Too Much Focus on Earnings, Too Little on Expenses

Self-publishing is a business. You’re selling a product to people for money. And, unless you have some independent source of wealth, at some point you need to make more than you spend to keep doing it.  And yet…

What do self-publishers focus on 90% of the time? (I think the exception would be some of the promotions threads I’ve seen where people break down what they spent and what they earned from a promo.) They focus on earnings. Or how many books they’ve sold.

We talk about six-figure authors and how impressive they are without ever asking how much they spent to earn those six figures.  And we take their advice over the advice of others even if it’s possible that they’re worse business owners than someone who makes fifty thousand a year. If someone spends $90,000 to make $100,000 they’re actually doing worse than someone who spends $10,000 to make $50,000.  At least from a long-term sustainable business point of view.

(Now, we could argue about whether that person making $100,000 will be better off in the long run because they’re building a bigger customer base for all their subsequent books, but if you’re not in fast-build mode that 90/100 ratio is not going to be sustainable unless you can scale the hell out of it. And if the only way you’re bringing in those readers is with heavy advertising and they aren’t staying once you get them…Well…That’s not good either.)

So why am I talking about this? I’m not at either level.

Well, because I needed a reality check on this myself.  I was so proud in June to have my first $1,000+ month. And to repeat that in July and now August. I thought, finally, I’m getting some traction with this. I envisioned a $30,000 year maybe. And that was exciting to me.

And then I added advertising costs into the mix.

Revenue-wise, year four was more than four times year two. But when you account for advertising?  Year four was only 1.25 times better.

I made thousands more, but I also spent thousands more to get there. And even though I’m still net ahead year four vs. year two, it’s not by near as much as I thought it was. And my best month when you account for advertising expenses? The month I released my written to market billionaire romance short story. My second best month? When I completed the other stories in that series and ran a free promo on the first in series.

Good news is that since I started running AMS heavily in July of last year my months have been more profitable than before. But that sure shows me the power of writing to market, because when you do that customers are looking for you. You don’t have to pay to find them.

AMS and Accounting for KU Borrows

AMS reporting is horrible. Amazon gives you this pretty little dashboard that looks like it tells you what you need to know, but if you actually use the dashboard numbers as provided, you’re going to mismanage your ads.

I think most self-publishers have clued into the fact that you can’t just look at the ACoS and say that anything less than 100% is good.  Most everyone I see talk about ACoS knows that it’s based on the list price of their titles, so it doesn’t account for their payout percentage.  Knowing this, they use 70% (or 35%) as their threshold to judge an ad or keyword instead of 100%.

But that’s flawed, too.  As we already discussed, you have the value of a customer to consider.  If x% of customers who buy book 1 go on to buy book 2 and y% of those go on to buy book 3 you need to account for that in your numbers.

Another thing you need to account for is KU borrows for any title that’s in KU.  Sometimes this amount is insignificant (like for my non-fiction), but often times that borrows revenue is what makes an ad profitable (like for my romance novel). So you need to account for it.

But how?

Ideally you’d determine what percentage of customers for that title buy vs. borrow. Problem is, you don’t have that information. You will never know how many people borrow your book vs. buy it.  You can guesstimate based on your rank each day and your sales and using the sales/rank chart Phoenix Sullivan has put together, but as more books are listed that ranking chart becomes less and less accurate.

What I do is focus on what I call full-read equivalents.  So if I have 10,000 page reads and a book with a KENPC of 500 then that’s 20 full-read equivalents.  (It could be 10,000 people reading one page for all I know, but you have to work with the information you have, right?)

I then use that number to calculate a ratio of borrows to sales.  So if I have 30 sales and 20 full-read equivalents, then I have a borrow/sale ratio of 20/30. I can then use that ratio to create a factor that I use to gross up my AMS-reported sales number.  (Just to give you an idea, for my fantasy series that number is 1.61 but for my romance series it’s 3.10.)

So instead of the $10 in sales that AMS tells me I have, I’m actually looking at $16-$43 in sales.

Of course, I then have to adjust that number based on what an average customer who buys is worth to me, what an average customer who borrows is worth to me, the proportion of customers who buy vs. borrow, and what the list price of the advertised book is. (It’s the weighted average customer value divided by list price of the book I’m advertising.)

Because I use AMS to advertise full-price books that second number is actually a number less than 1. It takes that $16-$43 value for sales and brings it back down into the range of $14-$26.  But I ran the calculation for a 99 cent series starter for a five-book series and it was 5.4.

The math stays the same, but the numbers vary greatly depending on the series you’re advertising.

Key takeaway here is that unless you have a standalone title that’s not in KU, you need t realize that your sales from your ads are greater than the amount reported by Amazon.

One last thought.

My next step after I do all this is to calculate an estimated profit and loss from that adjusted number and prioritize all ads with a positive adjusted profit and loss.

You could also use the adjusted sales number to calculate a revised ACoS and keep any keywords or ads where the revised ACoS was below 100%. For example, my best performing keyword on my romance ad shows an unadjusted ACoS of 154% but when I account for borrows and sellthrough it has an adjusted ACoS of 60%. (I just thought of this and ran it on my romance keywords and think I might play with it some more, because it highlights some words I should probably bid higher on that aren’t my highest in sales but are my lowest in terms of ACoS.)

Anyway. Hope that made sense. I’m including the actual formulas in the Excel for Self-Publishers book I’m writing in case it didn’t and you want them. Although, honestly, I think that book is going to appeal to about five people. It’s been good to write though, because it lets me refine my thinking on all this.  I’ve already updated my ad tracking worksheet because of it as well as this whole analysis.

(Of course, now that I thought of including a revised ACoS I have to go add that to the book.  Grrr.)

A Mini Rant

So yet again I’m seeing James Patterson’s name drug through the mud because supposedly he doesn’t write his novels.  And it annoys me. Not because I read the man’s books, I don’t.  Or at least can’t remember reading any of them.  But more because I find it a symptom of the “they don’t deserve it” -itis that is so common in the writerly community.

Hang around long enough and you’re bound to hear how horrible Stephenie Meyer’s writing is, how E L James’ books are awful, how Dan Brown can’t write his way out of a paper sack, and, of course, how James Patterson doesn’t even write his own books.

It drives me nuts.

One, because so often when this critique is made it’s because writers are focusing on one aspect of writing (the words) and failing to see how plot or emotional engagement are just as important.

And, two, because it comes off sounding like sour grapes. As in, why is that horrible author so successful when I’m so much better?  (Well…perhaps you aren’t.)

And the James Patterson thing annoys me because I took his Masterclass (through masterclass.com–I also did the Aaron Sorkin and Shonda Rhimes ones and enjoyed all three) and in there he talks about his co-writing process.  And from that I can assure you that he doesn’t just slap his name on something someone else writes.  He’s heavily involved in the process and in the plotting and polishing of the novel.

And if we go back to this concept of what is writing a story, I would argue that the easiest part of writing is putting together the sentences.  Finding a way to make those sentences work together to create an experience that pulls a reader through the book is the challenge. Having something happen that’s unbelievable yet totally plausible at the same time isn’t easy either.  And coming up with a way to engage with a reader’s emotions so they actually feel something about your characters and what happens to them is maybe the hardest skill of all.

When these criticisms crop up, those skills are never considered.

Anyway. Next time you find yourself wanting to complain about some very successful author and their lack of writing ability, maybe check yourself and try to figure out what they do right instead.  And, no, it isn’t going to be “spends a lot on advertising” because the people we’re talking about here are all people who’ve generated word of mouth beyond their advertising efforts and who I’ve heard readers rave about.

So when that happens, ask yourself why. You might just find a way to improve your own writing.

(And this rant is not directed at anyone that I know reads this blog, so if any of you recently wrote or posted about this, I’m not writing this rant because I saw your post. It most recently came up in a forum discussion about something else, but it was the third time I’d seen someone say something similar this week and figured it was a good choice for a Wednesday random thoughts post.)

AMS Ads and Value of Customer

First, the AMS Ads for Authors book is rolling out of KU in approximately a week, so if you think you might want to borrow it, do so now or forever hold your peace. And sorry for not posting on Wednesday.  I had jury duty and almost did a post on Thursday about how that experience always reminds me how not-normal I am but then couldn’t figure out how to write the post without sounding like an ass. So sorry about that.

Okay, now that that’s out of the way.  I’m currently working on a series of Excel guides and one is going to be for self-published authors. One of the calculations in there is a simple calculation of how much a new customer should be worth to you assuming you have a series and know what your read through rates are at your current prices.

(As with most things, the calculation is a more simplified version of something that’s far more complex than it looks.  For example, my read through rates are different for purchases versus borrows and for when I run a 99 cent promotion versus when I’m not running a promotion.  But some of that nuance you can’t even calculate because who knows if today’s sale of book 2 is from someone who just bought book 1 or if it’s from someone who bought book 1 during that promo six months ago.)

The value of customer calculation is crucial to anyone doing advertising.  Because if you limit yourself to what you’ll make back on that one book you’re advertising, you’re not going to spend as much as you could and you’ll miss out on potential sales.  Especially if you have a 99 cent or free series starter.

For example, AMS just billed me about $500 for the last two weeks and, as I do every time they bill me, I crunched the numbers for each book I was advertising to see if I was profitable on my ads for that period.  On the romance side I have two novels in a related series.  On the fantasy side I have three novels in a related series.  If I had just looked at the ad cost for book 1 for those two series, I would’ve concluded I was unprofitable for this period and possibly shut the ads down. (No one wants to spend $500 in two weeks and not make money off of it. That gets expensive fast.)

But when I factor in sales and page reads of the later books in the series, it turns out that both series made more money than I spent on advertising.  Which means those ads are worth continuing.

So how do you get that number?  How do you calculate the value of a customer.

The rough version is this:

Add together the following:

Book 1: Sales price * payout percent (So basically what you net for a sale)

Book 2: Sales price of book 2 * payout percent * (number of book 2 sales/number of book 1 sales) (So basically x% of what you net for a sale of book 2 where x% is based on how many people go on to buy book 2 after buyung book 1)

Book 3: Sales price of book 3 * payout percent * (number of book 3 sales/number of book 1 sales) (So basically y% of what you net for a sale of book 3 where y% is based on how many people who buy book 1 also buy book 3)

And so on and so on.

So if you’re selling on Amazon and have a book 1 at 99 cents and books 2 and 3 are at $2.99 and 50% of the people who read book 1 read book 2 and 50% of those read book 3 then:

(.99*.35)+($2.99*.7*.5)+($2.99*.7*.25)=$1.92

Instead of trying to limit your ad spend to 34 cents you can actually spend up to $1.91 to acquire a new customer and still be profitable.  That’s a big difference if you think about it.

This is why having lots of books out under one name and ideally in series is a very very good idea.  (Assuming you write well enough that people will buy more than one.  If your read through is 0% at some point having a long series won’t do anything for you.)

Anyway. Something to think about.

And now time for me to procrastinate writing the next novel by writing non-fiction guides no one will want…

 

AMS Ads Require Patience

Seth Godin has this book called The Dip.  It’s all about knowing when to quit and knowing when to push through because you just need to put in the time and effort.  It’s a good little book and one I try to keep in mind with this writing thing.

It occurred to me this morning that it sort of kind of applies to running AMS ads as well.

I was trying to help someone out with their ads this week, but it didn’t go well because the other person was very quick to give up on the ads, so ended up pausing the ads before they’d even run a day and then turning on other ads on the same books the next day (which in my experience can interfere with ad performance), and it looks like has now turned off ads that were actually performing for them and gone back to non-performing ads that look sexier because of number of impressions.

(I say this in my book, but for those of you who haven’t read it: To judge your ad’s performance you need to do two things.  One, look at your book’s sales as reported on your KDP dashboard, not your AMS dashboard–because it’s anyone’s guess when they’ll show up on your AMS dashboard.  And, two, if your book is in KU, monitor your book’s rank.  Not your page reads, because those come with a few day lag usually, but your rank. Each time your book is borrowed, your rank will reflect it.)

Anyway, back to the point.  It can be hard sometimes to know when to quit and try again and when to keep going on the path you’re on.

I’ve heard people say that they start an AMS ad and let it run for a couple of weeks before they touch it. I don’t do that.  I’ve had ads that immediately racked up impressions and clicks but had no sales or borrows to show for it and I shut those down within a day or two.  Good thing, too, because they cost me $20+ each for nothing.

I’ve also had ads that started out completely dead, but when I pushed up the bids they started to move and became well-performing ads for me.  Letting them sit there dead wasn’t going to change anything.  They needed to be worked to find what would get them going.

(Although I have heard at least one person say that some of their ads have taken a month to finally start moving, so you could try that, too.)

What I see a lot of people do is try one ad, usually with the wrong keywords and bids, not get the results they wanted, and then quit.  Or try one ad that would be good if they gave it time, decide it isn’t working, try another, decide it isn’t working, try another, etc., etc.

AMS require a steady, consistent approach.  Try something with a clear goal in mind.  See if it works.  Tweak things to see if those will impact it any. Tweak something else. If you see movement in a good direction, try to zero in on why.  Only when you’ve tried what you can do you give up and try something new.

And, at least in my opinion, if you aren’t getting sales/borrows, it isn’t a successful ad no matter how many impressions or clicks it gets. You might be able to fix that by changing your blurb, because everything needs to be aligned–book cover, ad copy, book description–to get a sale, but exposure alone shouldn’t be your goal with AMS ads. It should be about generating sales and at a profit, ideally.

Now, I’m not going to tell  you what strategy is “the one” because I’ve seen a number of strategies work. I know of one person who did very well for a very long time with low bid ads.  I know of another who has done well running hundreds of ads on the same book. I do well running one higher-bid ad per book.

But I can tell you that starting and stopping and switching strategies before they have time to play out will likely cost you a lot of money with no discernible results.

What Works In Business Doesn’t Work in Dating

One of the reasons I started this blog was so I could write about the many things my books cover, not just a narrow set of them. So far I’ve pretty much stuck to puppy pictures and writing topics, but today I figured I’d write about dating. So bail now if that sounds dull or boring or isn’t of interest to you.

Yesterday on Twitter there was a tweetstorm that went viral because a woman realized she was the third or fourth date of the day that a man had scheduled at the same location.  He’d lined women up, one every forty minutes or so, like he was conducting job interviews.  Turns out he had six total “dates” scheduled for the day.

Now from his perspective (he told her he was a project manager) this was a very efficient use of his time. He didn’t know if he’d like any of these women and you can usually tell within a half hour or so, so for a busy professional why not just line ’em up and knock ’em down and see if there was anyone worth pursuing further?

From a woman’s perspective, that’s insulting as all get out.  Even though you know going into most dates that it’s not going to go well (at least not well enough for another date), you still want the other person to approach it as if it will.  And to, I don’t know, crazy thought here, try to impress you?  Maybe put their best foot forward?  Make you feel special and wanted?

This guy completely sabotaged himself.  He brought something that works well in the business world, where efficiency is valued, into the dating world, where it’s all about chemisty and emotions.

I still remember a date I had over a decade ago with a man who was a bit like the project manager mentioned above.  This date of mine was clearly in wife acquisition mode.  And he had a set of qualities his wife needed to possess.  So rather than relax and talk to me and see if we had any sort of rapport, he launched into a series of rapid-fire questions, one after the other.

It wasn’t a date. It was a job interview.  I think he even asked “Where do you see yourself in five years?”

I’m sure this approach made perfect sense to my date.  Why waste time with someone who doesn’t want what you want?  Isn’t it better to know right up front that you’re not looking for the same thing and move on?

But you can’t approach dating like that.  (Or maybe you can. Maybe the perfect woman is that one in a million woman who’d appreciate such extreme efficiency…) You have to make the other personal comfortable and adjust what you say or do based on what they say or do.  It’s interactive in a way a job interview doesn’t have to be.  Because dating is really about seeing if the two of you can work together to create a mutually enjoyable experience.

That’s what neither of these men understood.

(And one final comment on Mr. 20 Questions.  Sometimes people’s answers change once they meet the right person, so asking someone in a cold setting about marriage and kids isn’t the same as asking them after they get to know you personally. I have more than one friend who never thought they wanted marriage or kids who have now married and had kids because they met “the one.”)

Now, let’s make this fair and talk about a way that women screw this up, too.  With women it’s more in forgetting that the things that have made them successful in the workplace aren’t necessarily the things that will attract the person they want to marry.

A few years back a highly successful friend of mine was talking about a book she’d read where the woman had suggested that if you want to find a husband through online dating you shouldn’t have a dating profile that looks like your resume.  My thought was “Well, yeah, duh. Isn’t that obvious?”

But then I watched a TED talk by a woman who had designed a scoring system that ultimately let her find her husband, and she too had started off with a dating profile that was a copy and paste of her resume.

So it seems this needs to be said: If you’re a woman on a first date or posting an online dating profile, you will have more success if you focus on what makes you an interesting person to spend time with than on your professional accomplishments.

I’m being careful with how I word that, because I would never advocate hiding who you are or what you’ve done. (I once had a classmate in business school suggest I just tell men I was a waitress and act dumb to get them to date me. Yeah, no.)

It’s more a matter of having ten things you could talk about and realizing that three of them (e.g., your trip to Bali last year) are far more interesting to someone else than the other seven (e.g., the fact that you just completed a project that saved your company 20% on its recycling costs).

I think for a lot of professional women (and I was one of them), your career is such a large part of your life that it’s easy to lose sight of the fact that what’s interesting to talk about with your co-workers isn’t necessarily interesting to strangers. But most of us do have interesting things about ourselves that we can focus on instead.  You just have to remember to do so.

So, bottom line here: If you’re dating, take a breath, stop, switch gears, and think about the other person and what they might want or like.

And leave all those business-based time-saving, efficient tricks where they belong–in the office.