1: Profitability Fundamentals

NOTE: this video is also found in the 80/20 Quick Start. If you’re already watched it there, skip ahead.

KEY TERMS & METRICS

  • CPC: cost per click (ad spend / clicks)
  • CPM: cost per thousand impressions
  • CTR: clickthrough rate (clicks/impressions)
  • CONVERSION: % of clicks that produce a sale (sales / clicks) or (sales – baseline / clicks)
    • When we say an ad is converting that means it’s producing sales, downloads, or borrows.
    • Must estimate this, because outside of Amazon Ads, we don’t have reporting on how many sales or reads our ads are producing.
    • RANK useful for estimating conversion on Kindle Unlimited Books, since page reads are delayed and borrows aren’t reported on KDP dashboard.
  • NET PROFIT: THE TOTAL AMOUNT LEFT IN YOUR POCKET AND YOUR CORE FOCUS. TRACK THIS WEEKLY & MONTHLY; (royalties – ad spend)
  • NET PROFIT ABOVE BASELINE: the profit the ads are bringing in above the profit you were already producing organically or at the previous level of ad spend. This may go negative in the days immediately after you scale if you have a series; must give time for sellthrough. (net profit – net baseline profit)

For the following metrics, you must calculate them for a period where you have stable data. No price changes, major promos, or big marketing pushes. Optimally, find a period where you had 100+ sales or 1000+ free downloads to smooth out variance in the data.

  • BASELINE SALES: average daily organic sales w/o advertising OR average sales during a steady period of ad spend (Book 1 sales over X Days / X Days)
    • Same formula can be used to calculate baseline royalties, baseline net profit, baseline page reads or for the entire series. E.g. (Series page reads over X days / X days).
    • Also can change the timeframe. E.g. Book 1 royalties over X weeks / X weeks = the weekly baseline royalties
  • REVENUE PER SALE (RPS): total revenue produced by a sale of Book 1 when factoring in series sellthrough (total series sales revenue / Book 1 sales)
  • REVENUE PER BORROW (RPB): total revenue produced by a full read of Book 1 when factoring in series readthrough (total series KU revenue / Book 1 borrows)
    • BORROW: full read of a book in Kindle Unlimited (# of pages read of book / # of KENPC in book)
  • BORROWS TO SALES: the number of borrows your book gets for every sale (borrows / sales)
  • COST PER SALE (CPS): ad spend to produce a sale (ad spend / advertised book sales) OR (ad spend / advertised book sales – baseline)