Accounting 101 for New Authors

Authors cannot just start spending money made from their books. The shrewd author who plans to sell books long-term needs to be careful with his or her money. Crunching the numbers will show that putting aside all your money from book sales to reorder and market your books is the best option.

You did it! You published your book. You talked some stores into carrying your book, you have a book signing planned for next week, and you just sold your first book to Mom for $20. “Dinner’s on me!” you tell your spouse, waving your new $20 bill. You’re on the way to riches, or so you hope.

Hold on. Did you really just make $20.00? Are you really going to have extra income from your book sales?

Maybe in time, but first, let’s look at reality. Being a successful author is going to require doing some basic math and understanding about supply and demand.

Let’s start out modest. You didn’t have a lot of money to publish your book, but you decided to give it a try. For the sake of example, we’ll say you spent $700 to layout the book, and you printed 500 copies at a unit cost of $10 each (including having the books shipped to you). Hopefully, you hired an editor, and you probably also had a cover designer, but for simplicity sake, we’ll say you’re a genius with a Ph.D. from Harvard in English and a graphics artist besides so you did those parts yourself. You decided to price the book at $19.95 (In the examples below, we’ll round to $20 to make the math easier).

So your costs so far are $5,000 for printing and $700 for layout to total $5,700. You also had a website made and paid for a domain and service for a year. We’ll say that cost you $300 so you are now at $6,000 in costs. It doesn’t make that first $20 from Mom that exciting does it, even when she generously declared, “Keep the change!”

Do you live in a state with sales tax? Let’s say since it’s easy, your sales tax is 5%. You better tell Mom, “Hold up; you actually owe me $20.95.” Mom looks irritated, but since you’re her famous author child and she’s already been down at the senior center bragging about how Oprah will call you any day now, she gives you another dollar and still doesn’t ask for her nickel back. Another dollar. Good, right? Wrong.

That dollar in sales tax you need to report on your taxes. Starting now, any book you sell within your state you need to charge sales tax for, and you need to keep records of how much sales tax you take in so you can pay it out at the end of the year. Never spend that money.

So you’re back to $20 and 499 books left to sell by hand, in bookstores, and over the Internet. The bookstore wants 40% so you’re only going to get $12 a copy for each book it sells ($2 profit). The Internet bookstore wants 20% so you’ll only get $16. The ones you sell yourself you can keep the full $20. You decide to sell some at an art show that has a $200 fee to participate. You figure you only need to sell ten to break even. Wrong. You paid $10 each for those ten books, so you need to sell 20 to break even.

Are you starting to think you better eat in tonight rather than spending the money from your first book sale?

We’ll say a few months have gone by. Roughly 98% of all books never sell 500 copies, but we want to be positive, so we’ll say you’re likely to be one of the lucky ones. You published your book in May. It’s now November and you’ve been smart and haven’t spent any of the money from the book sales except the $200 to go to the craft sale, which was worth it because you sold 50 books there. Your sales have brought in income as follows.

100 copies sold at bookstores at $12 (40% discount) = $1,200
200 copies sold in person at full price of $20 each = $4,000
100 copies sold at online bookstore at $16 (20% discount) = $1,600
Cost to attend art show = – $200
Total earned: $6,600

You’ve almost broken even with the $7,000 you initially invested and you still have 100 books, but it’s November and you’ve heard most books are sold at Christmas time. You’re afraid you’ll run out before the Christmas season is over. At the same time, you initially thought you’d have sold 5,000 books by now and you only sold 400. You’ve seen reality and you consider you may be close to having sold to everyone who might want a copy.

Do you take a gamble and order another 500 books, or just 100? You decide to go the middle road and order 250 at $10 each like you paid before. That’s $2,500 taken from your profit. Now you’ve only earned back $4,100 of your initial $7,000 investment.

If you keep working at it, finding new places to sell and more ways to market your book, next year you’ll probably break even, and while you’ll still have expenses, you’ll start to see slow profit. Your sales might peak the second year though and then start a steady decline. That said, while many people might dismiss it as a waste of time to sell books when you only make $2 a copy at the bookstore, consider that since you invested $10 in each copy, that’s a 20% return. Sure beats your odds in the stock market.

You’ve learned the hard way you can’t just spend the money from your book sales. You’ll need it to reorder books and pay for more tables at shows or to order a publicity package to promote your book. You realize now you can only spend that money for real business expenses—your pay for all the work you’re doing will have to wait until year two or three of publication.

Many authors never see profit because they give up easily. Others see profit only after a few years of hard labor. If anything, you have to watch your money more carefully than ever and make smart decisions with it. Not spending your earnings but investing them in your book is the start to that process. In the long run, you can still come out ahead.

Irene Watson is the Managing Editor of Reader Views, where avid readers can find reviews of recently published books as well as read interviews with authors. Her team also provides author publicity and a variety of other services specific to writing and publishing books.