How Authors Really Make Money: The Rebirth of Seth Godin and Death of Traditional Publishing

276 Comments


What do the economics of publishing look like… really? (Photo: thinkpanama)

(Special thanks to my agent, Steve Hanselman, and my anonymous sources within the world’s biggest publishing houses)

Print is dead!

This has become a popular headline, and a great way to get quoted, as Nicholas Negroponte has shown. Iconic author Seth Godin, after 12 bestsellers, just announced that he will no longer pursue traditional publishing, and the writing seems to be on the wall: the e-book is the future, plain and simple.

But what are the real concrete numbers? How are established authors actually making money, and what should new authors do? Go straight to e-book?

In this post, I’ll look at real-world numbers to discuss some hard truths of publishing, explain economics and pay-offs, and provide a few suggestions for aspiring authors.

To start, some contrasting numbers…

The 4-Hour Workweek is one of the top-10 most highlighted Kindle books of all time.

– The 4-Hour Workweek was the #1 business book when Kindle first shipped after November 2007, and is currently around #116 in the Kindle store.

– In my last royalty statement, December 2009, digital book sales (all formats, including Kindle) totaled…. ready?… a mere 1.6% of total units sold.

My own book has been on the bestseller lists for more than three years, and I’ve tracked most multi-month bestsellers for all of those 36+ months using Nielsen Bookscan (among other tools) which covers about 75% of all retail book sales since 2001, including Amazon but excluding discount clubs such as Sam’s Club. Titlez has also been useful for looking at detailed trending on Amazon.

This all gives me a good pool of data, and I feel like I have a good grasp of what authors are selling and… realistically earning directly from books. If you’d like to get a basic idea, just subscribe to Publishers Lunch to see what authors are getting paid as advances. Enjoy.

We’ll come back to the Kindle numbers, but first, here’s a sketch of book economics, incentives and options:

- For a hardcover book, authors typically receive a 10-15% royalty on cover price. This means that for a $20 cover price, the author will receive $2-3. If you have a $50,000 advance, a $20 cover price, and a 10% royalty, you therefore need to sell 25,000 copies (“earn out” the advance) before you receive your first dollar beyond the advance. This is the basic rule, but several quietly aggressive outfits — both Barnes and Noble’s in-house imprint (Sterling, acquired in 2003) and Amazon’s in-house print arms, AmazonEncore and AmazonCrossing — could prove to offer more attractive terms. Then there are the fascinating rogues like Andrew “The Jackal” Wylie.

- For a trade paperback book, authors typically receive around half the royalty of a hard cover. If you are making 15% on your hardcover, you might get 7.5% when it goes to paperback. Guess what? This means you now need to sell twice as many books to break even. I think going to paperback is a bad idea for almost all authors, unless you want to double your work for the same income. Do you really need the people who won’t buy a $20 book hardcover that’s already discounted to $12-14 dollars through Amazon or Barnes and Noble? I don’t think so, yet most authors follow the hardcover-to-paperback progression without question.

– Electronic books, including Kindle, do not count towards the most famous bestseller lists
, such as The New York Times bestseller list. I suspect this will change within the next two years, but for now: print is what will make you famous in the mainstream.

- If you choose to self-publish but stick with print format and retail distribution, you might double your royalty earnings. This is based on conversations with friends who own their own boutique publishing houses, all of which have distribution in large chains like Barnes and Noble. It’s fun to imagine that you could print a book with a $20 cover price and pocket $15, but that isn’t how the math works out. Once you factor in retailer discounts and distributor percentages, you might end up netting 30% of cover price vs. 15%, if you’re lucky and have a print run of 20,000+ units (Can you afford the upfront cost, especially if retailers are paying net-30, net-60, or beyond?). Keep in mind you also need to manage things as a publisher, which could make your dollars-per-hour earnings less than with a traditional publisher. There are a few promising companies, like Author Solutions, trying to solve this problem for authors.

- If you choose to go digital only as an e-book, this is where profit rules and amazing numbers can be achieved. How amazing? I know one man who nets between $5,000,000 and $10,000,000 per year with a single e-book and affiliate cross-selling to his customer lists. I’m not kidding. The downside is that you need to be a world-class marketer and understand affiliate and CPA advertising better than anyone else in your niche (since there is little barrier to entry, and therefore plenty of competition). Prepare to be an uber-competent CEO or fail if you choose this option.

The Kindle Phenomenon — How Press Releases Are Misread

Amazon is incredible and I expect nothing but more innovation from them. Putting aside their coming bloodbath with Apple, though…

What of this announcement that Kindle sales have now passed hardcover sales on Amazon? I believe this to be true, but there are a few things I suggest we keep in mind:

1) Kindle books selling well does not mean that print books are selling poorly. In fact, it appears quite the opposite. From the Wall Street Journal coverage of the announcement:

Still, the hardback comparison figure doesn’t necessarily mean the end is near for paper books. Amazon said its hardback book unit sales also continued to increase.

It will be fun to see more precise Kindle sales when they are shown as a separate line item in Nielsen Bookscan, which should happen in the next year.

2) The top-five Kindle selling authors of all-time, over 500,000 copies each, are all fiction writers (including Stieg Larsson, Stephanie Meyer, and others). In the top-50 Kindle bestsellers right now, I counted just three (3!) non-fiction books. If you’re a non-fiction author, I’d think carefully before jumping the gun to all digital. Remember that comment about print being dead? What if we ask a high-level exec at one of the “Big Six” (explained later) about how print sales are declining?

Hardcover trend is mixed and dependent on hot books. If you are wondering about ebooks, commercial fiction is where you’re seeing the erosion. Paperbacks are ok. Mass markets are taking a hit.

What are “mass market” books? The NY Times describes them thus:

Mass-market books are designed to fit into the racks set near the checkout counter at supermarkets, drugstores, hospital gift shops and airport newsstands. They are priced affordably so they can be bought on impulse. There are other production differences in binding and paper quality (historically, paperbacks were printed on “pulp” and could fit in the consumer’s pocket). The format is often used for genre fiction, science fiction, romance, thrillers and mysteries.

Is it a coincidence that print impulse purchases are also the biggest sellers on Kindle? I don’t think so.

3) I believe (conjecture, yes) that the figure we are missing is Books-Per-Person. If you have a Kindle, as I do, how many books did you buy in the first week or two? How many unread books do you have on your Kindle? Unlike with print books, you don’t have to look at a stack of unread material like undone homework. Ergo, you purchase more digital books than you would ever purchase in print. If Amazon is selling 180 Kindle books for every 100 print books, I wouldn’t be surprised if 10-20 people are responsible for the former, whereas 80-100 people are responsible for the latter. This reflects that Kindle owners are buying more books per capita, not that paper purchasers are buying fewer.

Now, don’t get me wrong. There has to be some cannibalization of sales, and much of print will die eventually, but it will take a long time. Print is far from dead… and far from unprofitable. Despite the industry-encouraged myth that print has no margins, a hardcover book sold for $20, assuming no graphics or color, can often be produced for less than $2 a copy. With the proper economies of scale (unavailable to most individuals), the publishing biz can be quite a little cash cow.

Let’s cover some basics of traditional publishing next.

What “Traditional” Publishing Looks Like

Traditional publishing looks something like the following for non-fiction authors. For fiction authors, you need to write the entire manuscript first. Here are the five steps:

Step 1. Get an agent (best done through a referral from one of their authors).

Step 2. Put together a book proposal, which is like a business plan. It will contain marketing plans, your existing “platform” (who you can sell to or reach without publisher help), an executive summary of the book concept, and 1-3 sample chapters, among other things.

Step 3. Pitch to specific editors at different publishers through the agent and schedule meetings.

Step 4. Sell the book. The editor will probably have signing authority up to a certain advance amount, but higher ups will need to sign off on larger advances. If you don’t have a great platform for selling books without publisher help, don’t expect anything more than $50,000, and that’s being optimistic. The $50,000 will not be paid all at once, but in several installments, something like this: 1/4 upon signing the deal, 1/4 upon publisher acceptance of manuscript, 1/4 upon publication, and 1/4 upon paperback publication (assuming you start with hardcover).

Step 5. Write the book. Keep in mind, you’re not getting paid the advance all upfront, and writing a good book will probably take at least a year if you’re hoping to have good word-of-mouth and some longevity. I’ve been working on my new book for more than three years. I’ve spent this time because I want it to sell like mad for no fewer than five years after publication, preferably more than a decade if I update it on an annual or semi-annual basis.

For more detail and recommended books, which I used as guides, read “How to Sell a Book to the World’s Largest Publisher,” which explains exactly what I did.

Below are the “Big Six” publishers — most of the bestsellers you see come out of one of their divisions (called “imprints”). In no particular order:

Lagardere (owns Hachette)
Harper Collins
Macmillan (owns St. Martin’s)
Penguin Group
Random House (the largest, and where my book lives within the “Crown Publishing” imprint)
Simon and Schuster

All of these publishers have iBook agreements with Apple except for one… Random House. Why? Is Random House just unable to see the obvious future? Nah, I don’t think that’s true. There are plenty of smart people working at Random House, and that includes their legal department.

The paragraph that follows is all hypothetical:

What might happen if the iBooks agreements of the other Big Five all have suspiciously similar terms? If there were a federal investigation, might that lead to charges of collusion among the publishers and have terrible financial consequences for an already fragile industry? It certainly would. By distancing themselves and coming in late to the game, Random House — again, hypothetically — would be playing a very smart hand, indeed.

For those of you who are devoted to your iPads (I do like mine), you can always use the Kindle app to read Random House books on them pretty screens.

So What Should Authors Do?

First off, writing books is a terrible revenue model for authors.

Precious few books sell more than 25,000 copies, so it’s unlikely you’ll make even $75,000 a year from book royalties. In rare cases, you might have a perennial bestseller, but this is less than 1% of all books sold and not a good bet to make.

There are still a few reasons you might consider writing a book and going through traditional channels:

- Speaking: Particularly in the business category, if you target your Fortune 500 audience well enough, you can stair-step your way into $20,000 per 60-minute keynote without needing a miracle. Hundreds, if not thousands, of authors earn this kind of money. The higher echelon can make $80,000 or more per speaking engagement. Needless to say, this adds up fast.

- Reputation and audience: Money is a means to something else. Not unlike wampum, income is traded for either a possession or an experience. If you use your book to build a reputation as a thought leader, and if you can establish a direct line of communication to intelligent readers (through a blog, for instance), it is possible to bypass income and get almost any experience for free or next-to-free. The middleman of currency is removed, and you also have access to things money can’t buy, whether it’s interesting people or unusual resources.

Though I have done high-level speaking and enjoy it with the right audience, I typically do fewer than a dozen engagements a year. I prefer to focus on connecting with my readers and having fun with cashless adventures.

How do you build a base of fans or supporters and build a high-traffic blog? Here are two detailed closely related case studies:

How Does a Bestseller Happen? A Case Study in Hitting #1 on the New York Times
How to Create a Global Phenomenon for Less Than $10,000

So what of self-publishing versus the more traditional route?

Reputation, at least in the mainstream and for the next few years, is difficult to build if you self-publish. In the below five-minute discussion, NY Times bestselling author Ramit Sethi and I discuss the pros and cons of self-publishing vs. getting a “real” publisher:

In Closing

For established and successful authors, like Seth Godin or Jim Collins, self-publishing in print or digital is a supremely viable option. Jim Collins self-published his last print book, How the Mighty Fall, and was featured on the cover of BusinessWeek magazine to help push it up the bestseller ranks. Seth could do the same.

Why is this possible?

Because they have incredible reputations that were built, in part, on top of the traditional publishing machine. The Big Six and their close cousins are in real trouble. Some of them might adapt (which will include massive lay-offs), but most will not. In the next few short years, there will also be many interesting publishing alternatives for aspiring authors.

But, all that said, there is still real value in having the rare stamp of approval that a “traditional” publisher provides. I don’t think this will change much in the next 12 months, perhaps even 24 months.

Now, a handful of first-time, self-published authors hit the New York Times list, that’s an entirely different story…

###

Recommended reading – Below are the three books I’ve suggested to a dozen or so aspiring-author friends. Almost half of them later hit the New York Times bestseller list. Reading these doesn’t guarantee that outcome, of course, but it will help:

The 22 Immutable Laws of Marketing (to help you craft the right message and themes)
Bird by Bird (to help you write the damn thing and not shoot yourself)
Author 101: Bestselling Book Publicity (to help you reach and excite big media)

Afterword: Book Format and Multimedia Books, etc.

In the comments below, I was asked the following question:

“Tim, I have a question… Before I decided to self-publish, I got a couple decent offers from traditional publishers, but they all involved 10+ months of lag time between when everything is ready to actually print and when they would actually print. I’m not nearly patient enough for that much delay. Is the world of “real published authors” really limited to people who are comfortable waiting around a year for their book to manifest?”

My answer addresses a few other common questions I get:

Hi Jeff,

With the big boys, yep. That’s the lag time in production. I actually kind of like it. Allow me to explain:

It forces you to think about your material and attempt to make it perennial. Which advice will be obsolete in 12 months? Delete. Which advice would be obsolete in 24 months? That means it will only be good about 12 months after pub date. Delete.

I find that it helps refine your thinking, just as having the content in a fixed form (print) forces you to consider your writing and editing more seriously than if you could change it willy-nilly like a blog post. There are certainly benefits to the multimedia books on the horizon, but I wouldn’t call them “books”, and I think the bells and whistles of video, hyperlinks, etc. will be used to mask sloppy thinking as often, if not more often, than they will be used to create a more compelling argument or presentation. The wordsmithing and precision of the language will suffer with the crutches of embeddable video, etc. Will they make perfect sense for some books? Absolutely. Will they distract and detract from the flow of the prose, story, or argument in most cases? Absolutely.

To me, “timely” books are a bad bet for writers. If the content delivers value based on timing near recent events, other media have it beat. I think long-form books should have a longer shelf life, and therefore require harder thinking throughout the process to ensure the content has value 1 year, 5 years, even 10 years down the line.

Hope that helps!

Tim

Posted on: August 23, 2010.

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

Comment Rules: Remember what Fonzie was like? Cool. That’s how we’re gonna be — cool. Critical is fine, but if you’re rude, we’ll delete your stuff. Please do not put your URL in the comment text and please use your PERSONAL name or initials and not your business name, as the latter comes off like spam. Have fun and thanks for adding to the conversation! (Thanks to Brian Oberkirch for the inspiration)

276 comments on “How Authors Really Make Money: The Rebirth of Seth Godin and Death of Traditional Publishing

  1. Fantastic article. I’m writing several short “books” to publish. Since I already have a collection of fairly popular websites, there doesn’t seem to be a reason to not sell them at a profit.

    Do you have any thoughts on pricing for an ebook?

    Like

  2. Great information! Once the model for self-produced music took off, it stood to reason that the print industry would follow suit. Bands never made money from records, it was the touring and merch that always made them the most cash! By the time the record company is finished, there isn’t much left for the artist.

    Like

  3. Awesome article Tim,

    I still prefer holding book or even a magazine in my hands when I’m reading compared to staring at a screen – I like how you added a few benefits of getting published in there as well…

    I started a blog about a year ago with the intention of eventually coming out with an ebook. I wanted to build a following on the blog then sell the ebook on the blog + on a sales page.

    It just made more sense financially to write an ebook, getting published has always been a dream but financially an ebook made a lot more sense.

    Anyways thanks for the article, you always have great content on here. Excited to read your next publication…

    – Chad

    Like

  4. Excellent. The implication is that, over time, if all the profit is in e-books and all the customer acquisition is in blogs, speaking, etc., there is less and less reason to run the print gauntlet.

    Leo Babauta might be an early example of this — he built reputation via blog, and generated revenue via e-book, and published a print book only later.

    Like

  5. “I know one man who nets between $5,000,000 and $10,000,000 per month…”

    Whoa… nice numbers.

    Are we talking self-help/business development titles here?

    Almost sounds like ‘The Secret’ sales figures.

    Like

  6. This post couldn’t have come at a better time, Tim! Since I am currently outlining my first book, this stuff is gold.

    The thing I find unappealing about electronic books (and I hear this from others), is that a Kindle or iPad doesn’t give you the full experience. There is something magical about buying a new book, feeling the paper as you read it and ultimately spending years afterward glancing at the colorful spine on the bookshelf. Conversely, an e-book sits as a boring digital file in some random computer folder. And once read, never to be enjoyed again.

    I feel that, while print may be dying, it will never be down for the count.

    Thanks for the post Tim, another great one!

    Like

    • That’s true Brad, but I only like the experience from older books you find at second hand shops. I hate the paper of the newer books printed in the last couple of years – they fall apart too.

      I was a late Kindle convert, being an obsessive reader my whole life. I will still buy second hand books, but not new ones anymore.

      Like

  7. Hi Tim,

    Great and detailed post, dude!

    I am in the process of writing a novel which I intend publishing during 2011, so this helped give me a clearer picture of the publishing process. I have written several marketing e-books and they all did very well, especially when you consider how little investment it took to get them out there.

    I really appreciate your post.

    All the best,

    Josip

    Like

  8. I’ve written several books, and I’ve had no interest from agents or publishers…primarily because of my lack of a strong platform. Rather than becoming frustrated and continuing to hit my head up against a wall, I decided to find a workaround.

    I’m now publishing my own work, and it’s getting a great response.

    “Lost + Found: Finding Myself by Getting Lost in an Affair” [URL removed per comment rules] was launched two weeks ago on Amazon as a paperback (Kindle launches tomorrow), and it’s completely grassroots. It may be slow, but it’s impacting the lives of those who read it…and it’s leading to speaking engagements.

    If you have a message, there are plenty of ways to get it out!

    David Trotter

    Like

  9. I suppose it’s a good thing I am a internet marketer(inspired by you originally). Therefore when I write my own book I will be able to make a nice profit via an ebook and affiliates promoting it.

    I’ve always been curious how the book printing business worked. Thank you for the peek in. Don’t worry I won’t tell anyone you let the cat out of the bag

    Like

  10. Thank you for the insight. I’m really curious how the landscape will evolve when tablets get more and more mainstream. Even with the iPad and Kindle craze, the amount of people who read from tablets is insignificant compared to how many people can read printed media. From the media buzz, only Apple seems to target every Tom, Dick and Harry.

    Like

  11. Woah! Thanks so much for all the info. Book publishing always seemed like some big secret that I just couldn’t seem to learn. Self-publishing seems the most profitable and “automate-able” but hard as hell to market. Would you think that selling an ebook ($20) on a sales copy website to be a good idea? This way it could be automated, and you would retain (almost) full profit? Possibly use adwords and such to generate traffic?

    I have a non-fiction book, been stuck with it for a while as I was unsure what the hell to do, you helped allot tho, thanks!

    Like

  12. Really interesting post. I’ve always wondered how the book publishing world works, and you gave some great insight into that madness. I’m still not sure which route I’d go, If I were to ever write a book. Traditional, or digital. Hmmm?

    Like

  13. Personally, I’ve lost interest in writing a book. There are so many books (both in print and digital) being released every day and I feel they really cover most topics well enough.

    I’ve instead put my energy into creating life experiences and enjoying that ride. If a book comes of it, I’ll let it happen organically, If no book comes of it, I’m sure the world will go on fine without a book from me. Having said that, the one book I am looking forward to is your book Tim, I think we are just now really tapping in to what we as humans are really capable of and I’m eagerly anticipating reading “How to become Superhuman”. Jan 2011 right?

    Also, I loved this thought:

    “Money is a means to something else. Not unlike wampum, income is traded for either a possession or an experience. If you use your book to build a reputation as a thought leader, and if you can establish a direct line of communication to intelligent readers (through a blog, for instance), it is possible to bypass income and get almost any experience for free or next-to-free. The middleman of currency is removed, and you also have access to things money can’t buy, whether it’s interesting people or unusual resources.”

    Great read man,

    ~Mike

    Like

  14. I’m so glad to see someone stand up to the hype that Godin’s decision brought. While I think he says some amazing things, I look at the stack of books that I’ve bought just this year (all physical, none electronic) and can’t help but think that I’m not the only one buying. Thank you for taking the time to put together some real numbers and logic to counter what everyone in the online world was saying. I didn’t think it seemed right to just say “print is dead” because of one man’s decisions.

    I agree with the reasons for writing a book. I’ve never actually thought that they were a way to get rich but rather a way to get to getting rich. Speaking engagements are my main reason for wanting to write a book within the next 2 years so I’m excited to see you list that as a viable reason for writing. I think it’s a no-brainer to agree with the reputation reason also.

    I’m curious to see how the printing industry and the book selling industry will adapt (or fail) in the next few years. I think it’s ludicrous that you can buy a book online from Barnes & Noble at almost half the price of what you can from their stores. For example, the expanded 4HWW was $22 in store…but I got it for $12 online (sorry for that cut in your profit).

    I’d be curious as to what your thoughts are on the retail side of printed books. Do you see the mega-bookstores having a bright future or will they have to adapt severely too? What about the price disparity between online and in-store books at the same company?

    Love this article and will be sending it to a number of people!

    Like

    • Hi David,

      Thank you for the comment. I agree that it’s fascinating how many people have — I believe — misread and overhyped what Seth has said. I don’t think Seth actually believes that print is entirely without value. I would agree that “publishing” as we know it will die before print will, however.

      Best,

      Tim

      Like

  15. What about the publish by demand model? Do you have any thoughts/experiencies about it? It seems to be a good alternative to new authors.
    Regarding the iPad, I expect a new type of books, mixing videos, more interactive graphics. For students, or college students, it could be great to have access to a biology book, loaded with animations of the DNA, cells, etc… That would move forward the engagements of students and the way of teaching.

    Like

  16. Yep, I think if you want to go into speaking (as I do), a traditionally-published book is the best way.

    It really helps to have a popular blog first. As my blog has become more popular, I’ve gotten a lot more “So are you writing a book?” type of questions. Now my readers are starting to offer to connect me with agents. It’s an interesting turn of events.

    However, just like how only 1% of authors will get to the “bestseller” stage, 1% or fewer of bloggers will get to the stage where their blog becomes a book. I’m on that path, but it hasn’t been easy.

    -Erica

    Like

  17. Great content.
    It’s really hard to know how fast the print industry is gonna change. Unlike for the music industry which was using an already digital format, the paper will probably slow their logical destiny.
    I think in 50 years you’ill only have very specific content or rare books on paper, everything else will be digital.

    As you mentionned, you don’t get published for making money but you didn’t talked about lifestyle. What about living like an author ? I know that it can be exciting to live from your writing.

    PS : I’ve adapted Ramit’s book for the french market and that was fun anyway :)

    Like

  18. Thanks for the detailed post! I was considering the publishing route, but things are working out really well self-publishing for me. I worked to make my blog popular over one year to get the traffic and reputation, then wrote the book and “published” by e-junkie. I am now totally supporting myself from sales of that book (still making the per-day sales to cover my expenses).

    While the extra reputation from being a known printed author would be welcome, I find that it’s easier to work on that reputation online. It definitely wouldn’t be as extensive as Tim’s NYT Best seller list, but I have actually been recognised in the street several times from blog readers – once the reputation goes offline, it doesn’t matter how it’s happening :)

    I was very curious to read these figures (why I @ed you on twitter when you asked if people had queries), and I suspected the advantages would be more reputation based than monetary. As you say, self publishing will be big in a few years, so if you do it right early and focus your energy there you will have authority as a self-publisher when times change to favour them more :)

    Like