Part 2: Business Fundamentals

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If you’ve been publishing for more than a couple months, you’ve no doubt come across someone telling you to treat your writing like a business. It’s good general advice, but it’s almost always offered without any sort of explanation about how one goes about doing this.

First, let’s talk about what business is not: it’s not about wanting to make a lot of money or appearing successful (e.g., hitting a bestseller list or getting an award). Having lofty aspirations is fine, but it doesn’t make you a savvy business person.

Instead, running an effective business involves four primary administrative tasks: knowing your numbers, knowing your monthly burn, saving a solid percentage of your profits, and never running a credit card balance.

In this section, we’ll talk about:

  • What you need to get started
  • The four primary administrative tasks required to run your business
  • Strategy & Execution
If you’re just stopping by and want to check out the rest of the Ultimate Guide to Book Marketing, you can find the complete series here. Each part stands alone, though, so if you’re just interested in a particular topic, feel free to jump in wherever you see fit.

Getting Started

Before we launch into numbers, strategy, and all that, we need to take a step back and make sure our administrative ducks are in a row. It’s easy to get caught in the weeds when you’re just getting started instead of doing actual work, spending all your time making business cards or getting a custom logo that won’t sell any books. After careful consideration, I believe there are only two absolute necessities every part-time or full-time author must have:

  1. An email newsletter service provider like MailerLite (mailerlite.com; free up to 1k subs) or ConvertKit (convertkit.com; $29/mo for up to 1k subs)
  2. An author website, which requires a domain ($12/yr from Google), hosting ($15/mo for rock solid WordPress hosting from FlyWheel; getflywheel.com), and a WordPress theme (use the free Astra Theme with the Elementor page builder; wpastra.com and elementor.com).

That’s it. Some may argue that an author website is optional; while you can technically get away with not having one, I think this is a long-term oversight. A website acts as a hub for your author brand, and while it’s unlikely to get a ton of traffic, readers can visit the site to learn about new books, sign up to your newsletter, and also explore your backlist. A website may seem like an expense in the short term, but the long term benefits are well worth the nominal costs. You can hire someone for under $500 to build a basic WordPress site if you don’t have the technical skills to create it yourself.

While these two items are the only mandatory ones, here are a few more things that can prove helpful as your business grows:

  1. BookFunnel (bookfunnel.com; $20 – $150/yr): necessary if you’re using a reader magnet (e.g. free novella or starter library) to build your email list, as BookFunnel provides seamless instant delivery of EPUB/MOBI/PDF files to your readers’ reading devices of choice. Also used to participate in cross promos.
  2. StoryOrigin (storyoriginapp.com; beta): used to participate in cross promos, along with a host of additional useful features. Run by an excellent developer who consistently rolls out updates.
  3. Vellum ($250 one-time purchase; Mac only): easily format your book in 15 minutes and generate beautiful print and eBook files with a single click. A contender for best program I’ve ever used in any industry.
  4. A custom email (i.e., name@yourauthorname.com; $50/yr from Google GSuite): having an email address from your own domain instead of a free email service helps increase the deliverability of your newsletters.

This isn’t an exhaustive list, but those are the most useful things I’ve found. For more, visit the Resources page.

(1) Know Your Key Numbers

Every author needs to know their key numbers inside and out. Most don’t.

For how to calculate these metrics (other than net profit), visit the Appendix.

The two main KPIs (key performance indicators) I track in a simple Excel sheet are NET PROFIT (royalties – expenses) and ORGANIC SUBSCRIBERS (people who sign up your newsletter from the front and back matter of your books).

Net profit is the whole purpose of being in business. It’s the money in your pocket after all the covers and marketing and formatting expenses are paid for. I calculate this on a weekly/monthly/quarterly/yearly basis.

You must track net profit. It is not optional.

Tracking organic subscribers may seem unnecessary, but I’ve found it’s the best single metric to predict future success for three reasons: one, it’s an indication of how much marketing you’re doing and how many books you’re selling. If you’re not getting your books into people’s hands (or you’re not releasing any books at all), then people can’t sign up for your organic newsletter. Two, it’s the ultimate engagement metric, in that people only sign up to your organic newsletter if they like your books. If people aren’t signing up, then your books aren’t resonating.

Finally, organic subscribers massively amplify any other marketing you do for a launch or promotion. A few hundred fans can catapult your book up the Amazon charts and make all your other efforts much, much easier.

I track organic subscribers on a weekly/monthly/yearly basis.

Note that organic subscribers are extremely slow to accumulate; less than 0.5% of people who read your book will sign up for the list if you’re only offering updates on new releases (you may hit 1% if you offer a free novella, which is why I recommend doing so later in the guide). This is not cause for alarm. Growth here will be slow, but each of these subscribers is like gold. Treat them well, and make sure you’re getting a steady stream of them.

If you want to stop here, you can. These aren’t the only metrics I track, however. Before I run ads to a series, I’ll usually calculate:

  • SELLTHROUGH: the % of people who go on to read Book 2, Book 3, etc. after reading Book 1. In my experience, normal is around 35% – 40% for Book 1 > Book 2 sales; 50 – 60% for Book 1 > Book 2 KU reads. Higher is possible, but anything more than 10% above is either a unicorn book, or, more likely, an error in the calculations. Sellthrough is primarily a troubleshooting metric. It can tell you why your ads aren’t profitable (that’s the primary use); if it’s too low, then advertising that series is generally a non-starter. But beyond that, drawing concrete conclusions (e.g. the series is bad/writing is bad/the characters are wrong etc.) is impossible. Reading too much into it (positive or negative) can drive you to madness.
  • REVENUE PER SALE: the total revenue a sale of Book 1 generates when factoring in sellthrough to the other books in the series.

While I’m running ads or doing a launch or promo, I’ll track these:

  • Sales and page reads: found on the KDP Dashboard. You can track these weekly/monthly as well if you’d like, but it takes significantly more time once you have a lot of books.
  • Conversion: the % of clicks that end up producing a download or sale.
  • Cost per sale: the number of dollars it takes to produce a download or sale.

A few general tips for making tracking a fifteen minute affair instead of a two hour one:

  • Instant: I recommend logging expenses in your Excel sheet the minute they’re charged. This gives you a clear, real-time snapshot of money going out the door, and prevents a mad scramble to do your taxes.
  • Daily: I track numbers daily under two circumstances only: for books I’m currently advertising via pay-per-click ads (PPC), or during a big promo or launch (I track the first 30 days of the launch or promo).
  • Weekly: With a small backlist, I’ll track sales and reads by individual book, along with organic subscribers and net profit weekly. With a larger backlist, I’ll either track sales and reads by series, or eschew that all together in favor of solely focusing on net profit and organic subscribers.
  • Monthly: same as for weekly.
  • Quarterly and Annually: I use the monthly net profit reports to calculate quarterly and annual net profits for tax purposes.

If you don’t have your own system yet, you can use that as a starting point.  From there, you can—and should—experiment with different tracking methods and intervals to suit your own needs. Generally, when you’re starting out, it makes sense to track more data. This gives you a better feel for what’s important and what isn’t. It’s also much easier to track sales for individual books when you have five versus fifty. It’s also possible to track more data if you’re handy with Excel, because you can set up sheets (or pay someone) to automatically import data from various sources.

Regardless of how much you track, the main metric and your core focus should always be on net profit. While startups might pursue growth at the expense of current profits (to the point of running at a substantial loss), their goal is selling the business to outside investors (or going public). The purpose of a small business is to turn a profit (e.g. put money in your pocket). If you are incinerating dollars, this is a red flag that something needs to be fixed.

As a final note, know that, when it comes to taxes, you can usually write-off most of your publishing-related business expenses such as covers, formatting, advertising, web design costs, business services, and so forth. Properly expensing eligible items will substantially lower your tax bill. Talk with an accountant to confirm which items you can expense for your business; it may vary by country and based on your business structure. Doing so, however, is well worth your while: it can save you hundreds of thousands of dollars over the course of a long career.

(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 is a simple matter of adding up all mandatory expenses, which include:

  • Rent or mortgage
  • Health insurance
  • Utility bills
  • Mandatory business expenses

If you have children or employees, it may include:

  • Tuition
  • Salaries
  • Health insurance
  • Retirement plans

Don’t ignore bills that occur regularly, but not monthly (e.g. dentist visits, vet bills et al.). You should amortize the cost over 12 months and add it. E.g. 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, such as:

  • Personal subscriptions (Netflix, Spotify, spa memberships)
  • Business subscriptions

These are often excellent places to start cutting if your burn rate exceeds your monthly royalties.

Knowing your burn rate is especially critical in the nascent stages of your business, but it’s also important as you grow.

I don’t have a set schedule for calculating this. If you’re struggling to pay bills or free up cash for your books, this should be the first thing you calculate, though. And it’s good to check in every few months, even if things are going well. Lifestyle creep is very dangerous, in that your earnings in this business tend to be volatile. If your burn rate gets too high, that limits the amount of money you can reinvest in activities to grow your business while also exposing you to significant risk if your earnings fall.

(3) Save

Rough rules of thumb for saving money break down as such:

  1. 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.
  2. 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.
  3. 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).
  4. The rest: What doesn’t go to key investments in my business, living expenses etc. I try to keep 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.

Yes, I understand setting aside 50%+ of your profits is lot. You can get away with putting away 0% for retirement or a rainy day fund—for a bit. Eventually, you’ll have a bad month, or you won’t be able to release a book due to injury, or a new release will flop, and your business will be toast. This is all about surviving—and thriving—long-term. If you’re currently blowing through everything you earn each month just to pay the bills, saving this much might appear ridiculous, to the point of impossibility.

I’ve been there.

You have three options.

The first: start with the full percentages. This is usually only viable if your business is doing well (or you have a full-time job already). Consult with an accountant on how much you specifically need to save for taxes, any benefits about specific retirement accounts et al.

The second: put away 1% or 2% in one area this month. It’s easiest to save when you immediately transfer the money to a separate account right after Amazon/the other retailers deposit it. If you wait until the end of the month, quarter, or year, the tendency for most people—myself included—is to find it’s already long gone. When it’s out of sight, you don’t miss it. This also frees you from any complex budgeting systems or focusing on eliminating hundreds of small transactions (e.g. coffee, candy bars, lunch) to save money—five minutes per month, and a couple clicks, and you’re ready to go. Your lifestyle will adjust automatically with minimal pain.

Bump up the percentages on a monthly or quarterly basis. If this sounds like it lacks the pain/personal sacrifice aspect that’s gospel among popular financial gurus, that’s for good reason. Ultimately, changing your behavior is about adherence—the easier a habit is to integrate into your existing life, the more likely it is to become a permanent fixture.

You don’t want to notice any change in your day-to-day lifestyle—other than the fact that you can now pay your taxes on time and are no longer panicked about money thanks to having a nice nest egg, of course.

The third: start when you get a windfall. If you’re making $500 a month, then one month make $7,000 because a new release hits it out of the park, start at the full percentages (paying off any credit card debt you may have accrued first). And then keep your lifestyle the same so you can reinvest most of the free cash leftover back into your business so you can keep that revenue momentum going.

It should be noted that waiting for a windfall can be a dangerous game. That windfall may never come. And the taxman doesn’t wait. If possible, make sure you’re at least saving money for taxes.

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.

(4) Never 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.

People often try to paper over poor cash flow management or unsustainable monthly burns by using credit cards. Don’t do this; it will come back to bite you in the form of excruciatingly high interest rates (ask me how I know).

If you cannot pay cash, find an alternative to acquiring the services you need: barter, save, sell old stuff on eBay/Amazon, start a book-related side hustle (formatting, proofreading, cover design, consulting, working as an assistant etc.), or simply go with a cheaper/no-frills option. And should none of these options prove appealing, then search for another way (while not optimal, you can catch most of the typos in your books by reading it out loud, line-by-line), or wait if there’s no viable way to fund your publishing business right now. You don’t necessarily have to publish right away; you can stockpile books and then release them later. They don’t go stale.

It’s also worth considering that many things you might think are mandatory are not. There’s always the option of going without and just pressing publish.

Whatever you do, do not rack up debt; it is a noose that most small businesses cannot escape.

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.)

Beyond administrative tasks, there are two additional business concepts you should be familiar with: strategy and execution.

Your Strategy Flows From Your Objectives

Business can be distilled into two core elements: strategy (your system—the specific steps you’re going to take to achieve your core objective) and execution (actually implementing your strategy effectively).

At the heart of this is, of course, your core objective. This guide assumes that you want to make a part-time or full-time income. There are many other objectives to pursue in this game; just know that they are often at odds with one another. Writing whatever you want without any regard for genre conventions, for example, is a fine objective; just know that it rarely reconciles with making money unless your tastes align with the market’s.

Most authors stumble in establishing a clear objective. Someone who wants to make a million dollars a year will need to adopt a vastly different strategy than the person who wants a small side-income that maintains work-life balance. Every choice comes with a trade-off.

As an alternative example, a non-fiction author might be using their book as a client generation tool, rather than trying to profit directly from the book’s sales. Their marketing strategy would look substantially different from the fiction author trying to make a full-time living directly from the books.

This is why the framework of this guide is designed to be flexible. There’s an old proverb that says chase two rabbits, catch none. Unsurprisingly, trying to chase sixty-five rabbits at once is not a secret way to hack this and turn things into your favor.

Thus, your objective, whatever it is, must be crystal clear. You then eliminate all choices, options, and tasks that do not help you reach that objective by making key strategic decisions in the following areas:

  • Indie or trad: whether you’ll self-publish your work or pursue a traditional publisher (or do both as a “hybrid” publisher)
  • Kindle Unlimited or Wide: whether you’ll be exclusive to Amazon or publish on all retailers (or a mix of both)
  • Release frequency: the number of books you’ll release per year
  • Genre, series, and length: what genre will you write in? Will you remain in one sub-genre, or branch out into many? Will your books be in a series? What will the approximate word count be?
  • Formats: eBook and print only, or will you release in audio as well? If so, do you plan on doing a royalty share, pay upfront, or seeking an audio-only deal?
  • Newsletter: how are you going to generate new subscribers?
  • Marketing: what platforms do you plan to focus on—e.g. you could focus on paid Facebook Ads, creating a reader magnet to grow your newsletter, or building up your Bookbub followers
  • Production budget: will you purchase professional covers, editing, proofreading? How much will you invest?
  • Advertising budget: will you advertise? Where and how much?

If this seems daunting, don’t worry; this guide will help you answer these questions. By the end, you’ll be able to design a strategy specifically tailored to your personal strengths and core objective.

All the components of your strategy should be pulling in the same direction. To use an analogy, imagine a team of sled dogs. When they pull as one toward a common destination (the finish line), they make consistent progress. Perhaps they win; sometimes they lose. Sometimes the elements come into play, and wreak havoc. But they make progress.

However, if a few of the dogs stop pulling their weight, progress is slowed significantly. The team is now at risk of running out of resources or energy before reaching the finish line. And if a few of them start running in the opposite direction to chase a deer they spotted, then the whole operation stalls, and everyone dies of frostbite.

Thus, it pays to streamline your strategy to its absolute essentials. Remember the importance of 80/20: if the BS crowds out the core 20%, your results are going to be very poor indeed.

After you have a basic plan of attack mapped out, you need to actually put it into play.

Execution is the art of doing what you planned to do (and doing it well).

Most people blame poor discipline for their execution problems. But the root cause is often a bad, unrealistic strategy. It is easy to design a strategy that does not align with your existing skills and resources. Jumping beyond your current capabilities or employing overly complex methods are both tempting. An effective strategy that dovetails with your strengths is far better than an ultra-optimized one you cannot implement.

Great execution flows from great strategy—which in turn flows from a clear objective.

Which leads us to the ultimate takeaway: do not worry about what other people are doing or saying. Only worry about what you can do. The optimal strategy is the one you can execute. The end.

If you build a strategy around monthly releases, but can only write four books a year, that’s a strategy problem which results in poor execution.

If you plan to run thousands of dollars in ads, but have no plan in place to secure those funds, this is a strategy problem that inevitably leads to poor execution.

It should be noted that your strategy is not a fixed document; it is a living organism that evolves as the marketplace changes and your skills grow. This is a feedback loop: you start with a strategy, execute, use lessons you’ve learned to revise the strategy, and then rinse and repeat.

Finally, every aspect of your strategy does not need to be written out in pinpoint detail. This is not a business plan. Strategizing can quickly turn into procrastination. You cannot divine the future; you just need to reflect on the best way for you to achieve your core objective, then get to work.

What’s Next?

Some 8,000 words in and we’re ready to finally tackle marketing. And there’s no better place to start than with the two formulas that form the foundation of this guide in Part 3: The Ultimate Book Marketing Formula.

Key Takeaways

  • There are only two mandatory things every author needs: a website and mailing list.
  • Treating your publishing endeavors like a business entails four things:
    • Knowing your numbers
    • Putting minimum amounts aside for taxes (30%), savings (10%), and retirement (10%)
    • Knowing your monthly burn so that you know how much you have to earn each month, royalties-wise
    • Never charging money to your credit card
  • Your goal as a small business owner is money in your pocket, better known as net profit (royalties – expenses)
  • Make sure you have enough money for health insurance
  • Your strategy is your system and the specific steps you’ll take to achieve your core objective. Execution is about actually doing these tasks. Great execution flows from great strategy—which in turn flows from a clear objective.
  • The optimal strategy is the one you can execute.

Action Exercises

  1. Calculate your net profit for the past year.
  2. Calculate your average monthly burn over the past year.
  3. Set up a spreadsheet and start tracking your net profit and organic subscribers on a weekly or monthly basis.
  4. Set a timer for 10 minutes. Then map out a rough draft of your strategy for the next year by writing out the following on a sheet of paper:
    • Your core objective
    • Whether you’ll launch your books wide or in KU
    • Whether you’ll write in a series and, if so, the planned # of titles
    • What length they’ll be: novels, novellas, serials, or short stories
    • The number of new titles you’ll release over the next year, with approximate word counts
    • The sub-genre(s) you plan to write in
    • The format(s) you plan to publish in
    • Your core three traffic sources
    • How you plan to build your newsletter
    • Your production budget for each title
    • Your advertising budget for each title

Answer as best you can, but don’t spend hours deliberating, researching, or otherwise worrying about making it perfect. This document is not set in stone. Rather, it’s something you’ll update as you learn more about marketing.

If this guide does its job, by the end you’ll have the necessary tools to confidently answer each of these questions, thus giving you a rock-solid, personalized strategy to work from going forward.

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