The Finance Mod Guide
Update notes for June 2022: Zine finances has gotten more complicated because of taxes and fees and cost increases and other things.
The approach of this page is to lump some elements of finances into "advanced" finances. For first time finance mods, just focus on as much as you can until you feel more confident. It's ok to make assumptions, and it can be normal to feel anxious. The vast majority of problems can be solved by planning buffer money in advance.
These days, there are a lot of people who can check over your work if you would like more confidence!
Financials, basic ones, are very easy. They just demand a bit of attention to detail, and a lot of space for working.
The average profit requires first calculating the profit of each shop offering, then applying a formula to determine the average. Using the normal method of calculating averages is fine. Now we can calculate the average profit.
In summary, what numbers to put in "Total costs"?
...There is a very quick and dirty way to calculate the breakeven that lets you ignore a lot of the details. It is to commit to producing a minimum number of books (e.g. 100) and treating the cost of that number as a fixed cost. So long as your target number of sales sums out to under 100, everything past 100 will all be profits anyway. So you can just calculate the breakeven number based on costs at 100.
We use 0.92 as the payment processor fee adjustment*, and will multiply the individual cost of goods by 1 to 1.15 depending on expected volatility. For instance, eco-friendly packaging has gone up in price in 2020 by about 3%-5% due to less supply of raw materials, and at time of writing, there is still a shortage of PLA, which is a type of biodegradable plastic used for clear bags. Books are made of much paper, which means if the price of paper goes up a little bit (as it also has during COVID), there is a multiplicative ripple across the rest of the price. Some printers have already passed cost increases on to the customer @ June 2021.
PayPal increased the fee slightly as well in 2021. Stripe is marginally cheaper. We still recommend using a combination of both.
There's no reason your item cost has to be exactly the cost which was given to you via quote.
After all, the spreadsheet you are making is simply a planning tool to help you understand how the money will look like. In other words, it's making a budget for each item.
That is why you can plan for risk using a volatility multiplier when budgeting unit cost, OR, you can use a buffer i.e. add a fixed amount per item.
Another factor that contributes to volatility is exchange rates.
The exchange rate is also a supply and demand relationship. Let’s talk about USD-CNY. More demand for US goods would mean that there is more demand for USD, which the goods are paid in. Therefore USD-CNY would go up, as 1 USD is worth more CNY. However, at the current time, there is more demand for Chinese goods. Therefore the US is demanding more Chinese Yuan so they can buy Chinese goods. As 1 CNY is worth more US money now than it was before the pandemic, goods from China are now more expensive than they were pre-pandemic.
Make your modelling accessible to other mods with checkboxes! (via Ray)
The long stretch goals explanation (intermediate finances)
Stretch goals is a whole topic that can deserve its own page, because it's so invariably linked to marketing, production, so many other areas. It's a philosophical question, which is why this guide skims it.
What makes a good stretch goal?
From a purely finance perspective, good stretch goals are items which are at optimal cost for the stretch goal breakeven number. (See "Deciding what to produce" in Production.)
From a marketing/social media side, the stretch goal is something which gives you more sales and can let you keep socials active with less trouble!!
There are three main ways to calculate stretch goal costs, in order of easiest to hardest. They can be mixed and matched! (Just consider how you might organise your spreadsheet )
Include in the base cost
This method tends to be used for "fake" stretch goals. A low-cost add-on or upgrade which can be part of the base item cost. An example could be for foil prints. Perhaps the prints were always intended to be foiled, but for marketing purposes, the "foil upgrade!" is one of some "unlockable" items in the list.
Pros: No new calculations are required.
Cons: Base breakeven cost is higher, bundles might be priced more expensively than they need to be.
Recommended for: Stretch goals at 60 and below (for the same reasons as the quick and dirty way to calculate breakeven)
This method is the one written as "the dirty method", where the stretch goal cost is directly added to the base cost. It is the easiest way to calculate stretch goals and the lowest risk. This is because, at scale, there is already a cost buffer built into what you are producing (this will be explained in #3).
Over-estimation is also the mechanism behind all the previous advice in this guide til here. Definitely try to understand the compounding effect it has when pricing items.
Pros: Allows for more choices in items. Lower risk due to included buffer.
Cons: Might not reach the goals. Required unlock amounts will be higher than they need to be. Might accidentally price too high due to multiple layers of unknown buffers.
Recommended for: Larger/expensive stretch goal items (at this point you are funding new merchandise, rather than slipping something in)
Be mindful about overall package weight. Larger stretch goal items will mean you will either need to charge a higher amount of base shipping or you will be paying the extra shipping cost!
Calculating the difference of production costs
It is known to that the more we produce, the cheaper things get, due to pricing break points. The differences in cost can be substantial for items with high set-up cost (for example, books) and this difference can be used as extra funds to produce stretch goal items with. As a specific example, say that we have an item which is $7/ea @ 50 copies and $5.50/ea @ 100 copies. Thus, at 100 copies, there is $1.50 extra which can be put towards funding stretch goals.
Method #2 would have continued to assume that the book still costs $7 at 100 copies before adding the stretch goal item's cost on top. Then, the $1.50 is inherently included as a buffer without extra work involved.
Pros: More accurate calculation of stretch goals leads to less costs behind calculating bundles, i.e., bundles can be offered more cheaply in the shop.
Cons: Lack of buffer can be more subject to fluctuations in production cost. Mitigate this by consciously planning known buffers, i.e., do it all intentionally.
Recommended for: Accurate break-even numbers and full awareness of how much money is required for the project
How to plan the buffers yourself? They will most likely put in the fixed and/ or variable costs.
Maybe use dedicated cells if mixing methods. Otherwise, the sheet can get hard to read...
“Auditors? What auditors?”
If your zine goes bad, contributors will try to audit the zine. Arguing with them never goes anywhere, why not just have some nominated contributor representatives privately receive all receipts and bank statements with personal information redacted, let them do their thing instead of speculating. Anyway, even if not, it’s good practice to keep all transactions together. Put it on your zine resume that you do this? Dunno.
Horrible technical problems
US-Based Projects and the 1099-K form
In 2021-2022, the threshold for the 1099-K form was lowered to $600. This is an automated form by the payment processors PayPal and Stripe to US citizens and has meant that zines which were previously using US bank accounts suddenly had more paperwork to do.
If this applies to you, you can search up artists guides for taxes. I personally recommend doing so; though taxes sound terrible, the smart finance mod understands if there might be any tax deductions and how to prepare for setting them up if there are some.
"Small projects" is used here to describe projects with few people and/or sell about 20 copies or less.
"Complicated projects" is used here to describe those large projects which have items that require prototyping phases (e.g. plush toys, ita bags)
Finances tips for small scale projects
Costs must be very carefully allocated. Thought put to how production will be done is of most benefit here. These projects benefit most greatly from a mod cutting prints.
Offering print-at-home digital merch is a good way to provide value while reducing costs.
Reuse of artwork and assets is also beneficial. Such as prints of interior art, or using promo artwork as die-cut stickers (cheap, easy to ship) or buttons (cheap, slightly harder to ship).
Grouping up with another zine is of advantage, as the other zine can help to cover some more base costs.
Finances tips for complicated projects
There will be a greater fixed costs component because prototyping fees, and there is some planning that needs to be done with timelines.
The timelines might be longer than usual, potentially spanning multiple years. Be mindful of any tax deadlines.
These can also become heavier than expected, affecting shipping costs.
Pricing your bundles (or, More On Costs)
In theory, so long as you price higher than the cost, you will always eventually make back the money which was spent.
In practice, there is a few ways that are generally used. Merch sellers at Artist Alleys will tend to use a 3x rule, where the sale price is about 3x the unit cost; this allows for funds to cover the rest of the landing cost (the total cost of the product, including fees and customs, etc) and money to cover costs such as table cost, lunch, travel, cosplay, buying your friends' merches, ...
I think, because of how zines had replaced cons in 2020, zines have tended to follow this pricing. This is the most common method.
Breaking it down further.
For zines (in their most common form), assumptions are made that there is little or no operating expenses (rent, salary, equipment, etc) (aside from sending free copies to everyone, unless your zine does not guarantee free copies, meaning you are exempted from this). There might be some exceptions like buying an upgraded version of BigCartel or using zine funds to pay for a thermal printer. Ah, you might think the mod themselves should just buy the printer, since they'll end up keeping it. But what if this is because buying the printer+a roll of labels turned out to be cheaper than a stack of label sheets? And the original assumption would be that the mod wouldn't charge the zine for ink or toner costs, only the labels (materials) fee?
Welcome to Cost-Benefit Analysis.
Some methods people use for advantageous benefits are:
Pricing bundles lower to make them more appealing. (This will make it harder to give free copies to contributors if that is what you planned)
Pricing bundles bundles higher to make them look more exclusive, and/or raise more money for profits/charity.
Pricing bundles lower/higher to make your other bundles look cheaper/more valuable. (Apple is a fan of pricing in sets of 3's, you can research this famous marketing trick)
Pricing bundles to make it easier for the shipping mod. (Less sales means less to pack. Although it can be the same amount of work for the shipping mod, if everything allows customisations...)
"Moving around" pricing, such as making shipping $2 cheaper and bundles $2 more expensive. (Shops will sometimes do this to offer free shipping. If you end up with the too heavy bundles problem combined with this, it can feel like it hurts more than usual xP)
Or anything, really. Depends on the goals of your specific project. You don't even need to follow the 3x rule if you know that selling something with a smaller margin will increase the chance of selling another item with a larger margin.
Just make sure to price items higher than the (landing) cost.
Projecting Sales Requirements
There's one reliable indicator to project sales: looking at the performance of social posts. The very nature of these projects makes them reliant on social posts and word of mouth. The performance indicator which you are trying to ascertain is specifically "how many people are going to engage with the shop when I drop a link".
(On "gaming" the algorithms and such to get more traction, that is entirely a Marketing area.)
The percentage of those who visit the shop and then make a purchase is the conversion rate. Zines conversion rates will vary depending on the type of project, the theme, the fandom, if it is niche, etc. Generally speaking, niche zines will have a higher conversion rate, closer to 10%. The more well-known the fandom, the lower the conversion rate might be. (This also affects zines which have amazing graphics cause it's attracting people clicking out of curiosity, no intention to buy.)
The conversion rate doesn't matter, toss it in this formula:
(Target # of sales) / (Conversion rate - 0.5%) = (Approximate number of views to the shop needed to reach the target)
This formula obviously works best if preorders have already opened, but to use this formula before you know the conversion rate, assume 9.5% for niche projects, 5.5% for general projects, 3.5% for projects that are popular (numbers are courtesy of @flux_fiction Twitter, we would be interested in hearing if other zines have similar performance!)
If you know the conversion rate, the subtraction of 0.5% accounts for repeated visitors and other junk
Yes, a longer preorders period will net more visitors and therefore more sales, but it must (must) be coupled with a social media posting plan to maintain momentum
Some more numbers are on this page under "observations". Basically, more people visiting the store makes it more likely to reach sales goals.
This is not as obvious as it sounds when you're one week into preorders and wondering where all your sales have gone!
Strategies if do not reach breakeven
Some things which can be done:
Pay it yourself -- If your breakeven is about $1400, and you have about $1000 from sales, the remaining $400 might be feasible. The above napkin math formulas can help estimate this in advance.
Fundraise more money -- e.g. tip jars, crowdfund production of items which were originally stretch goals
Change the compensation model -- this is where communication soft skills come handy (lots of tips in Project Fundamentals). Can also use polls.
Let contributors buy at a discount rather than production cost -- to help raise more money for charity and/or to help cover costs for people without the means to buy their own.
Refund everyone / cancel any number of physical items in the project.
Finance is a great role. The theory stuff on its own is very accessible and gives more of an understanding of how cash works. Everyone has different formulas, different ways of doing estimates. I learned from another finance mod that it's not hard to export a transaction history from PayPal as a spreadsheet, and use spreadsheet formulas to make it easy to find out percentages and how much is paid exactly in fees, even use it to filter between different BigCartel shops.
Sharing knowledge will help improve awareness of what it is known and help others come up with more ideas for their future projects!
It would be nice to see if more zines publish case studies at project closing.