she worked on the book or inspire the publisher to put significant marketing mojo behind its investment.

Nevertheless, the publisher was supportive of the book, helpful, and ensured that it was distributed in all the major bookstore chains. It sold the rights overseas as well, and helped with one or two television appearances that probably would not have happened otherwise. But for the most part, it was clear that if the book was really going to be a success, it was going to have to be marketed and sold independent of the publisher's modest efforts. 

The book was published in 2012. As of this writing, it has been out for almost 18 months. According to the publisher, it has sold well over 10,000 copies and recouped the investment put into it, but at the same time, it wasn’t a big money-maker for them. 

It certainly wasn’t lucrative for the author either. Although I may soon begin earning money from the royalties, my income from the book has not yet earned out its advance, even with the inclusion of the following foreign rights deals, of which 75% goes to author: 

South Korean advance – $2,680

Complex Chinese advance – $1,602

Portuguese (Brazil) advance – $2,220

Spanish advance – $3,660 

The total income from the advance, after paying the agent 15%, was $17,000. The whole process of writing the book proposal and the book, getting feedback from the editor, doing a round of revisions, working on the cover design, getting endorsements for the back of the book, and preparing for the launch took about 3.5 years. A year of that was full-time writing. The remainder was part time work on everything else while trying to make a living on the side. 

Imagine getting paid $17k, or around $8 per hour, for a year, followed by a great deal of unpaid part-time work, then taking nine months off to launch the book and travel round the country promoting it at your own expense, and you will start to understand why people advise against publishing a book to make money. And since you don’t get the second half of that $17,000 advance until the manuscript is actually accepted by the publisher, it’s like working a year for a little over minimum wage and hundreds and hundreds of more hours for free, while half of your salary is deferred for two years. 

About That Fortune...

So while my publishing experience has been rewarding in many ways, it has not been lucrative. Of course, one could argue that it is my fault for not selling well enough. But let’s look at the numbers to see how my book stacks up.

As of October 2013, an estimated 12,924 copies of the book were sold – 11,000 print copies and 1,924 ebooks. (The exact number of print copies is in flux as bookstores can return copies.) The cover price was $15.99 for the paperback and $9.99 for the ebook.

At the royalty rate of 8%, the book has not yet earned out its advance, though it is nearing that threshold. The publisher is likely profiting from my book at this point. 10-12,000 copies is the estimated break-even point for the publisher on a book such as this. So we could call the book a modest success, partially because according to industry sources, about 7 out of 10 books lose money. And as we’ll see below, the book just missed getting on the New York Times Bestseller List.

But while the book may be a modest success relative to the investment made by the publisher, and in comparison to so many titles that lose money, that doesn’t mean it’s making any book executives pop champagne corks. As in the movie business, publishers make their real money on the big home runs, not the base hits.

The Self-Publishing Counterfactual

With publishing houses only offering a royalty rate of between 6-15% (more for hardcovers, less for paperbacks), today’s authors inevitably ask themselves: Should I have self-published?

That question quickly breaks down into two additional questions: Could I have sold the same number of copies with a self-published book? And would the book have made more money? 

To answer the first question for my case, we need to look at how my books were sold. As mentioned before, the publisher’s marketing efforts were minimal. I sold most of the books through a personal network of supporters, friends, and colleagues. Email marketing was critical. For example, on the morning of the launch and release of the book, it was at around 30,000 on Amazon’s sales ranking. (Amazon uses an algorithm to rank all of its books based on sales data and updates the ranking every couple of hours.) That evening, we sent a marketing email promoting the book to the email list of the magazine I worked for, which contained around 35,000 email addresses. Within 2 hours, the book was ranked in the top 600 on Amazon. A number of colleagues also sent out emails in the next days promoting the book. And after most of them, I saw a leap in the Amazon ranking. 

The biggest spike came five days after launch. I did an Internet radio show with a colleague whose email list and audience was perfect for the book. Several other friends also sent out emails, bringing the reach of email marketing to over 250,000 people. I also promoted the book extensively on social media and had every available friend, contact, and colleague do the same. 

By the end of the day, the book had climbed to #13 on Amazon out of all books sold, and #1 in several subject categories. What that translated to in sales exactly is unknown, but it was by far the most effective sales day of the campaign. A week later, the publisher said that the book had just barely missed making the New York Times Bestseller List. In part, this was because the list, whose exact algorithm is a closely guarded secret, includes much more than Amazon sales. An author must also sell a significant number of copies in Barnes and Noble and selected independent bookstores across the country. 

So how many sales were attributable to personal efforts and how many were the result of the publisher? 

Over the first few months of the book release, the publisher secured an appearance on national television (MSNBC) and did some promotion on Amazon. Some interview bookings, even if gained through personal networks, were no doubt helped along by having the HarperCollins name associated with the book. And its sales team generated the foreign rights deals. 

But most of the sales came through hard work and long-cultivated personal networks. A speaking tour also helped goose sales, again largely self-organized. And I raised money through a crowdfunding campaign (with the help of friends and colleagues) to support book promotion. Certainly, the big-publisher mystique helped, but only in certain cases did it make a difference to sales. So let’s be very generous to the publisher and say that around 3000 of the books sold were directly attributable to their efforts. For the other almost 10,000, credit goes to the author.

Now let’s imagine that the book was self-published and sold in both print format and as an ebook. What would current earnings look like, assuming 10,000 in overall sales, including the same ratio of ebook sales? Using Amazon’s royalty calculator (image below) for their self-publishing company, CreateSpace1, I would get $4.18 on each print books sold for $15.99 and $6.47 for each ebook sold for $9.99. (This assumes that all ebooks are sold through Amazon’s Kindle Direct publishing platform and using this calculator.) My total earnings would look like this:

8510 print books = $35,571.80

1490 e-books = $9,640.30

Total income = $45,212.10 

Self-publishing would have incurred the following costs for services that the book publisher covers:

Copyediting and Proofreading (estimated) = $3,500

Cover Design (estimated) = $1,000 

ISBN Number = $125

Formatting – $200

Total Costs = $4,825

All other costs, for promotion, travel, and so on, I would have incurred either way. So from this back-of-the-napkin calculation, my current income from self-publishing would have been around $40,387.10 after basic expenses. That’s better than $17,000 no matter how you slice it. 

Does that mean the book should have been self-published? Not necessarily. There are intangibles that are simply not included in these quick calculations. 

Having one’s first book published by a top five publisher conveys all kinds of non-financial kudos to the author. That prestige is hard to replace with pure sales dollars. In some cases, that prestige can lead to lucrative opportunities like speaking gigs, increased seminar sales, and better academic prospects. The benefits from the legitimacy of a well-received book go well beyond the sales numbers, and working with an accomplished editor helped make the book a critical success, earning positive reviews from Publishers Weekly and Kirkus Review

Still, this author’s experience has given him 23,387 reasons to consider the benefits of self-publishing. The traditional route through publishing’s old guard has significant benefits. But as self-publishing opportunities increase and new hybrid publishing models arise, the appeal of alternate routes to authorship is almost certain to increase.

Is the New World of Publishing Better for Authors?

So how are authors faring in the shifting ecosystem of publishing? How are their pocketbooks enduring the rise of ebooks, the decline of traditional booksellers, and the changing economics of publishing? The previous breakdown demonstrates how tricky it can be to make a living off of book sales, even with respectable sales figures. However, in a fifteen billion dollar industry, someone is making real money, and there are certainly winners in publishing’s globalizing marketplace. We can safely assume that Malcolm Gladwell is not suffering from the disruptions in the book industry. And as the Harry Potter/J. K. Rowling rags-to-riches story demonstrates, this is still an industry where a great idea, a beautifully written book, or a powerful story can surprise the skeptics and find a global audience against all odds.  

Nevertheless, book advances are down at both the big and small publishing houses—some estimate by as much as 75%. Acquisitions editors and decision-makers are more careful in lean economic times regarding who they publish and how much they spend on each book. Gatekeepers are more risk-averse. They are looking for the sure thing. As one editor told us, the last years have seen the rise of “personality-driven” publishing: more books by those individuals who already have a significant public “platform” and media presence. Even at smaller presses, the need for authors to have an established platform is critical, and the marketing department has more veto power over acquisitions. 

As economic pressure increases, business strategies evolve. Some publishers insist that each author purchase wholesale a pre-set quantity of his or her own books, thereby guaranteeing that the publisher limits the downside of its investment. Sometimes, arrangements like this are combined with the author making a higher royalty percentage of each book sale. In these cases, authors and publishers become more like business partners in producing a book. 

Some may ask, why all of this hand-wringing about authors in the traditional book industry when it’s so simple to self-publish? Let a million flowers bloom and the market will sort out the winners and losers. Self-publishing, once known as “vanity publishing,” is fast losing its stigma. A few author have made a killing self-publishing on Amazon. Romance novels in particular have seen commercial success: Fifty Shades of Grey was self-published before it went on to sell over 60 million copies. And surprising and sometimes bizarre spin-off sub-genres, designed to please highly individual tastes, are making some authors wealthy (Dinosaur erotica anyone?).  

A 2012 survey, appropriately titled Not a Gold Rush, gives us perhaps the best insight into the economics of self-publishing. Over 1,000 self-published authors were questioned and the results were sobering. The average self-published author earns $10,000 a year. And even that meager sum is skewed by the more popular stars of the self-publishing economy. 10% of the authors in the study made 75% of the money. 75% of authors made under $500. 

Self-publishing is arguably a wonderful innovation. It is historically unprecedented, providing the means for millions of people around the world to bypass the elitism of the publishing establishment and fulfill their ambitions of becoming authors. In terms of access to a worldwide marketplace, it is fantastically democratic. In terms of access to financial success, it is far from it. 

Without question, we can say that authors have extraordinary opportunities in the 21st century publishing world. It’s just that making a living from book sales is rarely one of them. 

This post was written by contributor Carter Phipps. You can learn more about Carter and his book here. To get occasional notifications when we write blog posts, sign up for our email list.

1Obviously, Amazon’s CreateSpace is not the only self-publishing option. Many companies are offering innovative services and costs are coming down. And if an author wants to forgo print publishing altogether, he or she can significantly reduce the overall cost of production, but that is going to negatively impact sales, especially for non-fiction books, which tend to sell a higher ratio of print sales than ebooks compared to fiction.


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