Finances & Forecasting: Part Two

Balancing the books (pun intended!) is something that concerns every author. This month, PHS Editor, Christy Kate McKenzie, continues her feature on making money from your writing with advice on Finances & Forecasting

And we are back! I know I promised we’d return to Finances and Forecasting in January, but the excitement of the New Year was better suited to re-branding and resolutions. Now here we are in February and it’s time to talk about money, because whether we want to admit it or not, we all love money. Or at the very least we like it an awful lot.

We talked about this in Finances & Forecasting: Part One. While your goal may not be to get rich, you should at least aim to recoup your expenses. If writing is only a hobby for you, you can accept a certain amount of expense—after all, artists buy brushes, paints, and canvases, right? But what if you want a little more? What if you want to break even or even make a profit? That’s where this article can help.

Your Current Financial Situation

In Part One, I had you break down your Income & Expenditure, so that you would have an accurate idea of what writing is actually costing you. Hopefully now you have a realistic idea of how much you need to make to break even. If you already do break even, or if you consistently make a profit, you should know how you are able to achieve that. How many books you have to sell each month or quarter, for example. This information will be vital for looking at your forecast for the coming years, so grab a calculator, dust off your notebook, and let’s get to work.

Forecasting

I gave you a quick introduction to forecasting in Part One, but now I’d like to expand on it. Now, I don’t want you to pull out your crystal ball-- quite the opposite. I want you to base your predictions on reality. Your forecast should be something that you can actually achieve. Otherwise why would you even bother?

Bear in mind, though, this means you may not break even or hit your new profit target in one year. That is perfectly normal. Most businesses are trading for at least two years before they break even and many fail within year one. With the ever-changing state of publishing, I would suggest forecasting for the next 2-3 years, not the 3-5 that is standard for business. Don’t set your goals too high here. Give yourself a fighting chance.

First, let’s take a look at some examples of income and expenditure. In Part One, we looked at expenditures, or how much money you put into your writing in a year. Most of the time you will have a number of expenses—writing association fees, conference fees, travel, accommodation, domain name, web hosting, web design, book promotion… the list can be endless.

For our examples here, though, I want to keep it simple (numbers aren’t really my favourite thing you know), so let’s use the example we gave for a year of web hosting. Let’s pretend you got a free domain name and pay £144 per year for your web hosting. Let’s also pretend you have no other expenditure, so all you need to make to break even every year is £144.

The Formula

We need to calculate what the difference is, percentage-wise, between what you are making and what you are spending to come up with an accurate target for increasing sales.

Let’s drag out some of high school math! Now before you groan, you probably use this particular formula all of the time and don’t realise it. It’s the calculation you use to decide what tip to leave at a restaurant or how much 25% off is on a pair of boots.

The formula is: x/100 = is/of

In this formula, you will use your income as ‘is’ and your expenditure as ‘of’, so the idea is to determine what percentage of your goal amount (expenditure) you are making. This will lead you to understanding what increase in sales you should be aiming for. To calculate this, multiply 100 by your income and divide it by your expenditure.

If You Break Even or Make a Profit

On average, businesses aim to increase their sales by anywhere between 5% and 20% each year. If you are already breaking even or making a profit, you can chose to do the same. You can have a look at how your recent sales have been going and decide what percentage looks most achievable in the coming years based on how many books you intend to release or re-release.

For your purposes, you don’t need to use the formula below, but if you want to see what your profit percentage is, you can. Just don’t be tempted to base your forecasts on the results. You may find that you are making a 208% profit (it is doable—if you take the example expenditure below of £144, you would only need £300 in sales) and shouldn’t set your new goal for 400%. Your target is an increase in OVERALL sales, so it is based on your income not expenditure.

A 400% increase in sales would mean aiming for £1200 in sales instead of £300 and that’s a pretty big jump in the space of a year. Instead go with a more conservative figure, like 20%, or £360 in sales. If you happen to do more, all the better!

If You Are Not Breaking Even

These examples are a little harder to follow, so bear with me.

Scenario 1:

Income: £40.00

Expenditure: £144

In this scenario, you are making £40 in sales and need to cover the £144 in expenses. If you follow the formula above, you will find this means you are making 27.8% of what you spend. Subtract 27.8 from 100 and you will see you need to increase sales by 72.2%. That is way too much to aim for in one year! In this example, you would be better off spreading that deficit over two or three years by aiming for a 24-36% increase each year.

Scenario 2:

Income: £100

Expenditure: £144

In this second scenario, you aren’t doing too badly. You are making £100, so really you are only short £44. This comes out to an income of 69.4% of your expenditure, meaning you need an increase of 30.6% to break even. This is more than you might expect to increase in a year (as I mentioned above, the average is 5-20%), but it is still achievable if you are willing to put in the extra work.

Putting It All Together

Now that you know how much you need to (or want to) increase your sales in the coming year or two, or three. In Part 3 (oh, yes, there is a Part 3) we will look at ways to increase your sales year on year, but in the meantime, write down your goals in a way that you will understand and be able to act on. For example, you may write ‘In 2018 I will increase my sales by 20%. This means instead of making £100 in sales, I will make £120.’

Keep these forecasts in your notebook until next month when I’ll show you how to smash them!

Christy is an aspiring author, fairy tale fanatic, peanut butter connoisseur, and wannabe mermaid. For more information about her and her writing, check out her website and follow her on Facebook, Twitter, Pinterest and Instagram.

Do you stress over how to balance the numbers when publishing your work or is it something you leave to someone else? Is writing something you view as a business or think you should or is more about the achievement of publishing a book and having people read it? Share your thoughts with us in the comments or join the discussion on this subject with other PHS readers/writers on Social Media.