There’s a lot of advice out there imploring authors to treat their writing like a business. After all, as an indie author, you’re responsible not just for the words, but also all the responsibilities of a publisher. But what does acting like a business owner actually entail?
It’s not about custom stationary or fancy computer setups. Instead, it’s really about knowing your key numbers. We need to know these not only to grow our business, but also to weather the inherent volatility that comes with being an author. This is one of the most boom-bust professions around, where extraordinary windfalls can be followed by months or even years of lean pickings. That is just part of the game; you must design your business to be resilient to such shocks. Otherwise you will not survive.
These five keys will not only help you live to fight another day when you’re down and out, but also help you thrive when the stars align. And we’ll begin with the two metrics every author needs to be tracking.
Key 1: Know Your KPIs (Key Performance Indicators)
Key performance indicators (KPIs) are the main metrics driving your business. There are plenty of metrics to analyze from conversion to sellthrough to CPC. But most of these help troubleshoot why your net profit is going up or down. You can and will track other numbers at points to identify and pull profit levers. But net profit is your north star and our primary KPI. You can track this monthly, but weekly is better. It is simply royalties – expenses.
Our second KPI is organic newsletter subscribers (people who sign up from the front and back matter of your books – i.e., people who have actually read your stuff). This may seem odd, but I’ve actually found it to be the best proxy metric for a number of others, including sales, page reads, sellthrough, and so forth. If you’re not selling books or people don’t like them, you won’t be getting organic newsletter subscribers. If your ads aren’t converting to sales, you won’t be getting organic subscribers. If you’re not marketing at all, you won’t be getting any organic newsletter subscribers.
Your organic newsletter list is the most valuable asset you own as an author other than your backlist.
If this is growing at a good pace, your marketing, craft, and productivity efforts are paying off. Your profits and sales should climb as the organic newsletter grows. If newsletter growth is stalling out, then you have a problem somewhere. For the record, these subscribers build slowly, so “good pace” could be one every couple days, or a dozen every day. It depends on your career stage. Track this weekly and monthly, along with your net profit.
Note that there are certain scenarios where you may choose to break even or even lose money as an investment in a long-term fanbase. This is why these two metrics are so important to analyze in tandem: in the first year or two of your career, you might be focused on bringing in more readers. If you’re losing money, but building your newsletter at a rapid clip, that can pay big dividends down the line. But if you’re hoping that your loss-leader efforts will pay off, and aren’t seeing any newsletter growth, then you have a problem that needs to be addressed.
Key 2: Know Your Monthly Burn
To know how much money you can invest in your publishing business, you first need to know how much money it takes just to keep the lights on. This is known as your monthly burn. As a company of one, your burn rate is typically going to start with your living expenses. If you employ other people, it will include their salaries. Your monthly royalties need to cover your monthly burn if you want to be a full-time author (and don’t have any other sources of income). Calculating monthly burn as a solopreneur is a simple matter of adding up all mandatory expenses, which include:
- Rent or mortgage
- Health insurance
- Car payments
- Utility bills
- Mandatory business expenses
If you have children or employees, your monthly burn may include:
- Employee salaries
- Employee health insurance
- Employee retirement plans
Don’t ignore bills that occur regularly, but not monthly (e.g., dentist visits, vet bills, etc.). Amortize such costs over 12 months and add it to your monthly burn. For example, if it costs $240 to go to the dentist once a year, you’d add $20 to your monthly burn.
Finally, you’ll also want to identify optional expenses that recur monthly. These are often excellent places to start cutting if your burn rate exceeds your monthly royalties:
- Personal subscriptions (Netflix, Spotify, spa memberships)
- Business subscriptions
Knowing your burn rate is especially critical in the nascent stages of your business, but it’s also important as you grow. Expenses have a sneaky way of unnecessarily expanding with your income.
After you know your burn rate, track your monthly royalties that are going to be deposited each month. With Amazon, you know that number about 45 days before the actual deposit. As an example, the page read rate for March 2020 will be finalized on April 15 or 16. Then the March royalties will be deposited around May 29 or 30. But we can enter that into an Excel sheet immediately and compare it to our monthly burn to see what our cash flow is. We can also subtract our percentages for taxes, savings, and retirement outlined in the next section:
Key 3: Save & Invest
Rough rules of thumb for saving money break down as follows:
- 30% of profits for taxes. This might sound excessive, but self-employment taxes are often higher than employee tax rates. If your country’s self-employed or corporate tax rate is higher than 30% (don’t forget state and local taxes), you’ll need to set aside more. Consult with a good accountant for more precise figures.
- 10% of profits for savings. You want an emergency cash fund, because as a self-employed author you don’t get paid time off or sick days.
- 10% of profits for retirement. As a self-employed individual, you’re responsible for funding your retirement. US residents should look into tax-friendly retirement planning options designed for self-employed individuals like SIMPLE, SEP IRAs, and the Solo 401(k).
- The rest. Most of what doesn’t go to key business investments, living expenses, and the areas above I’d recommend keeping in cash—as outlined below, having steady cash flow allows you to capitalize on good opportunities when they arise. Cash reserves also act as a buffer against unexpected down months (or overall economic downturns). Your month-to-month royalties will fluctuate wildly. Don’t spend freely during boom months only to be caught without funds during the inevitable lean ones.
The percentages are not what’s important (I’d actually recommend saving more, but base it around what you can do right now, not what’s optimal). The principle is this: certain % of money and time now > invest into long-term skills, assets, and investments.
As a final note, make sure you have health insurance. This can be expensive, so if you’re going full time, factor this in—and don’t “self-insure,” because that’s playing with extreme fire.
Key 4: Diversify Your Income Streams
The book business, as mentioned, is volatile. This bears repeating because many authors fall prey to the “making it” fallacy: wherein they finally, after years of struggling, have a solid breakout hit. And then, when the check comes in, they expect for this to continue forever after. So they spend that cash. Or go full-time immediately.
Being a full-time author, where all you do is write (and manage your book business) is very, very rare. Most artists (not just authors) must develop other income streams to smooth out dips in monthly cash flow. Otherwise there will be moments where royalties are lean and they cannot pay the rent or some other needed expense.
Within the book world, additional income streams to diversify include:
- Backlist books
- Movie/Game/Other Rights
I mention backlist specifically because many authors focus only upon launching or the promo (say a BookBub Featured Deal) right in front of them. These are powerful levers, to be sure, but they aren’t the only marketing strategies you can use. If you have 10 books or 50 just sitting there, those are valuable assets that can generate consistent revenue if you put the right marketing systems in place.
Other income streams include:
- Day job
- Working as an author assistant
- Marketing/book consulting or coaching
- Designing covers, writing blurbs, writing emails, or other tasks for authors
- Editing and proofreading
- Teaching writing craft workshops
- Online courses (marketing, writing, business – the possibilities here are endless)
Picking an income stream within the book world is valuable, in that it has synergy with your fiction career. Anything I learn from running ads or consulting for other authors I can apply to my own titles. This is a massive leverage point that has 10x-ed my own learning.
Tangential skills that can be worth exploring as a side hustle:
- Copywriting (either sales copy or email copy). This can not only generate a 6-figure freelance income (if you’re good), but the skills are transferable back to the book world: writing solid copy will improve your craft, and it will also sharpen your marketing chops. Writing good copy is not an overnight type of thing, and you must be willing to sell, but for the right person in the right situation, this is a great option.
- Online marketing (this is a wide area ranging from learning how to use Shopify to becoming an expert on how funnels work to helping local lawyers get more clients by running Facebook Ads for them).
Worth noting: if I do marketing for a lawyer, yes I can make money now, but few of those skills translate to the book world on a 1:1 basis. That means I would be building two separate businesses and skillsets, rather than one. There is nothing wrong with that, for the record. But you’re doing 2x the work for 1/10 or 1/100 of the payoff, because you slow the rate of skill acquisition and, thus, compound interest.
For me, the best move I made in my career was releasing the Author Ads Course in March 2019. It not only generated immediate cash (non-royalty income streams have the benefit of almost always paying immediately, rather than two months down the line like Amazon) but also freed me from the tyranny of must.
By that, I mean this: when you’re an author, each release can seem like a live or die moment. Often it’s close to it: many authors are one bad release away from their finances looking bleak. This is problematic since you can’t control the outcome of any one book launch or promotion. Yes, you can hone your craft, marketing, and advertising skills to tip the probabilities in your favor…but the marketplace decides a book’s ultimate fate.
And some books flop. That makes relying on do-or-die launches stressful. And it’s also not a plan for longevity, in that eventually something will flop super-hard, and then the jig will be up.
My career hit an inflection point thanks to that course and the various non-fiction products/consulting that I followed it up with. That money, in turn, I reinvested back into my fiction business.
Key 5: Don’t Run a Credit Card Balance
Never charge anything that won’t be paid off at the end of the month. There are zero exceptions to this rule. If you take just one tip from this entire guide, please make it this one. And if you’re already in debt, things are not bleak. Just formulate a plan to start paying it down. (Not tomorrow. Not in a month. Now.)
Set a timer for 25 minutes. Make it as far as you can.
- Log your net profit and organic subscribers for the past three months.
- Calculate your current monthly burn.