This post will be a bit finance related, accounting related, technical mumbo-jumbo but I promise there’s a good point to it.
Groupon is getting ready to release its IPO (and IPO is an Initial Public Offering – it’s when a company goes live with stock to trade on the open market… with companies like this, since the field is in such demand, can yield billions of dollars in funding). They have been a steady growth company but now have been popped by our friends at the SEC for having an “unconventional accounting measure” as it was put in WSJ on Thursday.
What was Groupon doing?
They invented another fun accounting term called ASCOI standing for “adjusting consolidated segment operating income”. In other words, Groupon didn’t want to have all its expenses hitting at the same time. They felt the expenses were for gaining new subscribers and shouldn’t be just reflected in that set period, etc.
Those who are involved in accounting know there are many different accounting measures and things to look at (such as EBITA and EBITAD, etc.). This one though the SEC didn’t like and Groupon took it out.
So why am I writing this?
Because Groupon is growing but their expenses are eating them away. With the current market fluctuations, who knows what will happen for Groupon… but we are writers, not Groupon.
My point here is to talk about expenses.
Revenue is what you RECEIVE for a product or service. In our case, our product is our book. Revenue is not what you keep. It’s not what you take home, it’s not what you use to buy a new car, send the kids to college, or stash away for later. There are expenses to make that revenue, correct? Say yes, because it’s true. For example, I sell The Devil’s Weekend for $3.99 on Kindle. The $3.99 is my revenue… but wait, right off the top of that I have fees from Amazon. I get a 70% royalty on that $3.99, so expenses start right at the top!
There are plenty of other expenses such as marketing, web sites, the cost of your cover(s), the cost of your edit(s).
Understanding your costs and tracking them are vital to your success. You could sell 1,000 copies of your book, which is a great thing, but how much did is cost you to sell those books? That’s where people can get lost. That’s why before deciding on a marketing plan, you must look at your budget, your estimated revenue figures versus your estimated expenses. It’s also VERY important that once an ad campaign is done, you go back and decide whether it was worth doing or not.
In simple terms and in terms of books, the way I look at it and the way I present it to you is this…
- REVENUE – what you collect for selling your book
- EXPENSES – what it cost you to sell that book (and collect that revenue)
- NET INCOME (LOSS) – the amount after you take REVENUE and subtract EXPENSES from it.
The goal is to have a NET INCOME of course. However, a NET LOSS isn’t the end of the world. If you find a loss, find out why. For example, this month for me, I’ll be at loss… because I purchased QuickBooks software for tracking. I’m okay with that, it’s been worked into my long term budget for my books.
So there you have it, a little of the accounting/business side of writing. Always track your expenses, down the last penny. Maximize your revenue, minimize your expense, and enjoy the net income!