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…

 

Author: M.L. Humphrey

I'm a consultant with a focus on financial regulation and a writer with too many pen names.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s