WARNING! Launch Trough Ahead!

Posted by: Kevin Tumlinson 11 months ago

NOTE: This week's post comes to you from guest blogger Joe Solari, author of the Business Owner’s Compendium

Every author’s journey begins with the launch of a book. Understanding the economics of a book launch, then planning and budgeting a successful launch is a skill set that will support your entire indie publishing career and provide confidence in the numbers behind your business.  Before you worry about setting up a business, taxes or salary, you need to get your mind right regarding the finances of the book launch regardless if this is your first book or the 10th book in a series.

One of the biggest obstacles that catches authors off guard and create havoc during this process is what I call the launch trough. This is the chasm between cash outflows on expenses and when money flows back in. Most authors do not break even on launch day and require weeks or months to claw out of the trough. If your plan is to launch several books thirty days apart for example, then the depth of the trough will compound. In this article, you will gain an in depth understand of the launch trough, how to plan for it and navigate it with poise.

To begin, let’s go through some basic terms of indie publishing economics. 

Revenue: Cash coming into your business. It all begins with sales, but you don’t receive the full sale price of your book, nor do you receive the royalty earnings at the time of the transaction. 

Let’s say you launch your book utilizing Draft2Digital, priced at $2.99 and you sell 100 books in one month; here is breakdown:

-  you get paid a 70% royalty less the $209.30

- 10% of sale price D2D fee platform.  -29.90

- Your Profit for month one is $179.40 

Here is our first complication: while your report shows this money is due, you have an agreement with your distribution platform regarding when they will release funds to you. The average is a minimum of 60 days and possibly 120 days based on the timing of your launch in the accounting cycle.

Ok, so I understand that my profit in sixty to ninety days is $179.40. Is that it? Nope.

Profit: Revenue less expenses equals profit, and you have expenses. For our example, if you had a cover made for $200 and hired an editor for $200. Your expenses before you even launched the book were $400. At this point you don’t have a profit you have a loss of $220.60.

So, at this point you lost $220.60.

Cash-Flow: the timing of cash inflows and outflows.

What the cash flow shows that not only did you lose $220.60, the way it happened. was First you paid out $400 in expenses, then sixty to ninety days later you received $179.40 in royalties, reducing your loss to $220.60 but you had two to three months out of pocket $400.

Why is this important?

Most beginning authors have an appreciation for the costs of launching and will require  to do it on a budget. You may understand that returns can come quickly and you plan to reinvest in your publishing business. Where the conflict arises is setting an ambitious launch plan that does not have the financial support to be successful. For this article, I will use a real example: a fiction series I am writing under a pen name. You will learn that to achieve my launch goal besides hitting an aggressive writing schedule, I need a bankroll to fund the upfront costs.

Break Even Analysis: Evaluation of the number of books or page reads needed to break even.

My plan was to launch a trilogy over a four-month period.

Budget:

Covers and Creative $728

Advertising $757.70

Total: $1,485.70

To determine the breakeven can be a little complex given the plan to sell books at different prices. The first book and the intro to the series, for 99 cents each, subsequent book prices will increase.

I combined the total expenses I would incur for each book, plus the prior books produced knowing that the timing of cash coming in from book one will be after book three’s launch date.

It’s difficult to predict the exact outcome of the real world but the aim is to understand what is required for sales to get my money back. Once I have numbers to anchor my thinking, I can evaluate future performance.

The breakeven can be further nuanced by looking a not just book sales but page reads where applicable. For a book selling at 99 cents I will make more from page reads than sales.  

BREAK EVEN ANALYSIS

Book 1

Book 2

Book 3

Price

0.99

2.99

3.99

Royalty

35%

69%

69%

GM

$0.35

$2.06

$2.75

Expenses

-648.85

-1114.85

-1485.7

# Books to sell

 1,873

 540

 540

Blend

Books

30%

 562

 162

 162

$0.0045

KU Pages

70%

 100,932

 173,421

 231,109

 

At the end of my thirty days I have $44.13 from 83 books and 3398 page reads. I am happy with the results given this is my first fiction launch and I had no mailing list to leverage. As an aside I did a group newsletter swap that resulted in 360 emails in 15 days in exchange for free digital copies of book one.

The example shows that this work won’t guarantee a profitable launch, but it will let me know where I stand financially. I know that if I wanted to launch a fourth book and expected book one to finance it it I won’t have those funds for two to three months. I also know the breakeven is lower on book two and three because I have sales. Finally, I know that to launch the three books I need roughly $1,485 and will recover that when I sell 162 books and have a 231,109 page reads.

Without a breakeven analysis, you can’t quantify success or failure. Without having a benchmark, you end up worrying about what is the state of affairs. Don’t fly blind!

Now I will introduce the concept of the Launch Trough.

Launch Trough: I came up with this concept to model and plan the finances of a successful book launch. Taking the time to create one will help you eliminate surprises and to create a baseline assumption to evaluate actual performance against. With the launch trough, we create a mash-up of the breakeven and a cash flow to provide a model that can help us determine the amount of working capital you will need and for how long you will need it.

Below is a graph of the model for my book. Based on my assumptions I know that I will be in the hole for as much as $1485.70 (I knew that also from the breakeven) and I know that based on when cash flows back to me. Meaning? actually in my bank account and that sum offsets all my expenses will be around six months. A big part of any model are the assumptions, in mine I am assuming month one $40 in revenue then it increases to $150 a month then $300 then $400. 

If I don’t see these revenue levels, it means I need to adjust my model assumptions and it will then show me the changes to recovering my cash and the returns I should expect.

To create the chart, I use excel to build a model. I already know it is taking me longer than expected to write a book, that will impact revenues and to some extent costs since I need not advertise a book that is not yet for sale. 

 

If you find this all a little daunting, let’s get to what counts. The adage - it takes money to make money. Along with the time and effort to create your work you need to have working capital for this business to work. Running out of capital in the middle of the launch can result in disappointing your fan base and a loss of future revenue. Hoping current sales will cover future launches without a history of doing so is not a solid strategy. You must be prepared to adjust given when the income is created and collected.

Working capital: This is the cash your launch will need to get off the ground. For new authors this is funded from savings. If you determine that your launch requires $1,500 but you only have $500, then adjust. Hold off on launching until you save the funds. You can still write the books you just need to adjust your launch schedule.

Proceeding with  a launch without the appropriate working capital is setting up for disappointment. Maybe just for youself, but if you disappoint readers, it could result in loss of future sales.

Here are some things to keep in mind about crossing the launch trough safely. 

Take-Aways 

  • Understand the timing of your cash inflows and outflows.  On a tight budget, you can really feel the squeeze of sixty days between paying an expense and when it may return cash.
  • Budget the working capital you require for a launch. Save up the capital.
  • Make sure your launch plan and budget align.  fF your plan is underfunded you will miss your projected launches.
  • Use tools like a breakeven analysis and the launch trough model to plan a successful launch.
  • No matter if you’re a Beginner or earning 100k a month in royalties plan your launch and run your business like a boss; being a creative is no excuse.

  

Joe Solari is the Author of the Business Owner’s Compendium. He speaks and consults with indie authors, solopreneurs, and small businesses on how to create business systems to minimize the joy -killing aspects of being a business owner.  You can learn more about the business of writing at www.middle-marketplace.com

 

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