Tale of the Long Tail
With Special Guest Star: Economies of Scale
Today’s article is about how to make money selling books. I know, I know. It’s crazy to think that I have written almost one hundred articles on writing, editing, and publishing and not one of them so far has been about making money publishing books. I’ve been keeping the secret all to myself. No longer. Today I’m going to talk about how publishers make money selling books with some tips on applying these strategies should you go the self-publishing route.
As I talk with people outside the industry about their understanding of an expectations for how books make money, I hear a lot of misconceptions and false beliefs about how any of this works. You hear things like:
“Well obviously the publisher wants to sell e-books, they don’t have to print it so they make more money.”
“After the book pays off its production costs if it keeps selling that’s all profit for the publisher!”
“Publishers exist bestseller to bestseller, that’s how they survive all their losses on the books that fail.”
Some of the things people think are dead on, some have a grain of truth, and then some are completely fiction. So today I’m going to talk about how to tell if a title is profitable and how to make money off books as a publisher in the aggregate.
I’ll start by tackling the misconception that certain editions of a book are more profitable for the publisher than others. The highest markup is usually on the hardcover dust jacket edition and not on the e-book but that doesn’t have anything to do with the profitability.
When a publishing company decides to publish a book, they make a determination about the sales they expect to get for the title over a certain number of years. So they’re not projecting the sales of the first print run, or the sales of the dust jacket edition, but the sum total unit sales of all editions together for a period of time. I’ll say three years for this example but it could be less or more.
So a publishing company says: Okay, over the first three years of this book’s life we expect to sell 1,000 copies. Of those 1,000, we expect that 250 will be the hardcover dust jacket edition, 250 will be e-book editions, and 500 will be the trade paperback edition. Over the first three years, that’s what we plan to sell.
The profitability of the book is not totaled up edition by edition, whereas the dust jacket costs more to produce but has the highest markup so that edition returns $2.00 profit/unit while the e-book has fewer production costs (no print) but has a lower markup and a higher revenue share to Amazon so that edition returns $0.55 profit/unit.
Instead, the publisher looks at the net sales they expect to receive from all 1,000 copies over the three years they’re projecting and they amortize the costs over those three years as well. All the revenue from all the editions of the book against all the costs of producing all the editions of the book.
This is the contribution margin: Price per unit minus cost per unit over the projected sales life of the title. Revenue generated above and beyond costs is profit. The contribution margin lets the publisher look at how much profit they can potentially make from this title if it meets sales expectations and determine whether that profit is enough of a contribution toward all the publisher’s other expenses—the salaries, the office space, the costs of doing business—to publish the book.
You calculate a ratio from your contribution margin by taking unit price minus unit cost divided by unit price. So a book with a unit sales price of $20 and a unit cost of $10 has a contribution margin of 50 percent. Everyone who has the authority to sign books for a publishing company knows the minimum percent they have to see on that contribution margin to be able to sign a book.
For a person who is self-publishing a book in e-book format only, for instance by publishing on KDP, your book becomes profitable for you the moment it generates more revenue than you spent on services to prepare the book for publication (eg, editing or cover design). For a publishing company, a book isn’t profitable until it’s generated enough revenue to make back its expenses and defray its share of the publisher’s operating costs.
Some books that a major publisher signs will fall short of sales projections and won’t live up to the profitability expectations, and the publisher will take a loss on that title. It might earn back its production costs but not generate enough profit to contribute to the publishing operation, or maybe it really flops and it doesn’t even earn back the cost of making it.
That’s okay for the major publisher, though, because sometimes a book will do better than expected and become a bestseller and earn more profit than planned for, and that bestseller revenue helps the publisher break even each fiscal year even if some of their books flopped.
That’s all true. However, there’s a third class of book in there that gets completely overlooked when laypeople talk about how publishers make money and that is the modestly-earning-but-perennially-moving-units title that forms the publisher’s long tail.
Long tail refers to graphs. I’m going to describe the graph and then maybe I’ll make a fake graph to illustrate or maybe I won’t it’ll be a surprise.
For almost all books, if you plot book sales on a graph with the x-axis representing time on sale and the y-axis representing unit sales, you will see a concave curve as sales fall off over time. When a book first comes out is when it will move the most units because that’s when all the marketing efforts are going full tilt and reviews are coming out and the book is placed prominently in bookstores. The longer the book is out—again for many if not most titles—the fewer copies move. Lifetime sales are cumulative and therefore always going up but daily, weekly, monthly, yearly sales usually go down.
Ugh okay we’re doing this.
Now that’s the kind of high-quality graphic art you have come to expect from this publication.
Looking at this many people will think okay so launch is where we make the money and then it kind of tapers off. No! Launch is great but if the sales never taper down all the way to zero, if this book keeps moving 10 or 100 units every year forever, that’s where we make the money.
Not from one title moving 10 or 100 units a year but a thousand new titles a year that will taper down to little-but-not-zero, compounding year over year. That’s what we mean by the long tail.
Before print-on-demand technology became widely available and affordable for publishers, books commonly went out of print. The publisher would create a print run at the time of publication that was intended to be enough for the book’s lifetime sales. If the book exceeded expectations the publisher would go back for additional printings. At the end of the book’s projected lifespan there would be an evaluation to decide if there was further sales potential, and if so a second printing would be issued.
But now, if a book becomes one of these perennially-selling-a-few-copies titles, the publisher can allow it to “drop to POD” (as it was called at one publisher I worked for)—meaning, when the units from the original print run have all sold and there is no indication that we will need enough units in the future to justify another offset press run, then we can set the title up to print-on-demand. The book remains in print, customers can purchase copies, units will be printed and shipped as they are bought.
Due to the fact that POD unit pricing doesn’t scale the more copies you print, but offset printing does, there’s a cutover point where it becomes financially sensible to do an offset run rather than printing copies on demand. I can’t say where it is precisely since everyone’s pricing is different but last I checked it was somewhere around 500 copies. For anyone out there who’s interested.
Let’s face facts: In Shelf Life sometimes I do that annoying cooking blog thing where I write about a tangentially related or even unrelated topic for a bit before I get to the meat of the Shelf Life article but today I did not do that. All the text is relevant today. The above information is foundational to understanding how to make money self-publishing books.
I see a lot of self-published authors lament that their book didn’t take off the way they thought or hoped it would. Most books don’t take off and become huge sellers. The vast majority of books don’t. And if one’s understanding of how to make money with books is “it either takes off or it flops,” then one may give up on the whole endeavor as a failure long before actually failing.
Most books won’t take off and become huge sellers. This is true for the major trad publishers and it is even more true for self-published authors. Most of us can probably count on one hand the number of times a self-published author has gone on to become a major commercial success. I can think of three offhand. If you want to make money—a profit and maybe even a living—off of self-publishing your books, don’t plan on becoming the fourth major commercial success. That is not a realistic goal.
There are plenty of people out there making a comfortable living self-publishing books but they are not doing it by publishing one book that becomes a major success. They are taking advantage of their personal backlist’s long tail and of economies of scale.
When I say a publisher takes advantage of “economies of scale” you probably immediately understand that, for instance, the publisher buys so much printing press time that they can get printing press time much cheaper than you, an individual person, can hope to get. That’s an economy of scale. No lies detected. But I am also talking about the way small per-title profits compound the more titles you have.
Let’s say you self-publish your first book (Book A) and you sell 100 copies in the first year at $9.99 per copy (electronic). You make $999 (in an imaginary world where you can move units on your website without giving a percentage to Amazon but we’re making the math simple). But six months later, you self-publish your second book (Book B) and it, too, sells 100 copies in the first year. That means in year one you sold 150 copies—100 of Book A and 50* of Book B—so now you’re up to $1498. So in year two you can expect to sell 100 copies of Book A and 100 copies of Book B, but you also put out Book C that will sell 100 copies and six months into year two Book D, for another 50 copies in year two. And so on.
That assumes that your titles can move modest but consistent numbers of copies year over year and that you have more stories to tell than just the one. Nobody out there is making a living from just one book. At least, not a fiction book. If you write a textbook that takes the 100-level course space in a core subject by storm, then that’s another story. You can say, “What about JK Rowling, she’s worth a billion dollars and she’s written like 25 books, but a billion dollars divided by 25 is still a heck of a living.” If JK Rowling had written Harry Potter and the Philosopher’s Stone and stopped there, she would not have 1/25 of a billion dollars today. Nobody would remember that kid wizard book from the 1990s that never got a sequel. No movies, no merch, no theme park. One less famous transphobe.
If you’re sitting down to earn a living self-publishing books, you can absolutely do that. Just understand that there is no viable business model in which you publish one book and become rich and famous. Some of the viable ways to earn a living wage from writing fiction include starting a Patreon so your fans can subsidize your work in exchange for premier access to it; or the 1000 True Fans model, wherein you cultivate a small but dedicated base who will purchase everything you put out; or the Tapas model where you publish serially and take micropayments for content.
The trick of it is not to create something so incredible that everyone on the planet simply must get their hands on it and will give you money for that privilege. The trick is to create consistent revenue streams that compound over time. To do that you have to keep yourself writing and keep yourself consistent (in terms of quality)—if 1,000 people tell you they want what you have, then you’re gold. You just have to keep giving it to them consistently.
Your model will look different than the model that major traditional publishers use because they have thousands of titles per year to make money off of, and you have reasonably three or four at most. But there is a viable model. If you can get past the get-rich-quick mentality that doesn’t work in the publishing industry just like it doesn’t in any other industry, then you can get down to building your list.
*Fixed a typo here, I wrote 100 when I meant 50.—CF
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Whoa, here comes the maths!
Sharing this one too!