Wednesday, January 14, 2009

Self Publishing 101: Cost of Goods Sold

A lot of you are interested in the price of Self Publishing, mainly because you know deep inside that it ain't gonna be cheap, but you still want to weigh the pros and cons of the issue before deciding.

Printing costs are still going up, and it is getting harder and harder to self publish, AND there may be a cost to self publishing that you haven't realised. Worse, if you don't know about this, you could be heading for BIG trouble.

I will break this into two parts, and tell you which part you need.

First, why self publishing? If you want a copy of a book for yourself, or to give to friends, then part one is for you. If you are in business for yourself, or want to be, you had better read both parts, especially part two.

PART ONE: Cost of Self Publishing

I've covered the cost of publishing before here, so read that post as well. That really goes indepth into the why's and how much of printing, and choosing a printer.

The thing is, printing is expensive. Looking at comics, the big comic book companies are considering moving the price of a color comic book up to $4.00. A Print on demand color comic might have a base price of $8.00! Add a little for yourself, and honestly, who's gonna pay more than $8 for a comic book? Now, a graphic novel will be a little cheaper in comparison, but there is a lot more work involved in creating a graphic novel. You can save money with black and white books, or using cheaper paper, but you get what you pay for, and sometimes black and white is not an option.

To really save money, you need to print lots of copies of a book. If you go by a traditional printer, you have no choice but to buy at least 100 copies of a book... usually more. Print on demand is nice because you print how many copies that you need, but that can be very expensive on a per book basis. The base price of a book is fixed, so to make a profit, the base price plus your profit and costs must be competively priced to similar books out there. You just cannot do that with print on demand or vanity press publishing.

Actually, some print on demand places offer discounts for bulk orders, so you can save a little bit of money by purchasing a lot of books and then selling them yourself. This leads to the problem I bring up in Part Two.


PART TWO:

Something you in business will have to consider is Cost of Goods Sold, or COGS. What does this mean to a Self Publisher? Pay attention.

You dish out a lot of money to have 100 copies of your book published, and you put it up for sale, and wait for the customers to roll in. Honestly, even if you have a lot of fans clamoring for your work, only a small percentage of real fans are going to buy one of your books. So you sell 10 or 20 books if you're lucky, and have 80 books left over.

Guess what? You cannot deduct the price of those books as a tax deduction. (Speaking for USA residents only, that is.) Please do not make the mistake of thinking that buying books is a business expense, because you cannot deduct the price of printing a book until you actually sell it. This goes for most if not all goods sold, which is why you see so many big sales at the end of the year.

Because I self publish, I cannot offer deep discounts on my books, because I already sell them as low as I can. I want the books out there right now, rather than going for profit. Every time I create a new book I purchase the book in bulk for sale through my site. Because of this, I have close to a thousand dollars worth of inventory in the studio after 6 years of self-publishing. And each year I can only deduct the cost of the books that I have sold that year, not when I bought them.

Figuring out COGS is available on Schedule C of your annual 1040 tax form, and can be quite confusing at first. Simply speaking, a business MUST keep a physical inventory of their items for sale, as well as the cost of producing those items.

To figure your COGS for the year, you need the value of your inventory at the beginning of the year added to the cost of new items for sale, and subtract from that the final value of inventory at the end of the year.

Simply put: Costs of Goods Sold = Goods Available for Sale - Inventory at end of Year.


Conclusion:

The cost of self publishing can be higher than you think. You need to buy lots of books to sell competitively, but if you don't sell those books, that expense can weigh on you for some time.

Keep in mind that I am not a paid tax advisor, but COGS is something that you need to understand if you want to be in business for yourself.

Cheers, JOHN :0)

4 comments:

Brian Hughes said...

It's even more expensive when the bookshops fail to pay up after they've sold 'em.

Interesting word verification today, John: EFFING. (Seriously, I'm not making that up. I'm sure the folk who run blogger have started doing this deliberately.)

John said...

Brian,
excellent comment. I should probably do an entire blog of what can go wrong AFTER you decide to go ahead and self-publish.

Ideally, it's best to have shop owners buy your books at a discount from you, and then worry about selling them, so you're free and clear. In reality, many shop owners would rather put your books out to 'see if they sell', and then forget to pay you later when they do. And demanding payment makes it hard to make friends, for sure.

Hazards galore!

As for word verification, i've had some doozies lately, and many 'almost' bad words. Somebody somewhere is having fun with us.
:0)

Cheers, JOHN :0)

Aletha said...

I must say first, I know close to nothing about the publishing industry. That said, in my business selling on consignment is always an option but I would never consider it without some sort legal contract. Ensuring you have legal action to take if they breech the contract but I suppose that's cold comfort if you have to spend more for a lawyer than what you make just to get what you're owed.

John said...

Aletha, COGS applies to any business wherein you sell stuff. I'm just using publishing as an example.

For yourself, you need to factor in materials that go into a piece of jewelry... I'm not sure if you can count time creating it... pretty sure you can't.

Schedule C has a COGS worksheet, and some explanation. Start there, and then check out June Walker's book, as I mentioned in our private correspondence.

Cheers, JOHN :0)