Note: Here there be mathematics.

There’s a calculation I’ve been breaking out dozens of times in the last month or so–in innumerable conversations at RWA, in e-mails back and forth with several people asking me for advice. I mentioned it in my talk to the Golden Network, and mentioned it again at the PRO retreat at RWA’s national conference. Usually the question that has been asked of me looks like this: “I got an offer from my publisher for $3,500 for my next book,” someone says. “Should I take it or self-publish?” (Note: I’ve seen similar numbers from five different people in the last month, so if you think I’m talking about you, I’m not–I picked the advance that was the aggregate offered.)

I never answer that question. I can’t know what your circumstances are or what you should or shouldn’t take, or what you value and what you need or where you are in your career.

What I can do is tell people how to think about money earned over time in a semi-rational fashion.

First, we need to talk about time, and specifically, how long a time. When people say that ebooks are forever, that may be true in the strictest sense of the word. But your ownership rights in your ebook will terminate seventy years after your death, and that will undoubtedly restrict your commercial ability to exploit things. Second, the implication is often that if you sign a traditional publishing contract, you tie up your rights forever. But you don’t. All U.S. authors have the statutory right to terminate a grant of rights 35 years after publication under 17 U.S.C. 203. 35 years is a long time, but it’s not forever. (In fact, in my calculation, it’s about 50% of forever.)

Furthermore, even if you had the right to your ebooks forever, money earned today is worth more than money earned next year. That’s because you could take the money you earned today, put it in the bank, and have more money waiting for you next year. What that means is that if someone offered to give you $50 a month every month forever, with no stopping, they aren’t offering you an infinite amount of money. You can actually put a finite dollar value on how much that costs. (For math nerds, it’s because the calculation of how much that is worth is a series of form x^n, where x <1, and so the series converges.) (How could you get something that paid you $50 a month every month forever? You put an amount of money in the bank, one that pays $600 a year in interest, and look–you’ve got money forever!)

So if you are going to think about the value of the rights you are giving up, you should (1) be thinking about their value for 35 years, not for infinite years and (2) be taking into account the time-value of money.

Luckily, economists have been doing this kind of calculation for years. It’s called a net present value calculation.

Here are the things you need to do to figure out the net present value of your rights.

**1. You need to have some idea of how much money is worth to you over time.**

There are a lot of things that people advise using here, and I’m not going to get into that much. I will just point out that if you owe the mafia money, and they’re going to collect on it in November, and you need $20,000 or you’ll lose a finger… Don’t think too hard. Money today is worth a *lot* to you. Money earned post-November is not worth nearly as much. Likewise if you are on the verge of losing your house or if your brother needs bail money.

If you’re carrying credit card debt at 17% interest rate, money today is worth a lot more to you than it is to someone who has no debt at all.

For the calculations that follow at the end, I’m going to use 2% as the rate. This is actually high when you compare it to today’s discount rate, but interest rates are historically low, and we’re doing the calculation over 35 years, so. Economists might quibble with this choice, but frankly, this is the smallest of the sources of error in my calculation and so I’m not going to weep about it.

Just be aware that what I say may not apply to your situation, and you might need to jigger the calculations accordingly.

**2. Figure out what you’re being offered.**

This is just going to be the starting point, but it’s a good starting point.

Let’s take the example I started with (not an actual example, by the way)–someone who is offered $3500 for a book. What would it take for the net present value of your self-published earnings to come out to $3,500? Using 2% as the discount rate, a contract that offers you $3,500 is the equivalent of earning $139 a year for 35 years–that is, making $11.58 a month. That’s what $3,500 a book means.

Now let’s up the ante. What if you were offered $500,000 for a book? That’s a huge advance. A self-published book that has the same net present value is one that makes $19,750 a year, $1645 a month…which means selling about 633 copies at $3.99 a month every month. Put another way, a book at $3.99 that falls somewhere between Amazon rank 5,000 and 10,000 for 35 years is worth $500,000 today.

For reasons that I’ll get into below, and that some of you are screaming about now, this is a really, really rough estimate of actual earnings. But it’s a decent rough guideline. Take the advance. What kind of steady sales would you need to equal that advance over time?

This tells you, by the way, that a $3,500 advance is an absolutely *pitiful* investment by a publisher. They will earn back what they put in without even batting an eyelash.

**3. Compensating for unknowns and earning over time.**

Of course, this calculation isn’t phenomenal. For one, it’s a rare book that earns the same in Year 35 as it did in Year 1. We don’t have a clue what the self-published tail looks like in Year 35, because we’re really only in Year 3 or 4 of the self-publishing era, and that’s been coupled with the growth of digital publishing, too. Whether your books are still performing well in Year 35 will probably depend on whether you are still writing new books in Year 35 (35 is a long writing career), and what you’re doing to promote and push your books in Year 35.

We have literally no data, and while we can make stuff up, be aware that this is all we can do: Make stuff up and hope our assumptions are reasonable.

Second, you have to take into account that you can earn out your advance on your traditionally published books, too. And, in fact, if you’re offered $3,500 for a book, you *will* earn out your advance over the course of your publishing career unless your book was incompetently produced and priced. (In which case, I hope your contract allows you to get your rights back earlier.) So you need to add the money you make upon earn out into your calculation. How long will it take you to earn out? How much will you earn per year after that? This poses precisely the same problems that I just mentioned.

Luckily, since you’re comparing the value of two income streams performing under similar conditions, as long as you make similar assumptions about each one, you won’t be prejudicing one over the other. So let’s do something more complicated. Imagine that for the person who is offered $3500 for a book, she’s paid 50% on signing and 50% on delivery. Imagine that she’ll have a print run of 8,000 copies (based on a number of authors I’ve talked to, this is about right–if you’re getting more books printed than 8,000, and your advance is $3500, you’re being seriously low-balled on the advance figure), and she’ll sell 6,000 of those in the first year at 8% of the cover price of $7.99, giving her $3835.20 in print earnings.

Imagine that she’s going to sell 2,000 digital copies of her book a year, every year, for five years, at which point it tails off and she sells only 500 digital copies of her book a year for the remainder of the life of the contract. Imagine that the cover price is $7.99, the publisher is making 70% of the cover price, and she’s getting 25% of that.

In year 1, the author makes the advance of $3500. In year 2, when she gets her first royalty payment (assuming the book is published relatively close to turn in and there isn’t a huge reserve per year–in actuality, this might hit in year 3 or 4, but we’re going for simplicity), she gets $335.20 (the excess over her advance from print earnings) + $2,796.50 for her portion of the digital earnings.

In years 3-5, she gets $2,796.50 per year.

In years 6-35, she gets $699.12.

If this is the case, the net present value of that contract offered to her by the publisher is $28,827. Not bad.

So what’s the alternative? Let’s suppose that she self-publishes the book at $3.99. That she sells 2,000 copies of the book a year for the first five years (the lower price point combatting whatever marketing *cough* the publisher may or may not do for the book), and 500 copies a year for the next 30 years of comparison. And let’s further suppose that she must spend $2,000 to get her book on the market.

The first year, she makes $3200: $5,200 in income minus $2,000 in expenses. (I’m using $2.60 as the income for the book–Amazon gives 70% minus a delivery charge in most circumstances, 35% in others; B&N gives 65%. $2.60 is a little on the low side, but not a lot on the low side.)

Years 2-5 she makes $5,200. Years 6-35 she makes $1300.

The net present value of self publishing that book is $49,685.

Now, of course, there are an infinite number of corrections you can add to that. I’m not insisting that this is the way to do it. I’m only claiming that if you want to know what your rights are worth, you should think of the value over time for 35 years. Make your calculation as simple or as non-simple as you want.

**4. Ask if it’s worth it.**

I hear a lot of reasons why people go with traditional publishers. They don’t want to do the work. They want books on the shelves. They want the prestige. They think the publisher will do a better job in marketing. They want reviews in major print publications. I could go on and on. Some people want the advertisement that a big print run will give them. Some people think it’ll help them break out to the next level. Some people think that diversification is important in income, and so want to diversify. And so on.

None of these reasons are invalid, bad, illogical, or in any other way awful. In fact, all of them are important and worthwhile.

I do think, though, that you should have at least some sense of what that thing is costing you. If your calculation suggests that your publisher’s contract is worth $28,000, and you’ll make $49,000 if you self-publish, and you’re going with your publisher because you want to have books on the shelves, ask yourself if it is worth $21,000 to you to put 6,000 copies on the shelf.

If you think your publisher is going to do a better job marketing, ask yourself if that marketing is worth the difference in price. (And think about the value of the marketing as well as the cost for you to purchase it in both time and money. And be frank–don’t imagine you’ll get the kind of treatment a bestselling author gets if you’re not a mega-bestseller. If you’re getting an advance of $3,500, look at people from your publisher who are similarly situated, and ask what kind of marketing they’re really getting. How much is it worth? If you’re talking getting a book on NetGalley, you can do that for a very small amount–and that’s about all that some publishers are doing for their authors.)

There are absolutely some publishers who are putting value into their author’s books, and it’s definitely rational to accept less money in exchange for other things that have value to you. But you should have some sense of *how much less* money you’re accepting, because at some point, the thing you’re getting in exchange for that money just might not be worth it. And if you haven’t run net present value calculations before, you might be surprised at precisely how much it’s costing you.

Great post, Courtney!

Keep them coming!

BTW, I hope you don’t give up writing, but if for some reason you do, I’d love for you to be my new financial advisor.

Thanks!

Courtney: Your Golden Network talk really appealed to the logic-minded girl that I am, and this post was a great overview of the numbers portion. I appreciate you taking the time to share your expertise with us. Thanks!

I kicked myself for not having an Excel-ready laptop with me at The Golden Network retreat for just this reason. Thanks so much for posting it here, and thanks for speaking at the retreat.

I am part of that 3500 club and can tell you that I started out Indie before I accepted a NY contract. I did it as an experiment and have concluded I make ten times more being Indie than NY will ever give me. My contract is pitiful and that’s with the help of a respected agent getting me the best I possibly can. What I can say is that my cover is gorgeous, and the editing wasn’t too bad, and that’s about all I can say.

And while I didn’t have to shell out the dough to get the cover and editing done on my own this time, I’d much rather do it myself in the future. I love my agent, but I just don’t know that NY is for me right now. If, in the future, I have a book that lights things up and NY is ready to offer me better than what they did with this book, I’d probably seriously consider it. But I think I’d go the Hugh Howey role and just sell off the print rights, keeping erights to myself. I’m not a big dawg by any means, but I am on pace to make over 100k this year with the sales of my Indie books.

I do not write under this name by the way.

Courtney – this is a fantastic post! Thanks for all the numbers. Being a math nerd myself, this is a super helpful explanation.

Love this! Thanks for sharing your research and your math expertise here.

Wonderful post. Thank you so much for sharing!

I’ve recently self-published a book and one thing I think you’ve overlooked is that books that are published by traditional publishers are given marketing opportunities that self-published authors are not. For instance, KOBO frequently sends emails to customers offering 30% discounts on selected books. I contacted KOBO Writing Life to find out how I could get my book on one of these promotional emails. The answer I received was that as a self-published author I couldn’t. I’ve worked hard at marketing my book and have even done a blog tour, but the reality is that it’s hard to get noticed and establish an audience as a new indie author.

BTW I adore your books!

@Anna Wells:

I think this may need a bit of clarification.

I’ve never said that self-publishers can do everything for themselves that publishers.

I said that things that publishers do have a value that can be attached to them, and you should know what they are. Just because you can’t buy something doesn’t mean it can’t be valued.

Take your example. A 30% discount on Kobo and a promoted email is worth somewhere between fifty to a couple thousand copies sold–I’d say, at most it’s worth $6,000 (and that’s on a really, REALLY good day). I don’t have enough data to hazard an average, but I doubt it’s rationally worth more than $300 or $400 at best, and even that feels generous.

So if that’s the kind of thing your publisher will do for you, great! But don’t count it as this huge thing. It’s worth $400 at best. Don’t trade it for $21,000. It’s not worth that much.

But there’s a reason I can attach a dollar amount to that kind of promotion, and that’s because the person who told you that about Kobo is wrong. I regularly receive e-mails from Kobo about marketing opportunities where I can offer my book at a lower cost. I’ve participated in 30% off sales, and have been featured in promotional emails.

I didn’t start getting them until I hit the Kobo Writing Life bestsellers lists with a new release, but they’re not totally unavailable for self-publishers.

The availability of vendor-based digital merchandising for self-publishers is roughly equivalent to that for traditionally published authors. Yes, not all self-publishers can take advantage of all opportunities–but then, a great many traditionally published authors don’t get vendor merchandising, either. Traditional publishers have limited slots they can use for merchandising, and they choose to use them for authors who are taking off, or who they think should be taking off.

Them that has, gets–and that’s true for all authors, no matter who publishes them.

For the rest: Don’t market. Write another book.

Brilliant article Courtney and I enjoyed the calculations. It is something I do myself but I have not thought so far-reaching or ahead as your calculations worked on. The 35 years rule of thumb is a very good point.

Thanks.

Thank you so much for these numbers and this break down. The business end of publishing can be confusing and I think this really helps put things into perspective.

Love this. Apples to apples, and them is some apples.

Thanks for posting, Courtney. Math isn’t my strong point so it’s great to be able to play with the calculations and assign a value. Awesome!

This is great stuff! Thanks so much for sharing your experiences with us so openly… it’s so, so helpful to actually see what things look like from a bird’s perspective, instead of just feeling like a worm in the ground!

We really appreciate it!

Thanks,

Elizabeth K.

@Linda:

Linda – This is really good to know as an aspiring author. Thanks for sharing.

Excellent breakdown here, Courtney. Yes, I imagine there are a lot of caveats to all these calculations, but you give a nice non-biased starting point.

I’m with a small press that has a standard 7-year contract. No advances. limited print runs for only their most successful authors. Ebook royalties are the best in the business except for Montlak’s 70%. I’m happy with them because I’ve gotten excellent cover art and editing and I never paid a cent to get published, which was important to me. But I’m also considering self publishing because I’m curious to make a real-life comparison between self-publishing and small press publishing. Am I getting the most value I can out of my books by going with a small press? I want to know. I’ll check in with you in 35 years to let you know how it went, LOL! Just kidding.

I’ll definitely be back sooner than that as I explore self-publishing.

Thanks for being such an advocate for authors!

Thanks for being so open with this information. It’s very helpful.

It’s also important to think about the value of the rights you are giving up. My first two trad-pubbed books have been remaindered, but I still can’t get the rights back for another couple years. The publisher has the audiobook rights, and I guarantee that they will do nothing with them, even though audio is starting to really take off. If I controlled those rights, I’d be able to take advantage of them right now. Instead, the books will languish until I can reclaim the rights. Same with a lot of the foreign rights the publisher is holding but doing nothing with…

Publishers will try and buy up all your rights, and then won’t do much with them unless you break out in a big way. So that’s another data point to consider – lost revenue from unexploited subrights.

@Anthea Lawson:

Anthea, “don’t sell subrights that have value that your publisher won’t exploit” is the subject of another HUGE blogpost, and yes, that is a really important point.

Next to that one: “And if you must do that, make sure the contract allows for their separate reversion so that if they don’t exercise them, you get them back.”

@Courtney Milan:

Has anyone been able to reserve the subrights that publishers normally grab? I’d be curious to know. Other than Hugh Howey/Bella Andre/Colleen Hoover retaining e-book rights, that is… A time-limited option makes sense to me – publishers, use these rights within 3 years or the author gets them back, kind of thing.

Courtney, thanks for the terrific breakdown. I think it’s helpful for authors to think about the long-term numbers when looking at advances. And if you’re an author considering a paltry advance and thinking “Oh, of course I’ll earn out,” don’t be too sure. I’ve seen some of those small advances (2k-5k) not earn out due to a wide variety of reasons – most of which are totally beyond the author’s control. (Based on my own experience and that of several other authors.)

Thank you so much, Courtney for airing this again. I was present at the Goldn Network Retreat in Atlanta

when you presented these numbers and I was fascinated by your insight. I had never thought of comparing values like this, but it makes so much sense!

Thank you again for your generous sharing of your inimitable wisdom.

Brilliant post, Courtney. Thanks for sharing. I was envious that the Golden Network got this part of your presentation so I’m glad to see it now. I just loved your PRO retreat workshop. You’re an inspiration!

Hey Courtney,

Long time book reader, first time blog reader! This is a great post and as a uber-successful author, it’s so generous of you to share things like this. I am not (yet anyway an author but I do have a Masters in Finance and when I turned down a publishing deal (yes I did) I also came at the issue with spreadsheets and assumptions about future cash flows. I threw in another tool that might be helpful for people to consider – the all mighty decision tree.

Effectively this is where you take two or more possible future scenarios and assign your best guess of probability to those scenarios. For example – Scenario #1 – book sells a few copies here and there and nets (over it’s lifetime) ~$10K = 99% likely. Scenario #2 – book becomes a huge hit and makes $150,000K/year for the first 2 years before tapering off to $50/K year = 1% likely (yes that’s probably being super generous but for the sake of example lets roll with it).

The decision tree would value this “decision” with the following equation – .99*$10,000 + .01*$400,000 = $13,900

To compare self publishing vs. taking a contract you would have 2 separate decision trees with separate amounts and assumptions assigned to them.

The reason why throwing this sort of calculation into the NPV mix is that if your book becomes a HUGE success, the cash flows of self publishing dwarf those from getting a publisher. Decision tree analysis helps to incorporate the possibility of a huge payday (even if it’s highly unlikely) into the decision. As with anything all numbers are just your educated guess – probably even 1% chance is vastly overstating things.

But for my calculations, when I went through this scenario, it came down to this. Regardless of if you self-publish or take the contract, if the book isn’t super successful (most likely scenario) you don’t make any money (certainly not when viewed relative to how many hours you’ll put in). There are many non-financial rewards but from a time invested perspective, you would be better off babysitting the neighbors kids. However if the book, however unlikely, does extremely well, most authors will be so much better off self publishing that depending on how comfortable you are with risk, it may be worth taking the chance.

Regardless, decision trees are an interesting way to approach trying to wrap your head around the decision.

A fabulous article, many thanks Courtney for laying things out so clearly. I will take the time to work out my potential future earnings on my novels and see how it looks. Your articles are pure gold and a boon to writers everywhere. Thank you.

I came over here because Joe Konrath mentioned you in his comments section of his most recent blog – and now I’m never leaving. I just like your style and how you explain things in a very, VERY logical way. I love logic and your awesome sauce. I’m off to subscribe now… Cheers.

This would be great if self-published authors sell 2,000 books a year, but the sad fact is that most self-published works are lucky to sell *500* books within a *lifetime*. I’m not saying traditional publishing is the way to go, btw. God knows I have no ties to the industry, but make sure you look at the hard data before making a decision.

@Jennifer:

It’s a little bit like choosing where to go to college by income. Yes, students that go to highly selective colleges earn more, but studies show that it’s not where you go that determines your future earnings potential; it’s where you get accepted and your underlying ability.

I suspect the same thing is true of self-publishing. If you write a book that doesn’t have commercial potential–and most books written do not have significant commercial potential–traditional publishing will simply not be an option for you, and this post is irrelevant, because you’re not going to be offered the choice to do anything but self-publish. A book without commercial potential is not worth a whole hell of a lot no matter what you do with it.

This post is relevant only to people who are choosing between traditional publishing and self-publishing. Most people don’t get that choice for a number of reasons. At the point when the person is offered the choice, we’re talking about people who are two to three standard deviations from the mean in terms of ability to produce commercial manuscripts.

The average is irrelevant to those people.

Two or three things I’d flag to include in any calculations –

1. Production costs. A trad pub deal might well save $1000+ in upfront costs (which, as you rightly point out is money not being spent now, so has an immediate value). With that goes risk – a DIY setup doing a trad-pub style 10k hardback print run is a huge risk in terms of warehousing, returns etc. That risk mitigation has some value – it is still possible to lose money on a self-published book (especially if you take into account loss of interest on invested capital).

On the flipside –

2. Agent fees – a 15% swing can make a huge difference.

3. Time – self publishing can mean making money today. The same manuscript signed today to a publishing house may not go on sale for a year or two. Two years extra in sales can make a fair difference; 33 vs 35 years is circa 5%.

I know the numbers you’ve given were ballparks – so this isn’t a criticism of the post at all, just a heads up for anyone thinking about what they might want to include in their own calculations. The non-financial costs can be equally high – a non-compete may cost more in the long run than a single book advance nets today.

As a romance author and accountant, I love this post. Thanks for giving me the info I needed–this article is very well written and easy to follow. Fantastic!