raging_swan (raging_swan) wrote,
raging_swan
raging_swan

Publisher Advice: Breakeven Points

It doesn’t matter how great your products are; if you can’t make money – or at the least breakeven – you won’t be around long as a publisher.

image

 

(Art: William McAusland [Outland Arts])

Yesterday, I wrote about the costs of cover design for 3PPs and the potential devastation they can wreak on a publisher’s bottom line. Today, I’m going to take you through the concept of a breakeven point and show you how easy it is to calculate.

So What is a Breakeven Point?

Simply put, a product’s breakeven point is the number of sales at which its revenue covers its costs. To calculate it, we simply divide the total cost of a project by the profit per unit sold.

Understanding a product’s breakeven point is an incredibly powerful insight that enables you to realistically adjust the overall budget for a project so that you have a reasonable expectation of making a profit.

Calculating a product’s breakeven point is simple.

Examples

I’m going to use three examples to show how the concept of breakeven points work. They are all based on Raging Swan Press’s Dungeon Dressing line (short ten-page PDFs), but the concept of a breakeven point works on any product. Note, example 3 requires me to take some liberties as I never normally pay for cover design. First, some assumptions:

  • Dungeon Dressing instalments sell for $1.99 each.
  • Sellers take an average of 30% leaving Raging Swan Press with roughly $1.39 per sale.

Product 1 (paid designer)

  • Costs: 4,000 words ($40)
  • Free: I do the layout, development and traditional Raging Swan Press cover. I use stock art, the cost of which is so low I don’t bother tracking the cost.
  • Thus, to determine the breakeven point I divide $40 (the total costs) by $1.39 (the revenue per copy).
  • Breakeven Point: Raging Swan Press reaches the product’s breakeven point at 28.77 copies. Nice.

Product 2 (paid designer, interior art)

  • Costs: 4,000 words ($40), one half-page illustration ($40).
  • Free: I do the layout, development and traditional Raging Swan Press cover.
  • Thus, to determine the breakeven point I divide $80 (the total costs) by $1.39 (the revenue per copy).
  • Breakeven Point: Raging Swan Press reaches the product’s breakeven point at 57.55 copies. So so.

Product 3 (paid designer, interior art and cover)

  • Costs: 4,000 words ($40), one half-page illustration ($40), cover ($100)
  • Free: I do the layout and development.
  • Thus, to determine the breakeven point I divide $180 (the total costs) by $1.39 (the revenue per copy).
  • Breakeven Point: Raging Swan Press reaches the product’s breakeven point at 129.49 copies. Sucks.

Conclusion

Determining your product’s breakeven point is a great way of making certain your costs are not spiralling out of control. For example, using the examples, Product 1 has a decent chance of returning a healthy profit to the publisher. More importantly, it will do so quickly (probably in its first month of sales). Cash flow is, after all, the lifeblood of any business.

Product 2 will also return a (small) profit (probably), but it is doubtful whether Product 3 is really worth the publisher's time. It’s pretty much the accepted industry fact that if a 3PP sells 200 copies of a product, he’s done well. Thus, for most 3PP, it would be stupid (or wildly optimistic depending on your viewpoint) to set a breakeven point of 200 copies (or even 100 copies). It’s much better to shoot low – this minimises your exposure and maximises your chances of at least recouping your costs.

Tags: article, publisher advice, raging swan press
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