Let’s talk numbers – yes, not everyone likes math, I get that. But this is money numbers. Some people like money, right?
For self-published authors, a concern that often arises is, how do you price your products? I’m not going to go into much on the ins and outs of book pricing. All I will say is that you should avoid undervaluing your work. Provided you’ve thoroughly edited your book, worked it to ensure that the plot devices and reader interest is there, then selling the digital version at .99 cents is cheating yourself and promoting the idea that your (and other authors’) blood, sweat and tears should be sold on the cheap.
On the other end of the spectrum, eBooks should be significantly less expensive than paperback or hardcover copies. $15 or $12.99 for an eBook is the equivalent of information-highway robbery. The comfortable zone is probably somewhere between $2.99 and $9.99, and that’s all I’ll say.
Now, on to some math. I use some of my college accounting class know-how when I play with numbers on my own. Something that is important to me when looking at a venture is the Break Even Point, or BEP. BEP is a calculation of approximately how many copies or units you would need to sell to break even (pay off your costs) on a project. At the true BEP you haven’t made a profit; that comes at points above the BEP. Conversely, below the BEP and you are still in red ink, the dreaded loss.
This post is going to assume you have only one version of your product. That probably isn’t accurate for most self-published people who have pushed their books to as many channels as possible, often with very different commissions and creator royalties. If you want to be a little more accurate with your BEP, you’ll want to do one of the following. Either calculate an average of your variable costs and sales units (preferably based off percentage of sales from each channel if you know enough to make such an assumption) or take the unit with the highest variable cost and the unit with the lowest retail price, and use them to calculate a ‘worse case scenario’ for a break even.
To calculate your BEP you’ll need to gather some information. This falls into several categories: Fixed costs, variable costs, and sales price.
All the costs sunk into the project, regardless of whether or not you produce or sell a product. That is, they are fixed, and not tied to sales. These are one-time fees, like purchasing a publishing package, paying someone to edit your manuscript, or purchasing a license to a software program.
These are most often just your ‘cost per unit.’ For a paperback copy, this would be the cost of printing. You essentially pay for this out of the retail price of your book. For eBooks this may be limited to a transaction fee or the commission from the seller. Since we’re going to use the retail price of your product, and not the net profit (which is retail less all sales, transaction or commission fees) you’ll be including anything that comes out of the sale of your product here.
Note: Shipping is not normally included here. If the cost of shipping is passed onto the customer, then it’s not a variable cost. If you are purchasing the product, then it is. If you really must include it, do some research of your own for a good method, because that’s beyond the scope of this post.
This is the retail price of your product, what a consumer pays for it. Again, this shouldn’t include any kind of shipping and handling, etc. That’s a cost paid by the customer to have the product reach them, and is outside the scope of this break even analysis.
Now for the equation: BEP = Fixed Costs / (Sales Price – Variable Costs), rounded up to the nearest whole unit. Notice the parenthesis around Sales Price – Variable Costs, because fixed costs is being divided by the difference of those numbers. And we round up to the nearest whole unit, because if you are like most of us, you can’t sell part of a book. Here’s a simple example:
Fixed Costs: $175
Variable Costs: $0.97
Sales Price: $5.99
BEP = $175 / ($5.99 – $0.97)
We do the math in the parenthesis and get: BEP = $175 / $5.02
A little division and: BEP = 34.86 units; rounding up gives us a Break Even Point of 35. Selling 35 units would yield a total income of $175.70, which is just a hair above our fixed costs, which means we would recover our costs and make a handy profit of seventy cents.
If you know any spreadsheet wizardry, such as Excel, you can use that to create a handy method of automatically calculating a break even point. Then you can tweak numbers such as sales price, etc. to see how it affects your break even.