Business Musings: Author Earnings

A while back, I promised I would look at the new report from Author Earnings. I needed time to assess the data for the purposes of this blog.

For those of you who don’t know, Author Earnings is a website started by Hugh Howey and a man known only as Data Guy. The site takes snapshots of the Amazon rankings on a given day and analyzes them to see what’s actually going on with ebook publishing.

Hugh and Data Guy have done this seven different times now. In addition to their report, they release the raw data, so anyone can see the facts and figures they work from.

They’re also not shy about their bias. They state it on their website’s home page:

Our purpose is to gather and share information so that writers can make informed decisions. Our secondary mission is to call for change within the publishing community for better pay and fairer terms in all contracts. This is a website by authors and for authors.

I have the same philosophy at this blog. However, I also write this blog primarily for career writers, those who are either in the writing business for the long term or hope to be in it for the long term.

That automatically makes me an outlier among bloggers. I have 30+ year professional career in publishing, in all aspects of publishing except agenting (which is something I never, ever, ever wanted to do), so I have a long term approach to all that I look at, including a historical approach. What is old is often what is new.

And what looks obvious sometimes isn’t.

That said, I have three problems with Author Earnings. Hugh and Data Guy do not work magic. They’re trying to find out information here, and they are limited by the way they have set up their company. They’re aware of the problems I am going to list below, and address them in their report, mostly by saying they don’t have access to that particular data.

My problems with the data? First, Author Earnings measures one day on one bookstore. Yes, it’s the largest bookstore in the United States, but not in the world.

Second, Author Earnings only measures ebook sales on that one bookstore. Not print sales, not audio sales, not outside earnings.

Finally, Author Earnings tries to separate their data into “traditionally published writers,” “self-published writers,” “writers published by Amazon” (which is, by the way, a traditional publisher), and “hybrid writers.” Their categories leaves out the most business-minded writers, those who understand how to set up corporations, how to establish their own small traditional publishing companies, and those who publish a multitude of books in a variety of ways.

That makes Author Earnings data small and specific, not really a snapshot of the industry at all, but a snapshot of the ebook sales on one bookstore in the United States, a snapshot that shoves some of that information into categories where it doesn’t belong.

In other words, like any statistical analysis, it has flaws.

Once you recognize the flaws, however, as Hugh and Data Guy do, you can work with the numbers to make some conclusions. Especially given the last report they released at the end of September.

That report, which they’re calling, “Individual author earnings tracked across 7 quarters, Feb. 2014 – Sept. 2015” tracked the consistency of authors’ earnings over time. Hugh and Data Guy felt they finally had enough raw data to make some stabs at what’s going on in the publishing marketplace for writers.

Hugh and Data Guy used that data in this way:

[We’d like to see] a study that tracks the earnings of those same individual authors over a longer period of time. And we’d especially like to see such a study done with a statistically well-defined and economically representative sample of authors — such as all authors whose books appeared on any Amazon best seller list over a seven-quarter period — rather than done based upon the self-selected responses of a handful of narrow-demographic, association-dues-paying survey participants.

They created a study that did the things they wanted. They wanted to know, specifically, what route a new writer of 2015, with manuscript in hand, should take to have success. Success, as Hugh and Data Guy define it in the study, is hitting Amazon bestseller lists and making a “midlist” income of at least $10,000 per year. 

Let’s ignore the fact that most one-book midlist authors in traditional publishing do not hit bestseller lists nor do they make $10,000 per year even if that was the advance.

Let’s just go with the study as Hugh and Data Guy defined it.

Hugh and Data Guy found that long-established writers, who were publishing before the year 2000 and still consistently hit bestseller lists out earned every other writer on the list. But, according to Hugh and Data Guy:

13 out of the 20 authors who debuted in the last five years, and 8 of the 10 authors who debuted in the last 3 years, and who are now consistently earning $1,000,000+/year from just their Kindle ebook best sellers are indie authors.

So the thrust of the study is this: If you want to earn the most money as a writer in 2015, publish indie. Which to me is a well-duh, because indie writers earn at least 65% of their retail prices (which the indie writers set themselves), and traditionally published writers—ebook only—earn 25% of net price paid, minus 15% for an agent.

However, ebooks on Amazon make 70% of retail, and Amazon is what Hugh and Data Guy measure.

So for an ebook priced at $10 (because $10 math is easier for Ole Kris here), the indie writer would earn a minimum of $7.00 for each sale.

The traditional writer earning number is dicey from the beginning. What is “net” after all?

“Net” varies from contract to contract, writer to writer. But let’s assume that “net” is 75% of the retail price (assuming, perhaps falsely, that a traditional publisher will get a better deal from Amazon). That means the publisher gets paid $7.50, and the writer gets 25% of that number, which is $1.875. The agent then gets 15% of that $1.875, and the writer is left with roughly $1.59 per book.

The indie writer earns $5.41 more per ebook sold than the traditional writer.

See why I “well-duhed” the fact that indie writers outearn traditional writers? You don’t need a big study to see that.

What writers, who are often math-challenged, usually don’t see is this:

A book that sells 1,000 copies indie at that (unbelievably high price) of $10 will earn $7000. A traditionally published book has to sell roughly 4.4 times as many copies to earn that much money. (The number is 4,402.52 copies)

We’re talking ebook here, where traditional publishers have no sales advantage whatsoever. (We can—and probably should—argue someday over the fact that traditional publishers really don’t have much sales advantage on the midlist paper books either.)

In fact, that $10 price is more likely to be a traditional publisher price. If you look at Amazon’s Kindle price calculator, which is designed to help a writer set her prices, you’ll see that for each dollar increase over a certain amount (depending on things like genre and book length), the sales go down significantly.

However, as anyone who has set prices knows, the amount earned might go up as prices go up and sales go down. As you can see from above, each copy of a book sold indie at $10 will earn $7.00 for the writer. To earn that same $7.00, a writer who prices her books at 99 cents would have to sell over 20 books (20.20 books to be precise). So it is a calculation every indie writer has to make: Is it worth charging more and making more, and selling less?

Traditionally published writers don’t get that choice. Their ebooks can now be priced by the publisher again after the Amazon/Traditional Publisher wars, and often a newly released ebook sells for $12.99. No indie that I know of ever prices that high, because it does depress ebook sales. Publishers do this to drive readers to the paper book, generally the hardcover, but what is really happening is that publishers are training readers to buy something else unless the reader really, really, really wants that book.

(This is all basic price theory, by the way.)

Let me give you the math in a different way:

Most traditionally published midlist ebooks sell the same number of copies as an indie published ebook by the same writer, if the books are priced the same. The indie writer will make more money. Significantly more money.

However, the books are rarely priced the same. Generally, the traditionally published ebook costs twice as much as an indie title ($12.99 on a traditional new release versus $5.99 for an indie new release (depending on genre, of course).) The writer earns significantly less of that $12.99 than they would if the book were published indie at the lower price. (The traditional writer, with an agent, will earn $2.76. The indie writer pricing at $5.99 will earn $4.19, making $1.43 more per book and selling more copies without advertising or marketing changes. Just the price change.)

More copies, more money…

When I look strictly at ebook sales, I have to wonder why anyone would go with a traditional publisher any more. (When you factor in paper books sold over three years [as opposed to six months of release], the sales numbers are similar, and the indie writer earns more as well. But that’s a blog for another day.)

The ebook sales favoring indie writers is the upshot, really, of the report by Hugh and Data Guy. They try to cover it, try to say every writer is different, but looking only at ebook sales, Hugh and Data Guy believe that a writer is much better off indie publishing.

They’re looking at the numerical basis, and frankly, they’re right on everything, except one point. They write:

There are fewer than half as many traditionally published authors as indie authors who debuted in the last 3 years and are now earning consistently at the $25K/year level or $50K/year level from Kindle ebooks.

Numerically, Hugh and Data Guy are correct, but the situation is worse than they allow. They make it seem like they’re doing an apples-to-apples comparison for writers whose work released in the past three years, but the comparison isn’t apples-to-apples.

What’s the difference? Traditional publishing does not (yet) allow for a writer to release more than four books a year under the same name and in the same series. Yeah, there are a handful of exceptions, writers who release more than four books per year traditionally, all in romance. There are also exceptions who are forced to publish only one book per year traditionally, mostly in mystery or literary mainstream. So it balances out. That four books per year is me being generous.

Assume, though, that the debut traditional writer is “fast” and working in a genre other than romance. He’ll publish one book per year, no matter what his genre. So at the end of three years, he has at best three books. In many cases, because of the vagaries of a publishing schedule, he’ll publish two at the end of three years, with a third coming “real soon now.”

A debut indie author can publish as many books as he wants in that period of time. If he’s really fast, he can publish a book per month. But let’s give him two books per year. Not really a huge advantage, but still, he’ll have six books out (or five with a sixth coming out) in three years.

Readers like it when an author has a lot of books to choose from. That indie author will double his e-book money simply by doubling the books published.

Oh, and the indie author won’t have a noncompete, so if he’s feeling ambitious, he can write two more books per year in another genre, or a bunch of novellas or some short stories. (Some traditional non-competes won’t even allow the short fiction without publisher approval.)

When you compare the first three years in the life of an indie writer with the first three years in the life of a traditional writer, you are comparing a career writer with a beginner. Which is inherently unfair.

So, let’s be fair. Let’s look at writers who debuted in 2005, rather than writers who debuted in 2012. That harms indie, since the Kindle didn’t revolutionize ebook sales until 2009/2010. (Ebooks existed before the Kindle, but the Kindle made them take off.)

Looking at the charts from Hugh and Data Guy, you’ll see that at the lower earning levels—$10,000-$50,000 per year—the traditionally published writers who debuted in 2005 do better than indie writers. (Although the two categories are almost neck and neck in the $50,000 range.)

If you look at the higher earnings, however, indie writers win hands down. The farther up the earnings go, the higher the advantage indie writers have if they debuted in 2005.

Career writers versus career writers. Sure, all probably started as traditional writers. (There weren’t a lot of successful indie writers in 2005), but those who are indie only had serious bad luck in traditional publishing and probably would have quit if the indie revolution hadn’t come along. The “platform” that the traditional-to-indie writer had from that period wouldn’t have translated into tons of sales.

If you cut off the analysis right there, you’ll see that writers who want to earn more than six-figures per year on their writing should go indie.

But if you add in what I just mentioned above, that the indie writer who debuted in 2012 will already have a career while the traditional writer is still finding her sea legs, you can extrapolate forward. For writers who debuted in 2010 or 2012 or 2015, indie is the way to go.

Indie writers earn significantly more money. They’ll publish more books. They’ll have a career much faster, and one that is sustainable. A traditional publishing career requires the writer to be flexible and write under many names–if the writer signs the proper contract. Most don’t.

Think this through: even if the indie writer only makes more money selling ebooks (with fewer sales), he makes so much more money and has so much more freedom to write what he wants that I honestly can’t see a career path for writers going forward in traditional publishing.

I can see a lot of people with other jobs selling books traditionally. And the occasional lottery winner. By lottery winner I mean the writer whose debut novel receives a six-figure advance. (Very few of those writers end up publishing more than five books traditionally though, before the sales figures catch up to them and they either have to take lower advances or stop publishing traditionally.)

But if you want a career as a writer, if you don’t want to have a day job, if you only want to write, then it seems to me the safest path to take is the indie path. You’ll have more opportunity. You can work hard and publish a lot and make money doing so.

Will every indie writer make six-figures per year? Hell, no. Nor will every traditionally published writer. But what this particular Author Earnings report shows is that if you want the chance of making six-figures or more per year with your writing, the best publishing path is indie.

(Provided you continue to learn your craft, are a damn fine storyteller, have excellent covers, do the right amount of marketing…and on and on and on.)

Is it guaranteed that you’ll even make a living? Not on either road. But that hypothetical writer that Hugh and Data Guy mention in the front of their report, the one standing with a manuscript in hand, trying to decide which road to take? That writer should ask himself: Do I want to keep my day job for the rest of my life? Or do I want the chance to be a full-time writer?

If he wants a chance at being a full-time writer, he needs to learn how to be an indie writer.

I think it’s that simple.

And that hard.

I love being a full-time writer, but it does mean juggling things. That includes writing this nonfiction blog, which I enjoy. Like everything else I do, it must pay its own way.

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“Business Musings: Author Earnings,” copyright © 2015 by Kristine Kathryn Rusch. Image at the top of the blog copyright © Can Stock Photo Inc. / jirsak