Self-Publishing vs. Traditional Publishing: Which Way Will You Make More Money?

It’s author monetization week! Monday through Thursday this week I’m going to have a series of posts on a crucial topic for the modern writer: How to make money.

Today we’ll start with the books themselves. With the e-revolution (e-volution?) well underway, print sales are declining and there’s a great disparity between the amount an author can make per-copy with a self-published e-book vs. a traditionally published e-book. Authors are taking a hard look at their balance sheets.

How is it that authors are making more per copy from $2.99 e-books than traditionally published are with $10.99 e-books? Does it mean everyone should self-publish?

First, some important background information to start:

Standard royalties via traditional publishers (note: these may vary):
Hardcover: 10% retail, sometimes escalating to 15% after sales thresholds are met
Trade paperback: 7.5% retail
Mass market: 8% retail
E-book: 25% net (usually translates to 17.5% retail)

Kindle revenue share for self-published authors (source):
Priced higher than $9.99: 35% retail
Priced between $2.99-$9.99: 70% retail
Priced below $2.99: 35% retail

B&N revenue share for self-published authors (source)
Priced higher than $9.99: 40% retail
Priced between $2.99-$9.99: 65% retail
Priced below $2.99: 40% retail

E-distribution fee:
Smashwords: about 15% (explained here). Usually translates to about 60% of the retail price.

Approximate E-book market share (source):
Amazon: ~55%
B&N: ~25%
Others (Kobo, Apple, Google, Sony, etc.): ~20% combined

So. Now that we have those numbers, the real question is: How do you use them? Especially when you don’t know the variables of how many copies you’re going to sell in which formats at which prices?

Well, here’s how. Start running various scenarios:

Scenario #1: Barry Eisler

Thanks to Barry’s wonderfully transparent conversation with Joe Konrath, we know he was offered $500,000 for two books, turned it down, and currently plans to (I believe) self-publish his e-books on Amazon with a price around $4.99, or via Smashwords.

Assuming he doesn’t also work out a deal with Amazon (or B&N, as Shatzkin suggests) for the print component, the math is relatively simple: How many e-books do you have to sell to make $250,000?

If he self-publishes only via Amazon he’ll make 70% of $4.99, or roughly $3.49 per copy. His break-even point would be 71,633 e-books. (UPDATE: Barry notes that his break-even point is actually $215,000 since he isn’t using an agent to self-publish).

If he self-publishes via Smashwords, he’ll make roughly 60% of $4.99, or $2.99 per copy. His break-even point would be 83,612 e-books.

Or he could deal directly with Amazon and B&N, and use Smashwords to reach the other 20% of the market (UPDATE: this paragraph and the next one was updated based on feedback from Cameron Chapman)

All things being equal, let’s say he sold those 71,633 e-books to break even at $250,000 with Amazon (with 55% market share). In that case he’d sell an additional 32,560 copies through B&N for earnings of $105,608.36, and about 26,048 through Smashwords for earnings of about $77,884.61. Getting the e-book out there widely is the way to go.

Lastly lastly, if he does work out a print component that would be a bonus to the above depending on the printing costs and level of distribution. But if he doesn’t work out a print deal, he’s essentially betting he can sell more than 70,000 e-books.

Scenario #2: Amanda Hocking

Amanda Hocking recently agreed to a rumored $2 million deal for four books from St. Martin’s Press. Assuming the royalty levels are standard, she’s giving up quite a bit per copy on e-book sales in order to break out in the print world. Was it worth it?

First, as Hocking herself writes, her reasons go beyond monetary, and she states that her desire to focus on writing was her primary motivation for going with a traditional publisher. But let’s take a look at what has to happen in print in order to make up for what she’s giving up in e-book royalties.

Now, a lot of this depends on St. Martin’s pricing decisions. But let’s say they decide to keep the same $2.99 price point for her e-books, which has worked very well so far. In that case, the amount she earns per e-book sold plummets from $2.09 as a self-published author (70% of $2.99) to $0.52 (17.5% of $2.99) as a traditionally published author. So assuming St. Martin’s doesn’t dramatically boost her overall e-book sales numbers, she needs to make $1.57 in print sales for every e-book sold to break even on a per-copy level. Is that a good bet?

Well, right now when e-books represent approximately 20-30% of the market, it’s somewhat of a safe bet. Hocking will likely sell, I’d predict, a mix of hardcover and mass market paperback. Over the lifespan of her books, let’s say 75% of those print sales are mass market (priced at $7.99, 8% royalties) and 25% are hardcover (priced around $22.00, 10% royalties). In that case, the average print sale would generate about $1.03 in royalties.

Assuming she sells eight print copies for every two e-books sold, she makes way more in print royalties than she loses in e-book royalties. Two e-books sold as a self-published author equal $4.18. Two e-books plus eight print books as a traditionally published author equals $9.28 (minus commission). But if she sells, say, six print books for every four e-books traditionally ($6.18), compared to four e-books as a self-published author, those gains evaporate ($8.36).

If she breaks out in print or if St. Martin’s boosts her sales significantly, the decision will definitely have been worth it (not to mention that she has a guaranteed $2 million that she gets no matter what). But if the bulk of her sales continue to be in the e-book format, she may lose money per copy sold.

Scenario #3: The Law of Averages

So, this following scenario doesn’t really exist. Authors tend to be either hardcover/trade paperback or hardcover/mass market or straight trade paperback or straight mass market authors with a mix of e-books thrown in. And authors who deeply discount their e-books can sell a very disproportionate number.

But let’s say that you’re the perfectly average author and you’re deciding between traditional publishing and self-publishing. And we’ll use the January revenue numbers as a (very rough) guide.

I don’t know the average hardcover/trade paper/mass market/e-book prices, but let’s say $24.99/$14.95/$7.99/$10.99 and the net to publishers is 50%/50%/50%/70%

That means your sales will be about:

11% hardcover
33% trade paperback
29% mass market
27% e-book

If you’re a traditionally published author with books available in all channels, you’ll make about $1.35 per copy sold across all formats: [($24.99*.10 royalty*.11 share)+($14.95*.075 royalty*.33 share)+($7.99*.08 royalty*.29 share)+($10.99*.175 royalty*.27 share)].

If you’re a self-published author working with Smashwords and selling your e-book for $4.99, you make about $2.99 per copy sold, but are only reaching 27% of the market, so an effective hypothetical-per-copy revenue of $0.81 across all formats.

So it really comes down to whether you can move print copies. My ultimate conclusion:

If you can sell print copies, all things being equal there’s still the bulk of the money to be made there. 

But if you’re not going out in print in a big way, a self-published e-book is absolutely the way to go.

If you’d like to play around with some of these numbers, please check out Ted Weinstein’s very helpful spreadsheet (and thanks to John Ochwat for pointing it out).

Also, if any of this math is wrong (and there’s a lot of it), please correct me!