Money, money, money 2: Electric Boogaloo
Photo of Heather and Laura selling books at an event in 2017
Friends! It’s been a while since you’ve had a non-news blog. This is a follow up to my 2019 blog Money, money, money that offered a peek behind the curtain of our small (very small) publishing company. I like to do this to offer insight to anyone who wants it, whether budding publishers, authors, or fellow small publisher owners who worry if they’re ‘doing publishing’ right. I have no idea if we are but we’re still here after 6 years of operations so I’m taking that as a good sign!
I’ve been meaning to write a follow up every year and every year has thrown a curve ball. I don’t really need to mention the COVID pandemic and the fall out from that but now I feel like we’re starting to gradually find our feet again, I thought this would be a good time to dive back in and show you all how it’s going via the cold hard cash.
I included a disclaimer in the previous post and feel it’s still important, so, here’s an expanded one.
*** DISCLAIMER: These numbers and interpretations are in no way to be mistaken as representative of other publishers or the entire publishing industry, indie or otherwise. It’s not even fully representative of our own financial standing (to do so would take an infinite blog that no one would want to read) so please take the following as a simplistic insight into the basic finances of 404 Ink. Some numbers are rounded up/down for convenience and some are left out for brevity and clarity.
I am not an accountant and am no authority on business finance, tax or practices. I am a director trying her best. This is not an official education document. Don’t go sharing these numbers as gospel, k? Share them as ‘hey, a publisher explained some of the finances behind their company, that’s interesting’. Everything is accurate as of May 2022 but these things can change so do bear that in mind depending on when you’re reading this. Cheers very much. ***
A retrospect
Looking back at the Money, money, money blog is a hoot for me. I wrote it mostly during a work trip, while sitting on a rock hard bed in a scabby New York City hotel that constantly smelled like weed which made me worry sniffer dogs were going to rat us out in the airport on the way back to the UK (I realise that a work trip to NYC sounds snazzy and opulent but it was a one-off research trip funded by Creative Scotland and we have been nowhere as fancy since). I thought the blog would be of interest to the 3 people who said they’d appreciate the insight but then it got shared a whole lot on the old soc med so it was debated a bit, picked apart a bit and sometimes sassed a bit. Fair enough, comes with the territory.
I was criticised for a lack of explanation of ebook sales. We didn’t have enough to really share! That’s still mostly the case but I’ve tried to include more analysis this time round.
People were confused about how we got our books printed at such a cheap unit cost. We printed large runs (for us) with cheap stock which often comes to small unit costs! It was a little at the low end and in retrospect I would have edited the unit cost to be a bit more so have done so in this blog. Printing costs have positively SOARED since then so the unit cost has to reflect that anyway.
The previous blog was written half way into our 3rd financial year and I was about to file our accounts for our second financial year. I have recently finalised the annual accounts for our 5th year while we are most of the way through our 6th financial year.
‘2019 is our year of expansion in terms of operations,’ I said. Ah, such ambitions. We did try and it didn’t quite pay off, before we even heard about a new coronavirus.
I’m glad that our previous blog seemed to be of interest to a lot of people and hope this is a useful follow up that shows you how a publishing company can survive in an already difficult industry.
A pre-amble narrative
Before jumping into raw numbers it’s probably best to set the scene. This blog is mostly talking about our 5th financial year, starting 1st August 2020 and ending 31st July 2021. So at this time we’re deep in the pandemic and bookshops are opening and closing as the law allows/demands, our own website is closed for a while, it’s all quite unpredictable. We had just come out of a very expensive 2019 where we spent a lot of money on publicity which just didn’t pay off. We’re a bit bruised. We only published one book in 2020 (the excellent Checkpoint) and were mainly hoping to return to publishing fully in 2021, which we began to do in June 2021 with our first Inkling, having come up with the idea of the series in mid-2020. We crowdfunded for this new series in early 2021 and we also received a nice lump of money from Creative Scotland to support some of our publishing schedule/operations from late 2021 through to the end of 2022. So while we technically only published two books in Y5, we were very busy prepping for the latter half of 2021 and 2022. Thankfully our backlist is awesome so those kept on selling semi-consistently through the year which will account for a chunk of our sales outside of crowdfunding. A quiet year on paper, an expensive one in the accounts. (and a busy one in our heads, obviously)
An overview
A reminder that you can see the most basic parts of our finances over on Companies House (and you can go spy on your favourite publishers/general businesses to see how many assets they hold/their profits/losses depending on how big a company they are, it’s quite fascinating to go down that rabbit hole) but an additional reminder that these don’t offer crucial narratives behind the numbers, which is what I’m hopefully providing below. Again, our accounts are unaudited because we’re a micro entity.
404 Ink’s financial years go by August to July, so, to reiterate, I just filed for our 5th year of operations which covers 01/08/2020 to 31/07/2021. Now we have 5 years of turnover to compare, lets do that. These are the numbers you won’t see in public.
An image showing 5 years of accountancy for 404 Ink
Okay, that’s a lot of numbers! I’ll talk about the most important aspects to focus on, with main focus on comparing the most recent year with previous ones.
A - Turnover: The biggie. Google’s most basic definition of turnover is ‘the amount of money taken by a business in a particular period’. By year our turnovers were:
Aug 2016 - July 2017 (Y1): £46,450
Aug 2017 - July 2018 (Y2): £77,320
Aug 2018 - July 2019 (Y3): £79,384
Aug 2019 - July 2020 (Y4): £43,019
Aug 2020 - July 2021 (Y5): £38,687
C - Cost of sales: These are the core costs of making the books and getting them out in the world. We didn’t print many books in Y5 so our costs were down.
F - Tax: Ooft. A tax bill of £7.4k this year. That one hurt. Especially as there was only about £8.5k in our bank account when we needed to pay it. CASH FLOW, people. It’s important (and it’s why we have an arranged overdraft of £10k just in case. It has saved our asses in previous years on occasion).
G - Profit/(loss) after tax:
Okay, wait a minute. How on EARTH is our profit in Y5 £31k when our turnover was the lowest it’s ever been while in Y4 when our turnover was more, our profit was only £2k?! Good question, this is literally what I asked out accountant with stingy tears in my eyes from the fear. It turns out that if you receive around £36,000 in public funding from Creative Scotland for books you’re producing in Y6 and Y7, you’re still going to have to pay tax on those assets in Y5 because they landed in your bank account in Y5. Ouch, yes? Yes. We’ve spent all of that CS funding we’ve received so far on making said books, so none of that is left to pay the tax on that profit. We’re using our own funds to pay that tax and it hurts. But that’s life. Death and taxes, eh?
H - Dividends: As you can see, Heather and I took no dividends from 404 Ink in Y4 and Y5 as we knew that cash flow and sales were going to be down, so we decided to not take any money from the company in the hope of keeping the cash flow healthy. (We lived off of a mix of other jobs and benefits in Y5.) By and large that worked in keeping 404 afloat! We took dividends in previous years as our on/off income when we were really busy (hi 2019) and we are currently (in Y6) on PAYE, £9.50 an hour, 2 days a week, thanks to Creative Scotland funding. This will be reflected in Y6 accounts which we’ll file in 2023.
In the 2019 blog I went through main operation costs and thought it might be useful to do so again with the same categories but with more added to show our biggest expenditures. This time I’ve used our cashflow document to show raw cash out.
In Y5:
Royalties to authors: £10,617
Book printing: £4,069
Services & subscriptions: £2,813
Accountants: £2,664
Distribution: £2,638
Postage: £2,100 (most covered by customers, some not)
Freelancers (cover designers, editors etc): £2,020
Legal fees: £1,963
Directors Laura & Heather: £0 (lol)
We sadly weren’t able to pay as many royalties as in previous years because, well, pandemic/bookshops closed etc, but we’re glad we managed to pay some at least. As mentioned earlier, Heather and I took no money from 404 in Y5 to make sure there was enough to cover these overheads. All other costs are, I assume, fairly self-explanatory and show our main costs year by year.
Time for the pie charts
In the first money blog, I made a section breaking down where money goes when someone buys one of our books. Before sharing the blog to Twitter I said to Heather ‘I hope people share the whole blog and don’t just share the pie charts without context’ and guess what happened… I fully expect that to happen again but if you’re reading this I do hope you read the accompanying text which provides crucial context to how the money shakes out differently when bought from different sources!
This time round is also a bit more complicated because we now publish our Inklings series. These books are cheaper (£7.50 RRP) and the royalty structure is significantly different from our ‘regular’ books (Inklings authors get generous percentages (industry considering) on net receipts which takes away a much bigger slice of our share than with a ‘regular’ book). These ‘regular’ books I’m talking about are the ones we price at £8.99 (though we’ve now moved to £9.99 standard) and the royalties are, generally, 15% (which is still quite a bit better than the industry average, I believe).
I’ve split up the ‘regular’ books and the Inklings books to separate charts as the balances are different. Take a look!
When someone buys a £8.99 book from us via our website…
Pie chart: Book sale via 404 website - £8.99 (Printing 11%, Royalty 15%, 404 Ink 74%)
Printing - £1
Author royalty - £1.35
404 Ink - £6.64
As always, buying our books directly really helps us out and keeps us afloat!
When someone buys a £8.99 book from a bookshop…
Pie chart: Book sale via bookshop - £8.99 (Printing 11%, Royalty 12%, Distribution 12%, Sales team 12%, Bookshop 40%, 404 Ink 13%)
Printing - £1
Author royalty - £1.08
Distribution - £1.08
Sales team - £1.08
Bookshop - £3.60
404 Ink - £1.15
One thing that changed since 2019 is that we now have a sales team who take a cut of all our sales via most bookshops (some exceptions stand) so a further slice is taken from us.
As printing prices go up, our share will reduce. We try to avoid reducing author royalties and it’s rare that bookshops agree to lower a publisher’s discount with them (understandable) so while this isn’t a great cut for 404 Ink, it’s not the worst, as we’ll see…
When someone buys a £8.99 book from Amazon…
Pie chart: Book sale via Amazon - £8.99 (Printing 11%, Royalty 8%, Distribution 12%, Amazon 60%, 404 Ink 9%)
Printing - £1
Author royalty - 72p
Distribution - £1.08
Amazon - £5.40
404 Ink - 79p
Our sales team don’t take a cut of Amazon sales so we get to keep all of our huge 79p! This is only a good deal for Amazon. Indie publishers will not survive if all their sales go through Amazon.
When someone buys an Inkling (£7.50) from us via our website…
Pie chart: Inkling sale via 404 website - £7.50 (Printing 11%, Royalty 50%, 404 Ink 39%)
Printing - 80p
Author royalty - £3.75
404 Ink - £2.95
The Inklings are a special case where we offer much bigger royalties for various reasons (to give writers income during the pandemic, to try and set a better example in the wider industry) so this is why they get more here.
The printing is cheaper as the books are small!
When someone buys an Inkling (£7.50) from a bookshop…
Pie chart: Inkling sale via bookshop - £7.50 (Printing 11%, Royalty 24%, Distribution 12%, Sales team 12%, Bookshop 40%, 404 Ink 1%)
Printing - 80p
Author royalty - £1.08
Distribution - 90p
Sales team - 90p
Bookshop - £3.00
404 Ink - 10p
Okay, bear with me on this one!
Inklings were thought up in the depths of the pandemic with the initial plan of only selling them via our website. We wanted the royalty to be high and for the authors to get their royalties a bit quicker than usual, which they could do via sales from our website as we get the money from those sales within 7 days, unlike with bookshops where we usually see the money from sales 2-3 months later. However, the first series unexpectedly caught the interest of bookshops, which meant adding in the distributor’s cut, the sales team’s cut and the bookshops’ cut. We couldn’t really decline just because of our P&L, so there goes all of our share! We have had to alter the royalties for our upcoming Inklings so we don’t completely bankrupt ourselves via bookshop sales! Sometimes experiments don’t quite pay… but you live and learn.
When someone buys an Inkling (£7.50) from Amazon…
Pie chart: Inkling sale via Amazon - £7.50 (Printing 11%, Royalty 12%, Distribution 12%, Amazon 60%, 404 Ink 5%)
Printing - 80p
Author royalty - 90p
Distribution - 90p
Amazon - £4.50
404 Ink - 40p
Oh, Amazon.
Book sales: print
Here is a graph showing our print book sales from August 2020 through to April 2022, which includes our website, bookshops, and Amazon.
A graph showing 404 Ink's book sales from August 2020 to April 2022
The pink line shows August 2020 to July 2021 (where we sold around 5,300 books), the blue line shows August 2021 to April 2022 (where we have sold around 7,400 books so far). May 2022 sales are still pending but I can report they’re significantly better than May 2021 thus far so there’s room to be optimistic!
I feel this is fairly self-explanatory in that the pink line shows struggling sales through the pandemic, and due to the fact we weren’t really publishing anything. The blue line shows great improvement and it’s fair to say this is thanks to a return to regular publishing and the end of lockdowns, generally. March 2022 was rough only due to returns from bookshops from Christmas 2021, which was to be expected.
Book sales: ebooks
As I didn’t include any analysis on ebooks in 2019, here’s a little now.
From August 2020 - July 2021 we sold 535 ebooks for a value of £1,839.27.
From August 2021 - April 2022 we have sold 519 ebooks for a value of £1,835.17.
Our main ebook sales come, as no surprise, from Amazon. We sell a few via our own site and get a much better share, of course.
As you can see, ebooks are not a big seller for us in the general scheme of things. We have wondered why this is (not available on enough platforms? not cheap enough? not good quality enough?) and are yet to figure it out. Our efforts are admittedly focused on print and we should maybe alter this and engage better with a digital market, especially following the pandemic.
Looking forward
From the perspective of when I’m writing this, there are two emotions I jump between:
Hope that with 5 ‘regular’ books and 6 Inklings publishing in 2022, we will have solid sales and good cash flow to see us through 2022 comfortably (ie we’ll at least not be in our overdraft).
Utter fear that our cash flow won’t be able to sustain Heather and I’s 2 days a week salaries and that we’ll be looking for extra work again, at the potential cost of 404 Ink’s progress.
Screenshot from the film Donnie Darko showing Donnie saying 'life isn't that simple. there's more to it than fear and love."
This is reasonably common but no less exhausting to bounce between hope and fear every other day. Maybe I should take a leaf out of Donnie Darko’s book and stop living between fear and love…
But, life as a part-time indie publisher has never been easy and it’s getting harder due to rising costs throughout the business, from fuel to paper. Luckily, Heather and I are happily at peace with 404 Ink being our part-time jobs, we are proud of it and happy for it to continue at the level it is. What’s hard is when it’s a huge slog to keep it breaking even, if that. We have a responsibility to stay afloat for our roster of amazing authors who put their work in our hands, who trust us with their art, and this keeps us humble (we hope) and makes us work as hard as we can to get them as many royalties as possible, even if that does at times eat away our profits. That’s on us and our business practices, never on them. It’s a tough balance to strike but I think we do well considering our size and our other responsibilities outside of 404 Ink.
All said and done, Heather and I have learned a HUGE amount running this company and every year has been different, honestly and truly. It’s often said that publishing is glorified gambling and we do feel that with every book we throw out into the market. We obviously have faith in all of them but markets can be fickle and you never quite know what will land on its feet or on its face. We do our best and carry on!
I think that’s enough from me! I hope this was useful for someone out there.
If you’re someone thinking of starting your own publishing company, I hope this hasn’t scared you too much. It’s not an easy path to choose and stay on, but it is possible.
If you’re already running a company and are looking at our numbers with confusion and want to know more, feel free to ask me about it at laura AT 404ink DOT com. Could we be doing something better? Let us know, we’d love the insight…
If anything is unclear or you have any questions about the above, feel free to tweet questions at @404ink on Twitter and I’ll try my best to reply. And if you feel so inclined to support indie publishing, now that you see where the money comes from and goes, you can purchase some rather cool books at 404ink.com/shop.