Unfortunately, what we have to spend says nothing about how we should spend it, and what things cost now says little or nothing about their total cost over time. The only thing we can say for sure is that if we don’t have [enough money] we’re out of luck. Other than that, even knowing the cost of the service does little to help validate the expense.
As regular readers know, I think the most important thing an independent artist can do is control costs. At some point, however, authors interested in writing professionally will have to confront publishing expenses (site hosting, POD fees, etc.), as well as consider a number of author services (proofreading, cover design, etc.).
To my mind the only useful way an independent author can assess such costs is to compare each outlay to potential revenue. That’s obviously Business 101, but it’s a mindset many independent authors fail to adopt. Instead, self-published writers often see expenses as worthwhile or necessary because they fund the physical production of a book: money gets spent and a book — your book! — springs to life. The problem with this approach is that it omits any relationship to sales or revenue, which means each expense is not a business decision so much as a purchasing decision, like buying fruit at the grocery store or a new pair of jeans.
If you’re trying to be a professional writer, implicit in that goal is doing what you can to avoid going broke. You don’t have to aspire to wild profits, and there are good reasons for not doing so, but at the very least your minimal goal should be recovering direct costs, if not also compensating yourself for your time. Even the ultimate goal of writing full time and living on one’s earnings demands similar analysis, because the realization of that lofty dream is directly related to your cost of living. The cheaper you’re willing to live, the longer you’ll be able to stay in business for any amount of generated revenue.
The Per-Copy Profit Method
Whatever expense(s) you’re considering, I think the only useful metric is a comparison of the dollar cost of the expense with the number of copies you would need to sell to recoup that investment. The good news is that once you know those two values the math is simple, and the formula can be applied to any expense for any work.
The first step is to approximate the per-copy royalty you expect for the book(s) in question. You don’t have to have an exact number here, but you need to be realistic. If you’re new to self-publishing and don’t have any experience to draw from, it’s probably going to take a while to come up with this number, but don’t skip this step. In fact, if you don’t understand the basics of self-publishing well enough to estimate your expected per-copy profit, it’s by definition too soon to be shelling out money.
Once you know what your per-copy profit will be, evaluating any expense relative to that particular title is a breeze. For example, let’s say you’re considering a cover-design cost of $200. If the book you’re creating will net a royalty of $2 per copy, then you’ll need to sell 100 copies of that book just to break even on your cover-design cost. ($200 / 2$ royalty = 100 copies.)
I don’t know about you, but a decision that obligates me to sell a hundred books just to break even doesn’t seem like a good idea. At the very least, that’s knowledge I want to have before I pull the trigger on an expense — and particularly so if there’s a chance that the cost of that cover design could go higher.
What I particularly like about this method of evaluating expenses, beyond how easy it is, is that it makes the benefit of cutting expenses wildly obvious. Continuing the previous example, if you cap your cover-design costs at $100 instead of $200, then you only need to sell half as many books (50) to break even. Instead of putting the emphasis on the out-of-pocket difference between $100 and $200 (a hundred bucks, which may or may not be a lot of money to you), the emphasis is again on how that difference affects your ability to turn a profit.
The vast majority of self-published authors are going to find it almost impossible to predict future sales, which is why this kind of analysis is so beneficial. Not only can the formula be applied to any title, and even adjusted on the fly if your royalty changes, but it puts the emphasis where it needs to be. Comparing expenses to the number of books you would need to sell in order to recoup those costs avoids the risks and uncertainties of forecasting, but keeps you focused on that critical relationship.
— Mark Barrett