Publisher Advice: Understanding Your Breakeven Point

It doesn’t matter how great your products are; if you can’t make money—or at the least breakeven—you won’t be around long as a publisher.

 

I recently received a question from one of Raging Swan’s Patreon patrons. The chap in question is thinking of getting into 3PP and wanted to run some numbers by me to see if they are reasonable. I thought other (prospective) publishers might be interested to see my answer.

As a publisher, one of the most important numbers to know for any given project is your breakeven point. After all, what’s the point in selling 1,000 copies of a product if you still lose a ton of money?

What is the Breakeven Point?

Simply put, a product’s breakeven point is the number of sales at which its revenue covers its costs. To calculate it, we simply divide the total cost of a project by the profit per unit sold.

Understanding a product’s breakeven point is an incredibly powerful insight that enables you to realistically adjust the overall budget for a project so that you have a reasonable expectation of making a profit.

Calculating a product’s breakeven point is simple.

To illustrate the concept of a breakeven point, here is an example plucked from Raging Swan’s own products. I’ve included both pre- and post-patreon campaign examples so you can see how scaling costs (massively) alter a breakeven point. (Before our Patreon campaign, I would have been insane to pay my freelance designers 7 cents a word—I would have rapidly gone out of business.)

Village Backdrop: Pre-Patreon

A typical pre-patreon campaign Village Backdrop has the following costs:

• Words: $35 (@ 1 cents a word)
• Editing:$18
• Cartography: $40
• Cover Design: $0
• Layout: $0
• Total Cost: $93

A Village Backdrop sells for $2.45. Our store partners take an average of 25% of each sale which leaves us with a unit profit of $1.96.

To determine the book’s breakeven point, simply divide the total costs ($93) by the unit profit ($1.96). Thus, to breakeven Raging Swan Press needs to sell 47.4 copies.

Village Backdrop: Post-Patreon

A typical post-patreon campaign Village Backdrop has the following costs:

• Words: $245 (@ 7 cents a word)
• Editing:$18
• Cartography: $40
• Cover Design: $0
• Layout: $0
• Total Cost: $303

A Village Backdrop sells for $2.45. Our store partners take an average of 25% of each sale which leaves us with a unit profit of $1.96.

To determine the book’s breakeven point, simply divide the total costs ($303) by the unit profit ($1.96). Thus, to breakeven Raging Swan Press needs to sell 154.6 copies.

If you want to decrease your breakeven point, simply increase the product’s sell price (or reduce your costs).

Conclusion

Don’t be fooled by how deceptively simple understanding your breakeven point is. Understanding my breakeven points (and don’t forget they can change from product to product) is probably one of the main reasons Raging Swan Press is still in business today. If you understand—and control—your costs, you can make profit.

As a final caveat, it’s very important not to over-estimate your potential sales. I well remember Raging Swan’s first month of sales and how terrible they really were (<$50). Remember, even in today’s industry selling 200 copies of something in the 3PP arena is considered good. (I discuss this more here). It’s probably a better idea to expect sales of around 100 copies. If you can breakeven below 100 copies, you’ve done your maths right! You also need to consider how quickly those sales will come. Cash flow is the lifeblood of any business. If you can make your investment back quickly, you’ve got more money available for your next book!