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A book’s profit margin, a key to understanding your revenue potential

Becoming full-time writers is the dream of many authors that juggle between a full-time job and their time dedicated to writing. To achieve that dream not only requires the publishing of more than just a few books but the understanding of the sales process of those.

Every book that you launch will incur in costs for editing, cover creation, paging, advertising, fees to distributors, or bookstores as well as the cost for the time invested in its development. Those costs can be divided into fixed costs (ex. editing, cover creation) or variable costs (ex. money invested in advertising) and your profit will depend on the amount of these costs minus the total of the sales. Your profit margin in this case will be your net profit divided into your gross revenue.

For example, lets say that you uploaded your newest self-published ebook into Amazon. To create your book you spent $500 in editing and the cover you liked. To make sure that potential reader new about the book you invested $600 in advertising and other types of promotion. After a month, you are surprised to see that you sold $2k in books.

Gross revenue:                        $2,000

Fixed + Variable costs:            $1,100

Net profit                                  $   900

Profit margin = 900/2,000 = 45%

In other words, out of each dollar in gross revenue you made 45 cents as your net profit.

Now let’s say that you want to earn $3k, how many books would you need to sale to have $3k net profit if your selling your book at $2.99?

Using the same numbers as above, take your target profit, add your costs and divide by your price:

(Target profit + Costs)/ Price = Sales goal

($3,000 + $1,100)/ $2.99 = 1,371.24 or 1,372 sales goal

Information like this will help you understand the success of failure of your book launch as well as help you establish goals for future book launches. Each book launch will provide you with data to forecast sales, revenue and will help you plan how much you are willing to invest in variable costs that will help you increase your gross revenue.

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