Wednesday, May 20, 2009

Webcomic "Free Content" Earning Power

Monday's post discussed how "free content" has value in the case of webcomics. After reading a letter from a reader,* I think a clearer way to state it is that free content has value that would not be captured if it was not free.

I wrote about how it promotes and brands our merchandise. It also converts an item that cannot be evaluated until it is consumed (a comic) and converts it into commodities like t-shirts.

We can measure the value of the comic with a simple formula:

Value = Revenue - Costs

Comic creators might prefer a slightly different formula, which tells them how much they make per hour:

Value = Revenue - Costs / Time

Let's do an example where revenue is money received over the past month from sales and/or donations, Time is the number of hours spent making and managing the webcomic and site, and costs are things like art supplies and hosting and internet fees:

R = 30 shirts sold with a total net profit (before any taxes) of $150.00
C = hosting, internet access (portion related to comic) and art supplies: $25
T= 4 hours/day, five times per week, @22 days/month = 88 hours

V = $150 - $25 / 88 hours

Running the number through the second formula, we find that Value to the creator is making $1.42 per hour. That's just under $3000 a year.

If the person values their time at twenty dollars/hour, they are running in the red. If they consider the comic a hobby and any money as bonus, they are doing better than most hobbyists. 

Some readers are considering the numbers from this example and wondering what sort of traffic a comic needs to achieve to exceed this performance. We'll look at that in a moment, but let's also note that the artist can increase their hourly rate by becoming more efficient, so there are gains to be made in both directions. Many of the HalfPixel comics are calculated to require minimum time input, for example. Sometimes that's necessary if a comic is to appear with optimum frequency, which is often considered to be five or more times per week.

Using a stat called sell-through rate, we can back into the size of the comic in the example above. Sell-through is defined differently for different industries, but for comics, sales per unique visitor per year is pretty standard. Though at least one source talks about a ten percent sell-through rate, more accurate measures are 0.5% or 1%. We'll use 1% because it's easy.

Assuming each month is identical, we're making 360 sales per year. If 360 is 1% of our total annual unique visitors, then we have 36,000 unique visitors.

Rather than pick out a comic that fits that profile and risk making someone feel embarrassed, I'll use one of the comics Pug and I create, Lil Nyet. Despite being less than a year Lil Nyet achieves that unique visitor volume in about five weeks. 

Sometimes you can't cut the amount of time it takes to produce a webcomic episode. With Lil Nyet, we tend to put additional effort into polishing the strip and site if an episode gets done quickly, proving once again that work expands to fill the time available for its completion.

My example uses five days a week, however. Many comics update 1-3 days per week. If we rework the example using three days a week and holding everything else constant, the hourly income changes from
$1.42 to $2.37. If we gain efficiency by getting fast on Adobe Illustrator and shave our time by 25%, the rate rises to $3.15

(For the record, more frequency is a good thing and cutting it may cut sales, so the second figure is a bit speculative.)

You can see that if a young comic like this one is able to make this much money, then a few doublings of readership translates into significant potential. 

Anyone who has read this far deserves an example that is more attractive financially. It's better to start with traffic, but since this is only a model, we can do whatever we want. Let's change our variables. We'll bump shirt sales from one a day to three and hold everything else constant. 

Three shirts/day = 1095/year
Gross profit** at $6 each = $6560
Less costs = -300
Net Profit = $6260
1040 hours for the year
Hourly rate is now $6.02, for four hours/day, 5 days a week

Now, let's reduce the hours from 4/day to 3, and add one more sale per day:

Four shirts/day = 1460
Gross profit at $6 each: $8760
Less costs = -300
Net Profit = $8460
Hours for the year: 780
Hourly rate is now $10.85

You can see that cutting costs and time and raising sales start to move our comic into interesting territory, at a sales rate way lower than a beachside tourist trap would have to make just to stay open.

Now how big is our hypothetical comic? Depending on whether you use the conservative 0.5% or 1%, your audience is 73,000 or 146,000 uniques per year. What big name comic do I have to cite as an example of someone attaining that higher figure?

Lil Nyet. Or, many of the titles created by the column's readers.

Our youngish comic (250+ episodes updating weekdays), celebrates its first birthday in two weeks. Along with many other webcomics, it's entering the zone where a sound business plan, good execution and a willingness to market can create a living wage.

Of course, I'd feel better telling you this if our online store was open and providing real data, but that's a few months away, and we'll have to rely on some very close studies of other comics for our data.

Don't use this data for a business plan, like assuming the profit on every t-shirt is $6, because if doesn't take into account failed designs, defects and every aspect of overhead. It's meant to give you an up close view of the "webcomic back-end" -- departure from comic to store to happy customer to no-longer-starving cartoonist. Numbers also vary in odd ways by genre and other factors, so any business projections should be custom made. Write me if you're trying to do it right, but are having trouble. I've written scores of business plans, and I am can guide you into hot water with more efficiency than you can do alone. :)

*The reader's letter is below the Monday post.

**Obviously, I am not counting the cost of the shirt to the creator. I am keeping it out of the equation. This is another reason why these projections aren't business-plan worthy.