Sunday, September 28, 2014

The Craft vs. The Money

Recently I read and heard a lot about money in writing, business and all the discussions around it. Last week I read a blog post from Michael Hyatt about "Why you should do it for the Money (and Stop Feeling Guilty About It)" which he had re-published on Facebook, and I remembered an earlier one from K.M Weiland about "3 Reasons You Shouldn't Be Writing for Money" and guess what; both are right in their own way. 

I don't know when this discussion started to take off, maybe with the increasing indie movement. Although I'm pretty sure it was already cooking before that. The following blog posts addresses writers that want to make money in one or the other way. If you write for fun, please go on - write and publish for free. There is nothing wrong with that, but this blog post isn't for you then.

The Seeming Conflict
At the first glance, this strikes me as a simple conflict of targets. Either you focus on the craft (e.g. more research, longer writing cycles, more reviews and edits equals less books produced) or you focus on making money (e.g. more books produced in the same time equals more money). This conflict of target is similar to one most companies face: Quality vs. earnings.

But is this really a conflict? I can already tell you, no it's not; neither in business nor in writing. In business you can reduce you quality to a certain point in order to increase quarterly profits, but usually you damage long term profits much more. In writing it is the same, but before we get there let's look at the industry.

The Industry and the Changes
Let me get this very clear at the beginning: Writing is a Business. The moment a writer wants to earn a single cent from his books it is a business. Even when he simply wants to get break even and have a payout for his investments. It is a business. Hence, lets look at the value chain. 

The Traditional Model
In a very simplified view, the writer is responsible for writing the story and does rewrites and edits to some degree on his own, to some degree requested by the publisher. At a certain point the product is handed over to a publisher, who improves the work together with the writer in order to make it publishable (i.E. sellable). The publisher also takes care about the physical production as a book or e-book as well as the marketing and sells the product together with a bunch of other products to the book stores who act as distributors (including Amazon). At the very end, the distributors sell the books to the consumer. 

In addition to the real cost the publisher also takes some risk with regards to the unknown trends in the market. Nobody can predict, which book will be picked up by the marked generating enough profit for the whole value chain. The distributors only take limited risks as they don't really invest in a certain book. The writing also takes only a limited risk as he usually received an advance. The publisher on the other side pays an advance and invests into the product as well as marketing and sales. He copes with this risk by spreading the efforts over a high variety of books.  This approach is similar to Private Equity firms investing in different start-up companies, hoping the next Twitter or Facebook is among them.

In this model the author gets about 9% of the book price (after 1% goes to the Agent). Lets assume the book is priced for $20. In order to have a monthly net pay of $2,000 for his work, physical book sales must be at 1,111 per month. With e-book prices it is worse, as e-book prices are usually lower around $6.99 to $9.99. As an example, at $7.99 book sales would have to be at 2,781 books per month. In reality this would probably be a hybrid calculation - with a 20% share of e-books, the number of monthly book sales would have to be 1,263.

The Indie Model
In the same simplified view, the indie model cuts out the publisher and goes directly to the distributors. All cost related to the additional review, marketing and sales, but also non physical cost like networks, risk taking and know-how, have to be taken over by the writer. 
In order to keep it simple, let's do the above calculation for e-books sold via Amazon KDP with a book price of $1.99. In order to have the same $2,000 per month with a royalty rate of 70%, an author has to sell 1,436 books. But with this amount none of the fixed cost is covered. Most of the additional work will stay with the author, especially the cost for the additional reviews and edits, but also the efforts for networking, marketing and last but not least the risk. 

For the sake of the calculation let's assume a non specified writer needs 6 months to produce a book. For review, editing and book cover cost end up to be between $3,600 and $5,000 I've taken the lower end examples out of a blog post from Miral Sattar "The Real Cost of Self Publishing a Book". With these additional monthly cost of $600 to $800, the number of books sold increases to 1,866 and 2,010 respectively.

Impact on the Writer
Don't misunderstand me, I am not arguing in favor or against one or the other model. Additionally, there are other aspects to be considered, such as the rights to your book etc. However, every writer has to answer the question which model he selects for himself. Each of the models has advantages or disadvantages. 

From a monetary view point, the traditional model means less work and risk, but also less upside potential and the indie model means more work, more risk and more upside potential. Now here's the clue. Basically, the author has four options to increase income:

Increase Sales of One Book
The author can try to increase the sales of one particular book by increasing marketing cost and efforts. However, sell more of one book means usually sell to new customers. This is always more difficult than selling new products to existing readers, given that they enjoyed the previous books with their quality. Additionally, marketing studies show that there is a limitation in efficiency and effectiveness with marketing activities.

Increase the Book Production
Increasing the production of books is probably the easiest way to make more money. One one side every new book has a tickle-down effect on new books and on the other side new books with new covers and new stories mean attracting different readers.

Ask for a Higher Price per Book
Simple, isn't it? Well it's not, because there is something like price elasticity. In simple terms; the lower the price the more you sell. The degree of how much more depends on the product. Gas usually has a steep price elasticity as past price increases have shown. For e-books there is probably not enough data yet to plot a reliable curve, but looking at the feedback of various indie authors prices between $0.99 to $2.99 seem to result in reasonable books sales whereas higher price points significantly reduce number of sold books. Hence, there are limitations for higher prices as they are counterproductive and result in less revenues.

Reduce Production Cost
You can reduce the production cost to almost zero; no editing, do your own cover designs and do the formatting and digital conversion yourself. You even don't need an ISBN. 

Out of above options, there are two low-hanging fruits: 

  • Produce more books (i.e. less effort for plotting, reviewing, editing, proofreading)
  • Reduce external cost for editing, proofreading, formatting
There is a built-in incentive to reduce the quality of the product, if there wouldn't be...

The Importance of the Craft
And that is where the craft comes into play. The will, the poise and the integrity towards what it means to write a good book. The craft needs to be the holy grail, basic motivation to write. Because if it isn't, the money will not follow. Readers might buy one book from you, but if the craft isn't the foundation of it all, they probably won't buy another one. It's the same as in companies with the quality. You might buy it ones, but the second time you will switch to a better product if you weren't satisfied. 

The craft is the soil, to grow the tree of money. But there is more to it, even a tree needs water, nourishment, some cut downs and a lot of care. More about this in next week's blog post.

Happy crafting
Your writer in a foreign land

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