On the Self-Publishing with ALLi podcast, Joe Solari warns authors that a big crowdfunding win isn't the same as a payday. He breaks down the three cash traps that sink successful author businesses — the lag trap, frozen cash, and the shrinking slice — and shows how to dodge them with a few practical habits: tracking committed versus paid money, knowing your inventory value, and setting margin floors before you launch.
Listen to the Podcast: Dodge the Three Cash Traps That Kill Author Businesses
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About the Host
Joe Solari assists authors in developing successful businesses as the managing partner of Author Ventures LLC. In his role as a business manager, he supports his private clients, who collectively achieved gross royalties of twenty-two million in 2023, with an average pre-tax profit of 44%. This remarkable success results from implementing disciplined business strategies and maintaining an unwavering dedication to enhancing the customer experience.
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Read the Transcript
Joe Solari: An author just closed the best crowdfunding campaign of her life, six figures on Kickstarter, hardcover special editions, artist prints, a little enamel pin nobody needed but everybody wanted. The funding bar didn't just get hit, it got smashed, and she's so excited writing to her fans, “We did it.” Three weeks later, she's staring at an invoice from some of the artists, and she doesn't have the money to pay the bills.
It's due. Her payout doesn't land for another three weeks. She made six figures. How is it she doesn't have $4,000? Hey, I'm Joe Solari, and welcome back to Publishing for Profit. I'm your host, and if you've been with us the past few episodes, you know we've been building out what I call the four-asset model: IP, audience, cash, and people.
Today, we're back in the cash lane, and we're gonna talk about something I've watched trip up some really smart, talented, successful authors and I believe is gonna end up being the downfall to a lot of folks just because they don't understand how these concepts work. And as they get into physical products, merch, selling through a TikTok shop, special editions, doing crowdfunding, any of these things where you need to be bringing in merchandise, having stuff stocked on a shelf, and then sending it out, they can all end up creating some real serious pitfalls. Here's the thing nobody tells you.
The authors who are getting hurt by this aren't the ones whose campaigns flop, it's the ones who succeed and have a big funding number, and they think that's the finish line, but it's not. It's actually the starting line, and the game is really played after that fact in making sure that you fulfill that goal and have money left over.
So today, three business killers are gonna be explored. They're hiding inside every successful physical goods campaign or TikTok shop, and we're gonna show you how to deal with these so they don't turn into a funding crisis in your business.
Business Killer No. 1: Avoid the Lag Trap
Number one, the lag trap. Now, the simplest way to put this is imagine getting paid for a big job in a single lump sum, but it doesn't land in your account for six weeks. It only gets to you after you finish this work. Meanwhile, every single contractor that you've hired and is helping you get this job done wants to be paid before any of that money shows up. In fact, they won't even do some of this work until they get paid. That's how a lot of crowdfunding campaigns get into trouble.
The Kickstarter money doesn't come until much later in a lump payout, but there needs to be work done weeks ahead of time, and you don't have the money to do it, whether it's pay artists, an editor, your printer, get those books ordered early so they can be delivered on time. The mistake authors make is thinking about this in terms of their bank balance.
“I have the money in an account,” or, “I know the money is coming. I'm fine.” The fix isn't complicated, but it does require a pretty serious habit change. You have to track committed and paid money. You need to understand what money is being committed when you bring on somebody to do fulfillment or to run your marketing, and then know when that money has been paid.
This will also help you understand up front one of the other things we're gonna be talking about with your margins when you start to think through all of the project-related costs or overheads that are related to a business that carries merchandise, and making sure that you created some margin in there for these ongoing costs.
Business Killer No. 2: Don't Let Your Cash Freeze
Killer number two: frozen cash. This one's sneaky because it looks like success. I call it frozen cash. Think of it like this, imagine someone hands you $10,000 and then you take it straight to the store and buy an icebox full of steaks, seal it up, and put it in the garage. Technically, you still have $10,000 of value.
You could sell those steaks eventually, but trying to pay your mortgage with frozen rib eye isn't gonna work, is it? You can't. The money isn't gone, but it isn't spendable in any way either. And just like those steaks, books and other stock that you have on the shelf is hard to move and it can spoil.
Authors who've only ever sold e-books or done direct digital sales don't have this instinct, and they think that as their business grows that the way they're gonna get better margins is by putting more stock on the shelf. But every time you do that, that's more frozen steak in that freezer. The fix for this is understanding your inventory values and then making sure that you focus on how to have that inventory turn over as many times possible.
Now, in the future, I'll dedicate a session completely to this, but understanding what inventory turnover is and getting your inventory to come in and out of your building as many times as possible sometimes means paying more for it in the short term so that it turns faster. Having stuff on your shelf and having paid less for it, but it doesn't move, is cash that you can't use elsewhere in your business.
Business Killer No. 3: Stop the Shrinking Slice
Number three, the shrinking slice. You know how it works in a bake sale, right? That you take a bunch of your ingredients, you bake a cake, and you sell the cake for more than what those ingredients are. This is how we do everything in selling, right? Is we take some things, put them together, and hopefully our customer sees that the way that we package things up with our story, it is more valuable and there's margin in there.
But one of the things that happens when we move to a physical product is more often than not, we lose some of the ingredients. We don't understand that the platform is gonna take a percentage, that if we use a fulfillment company, they're going to take a percentage, that the margins in a physical product aren't the same as on a digital product, that if we advertise that project to get more sales, that the cost of that advertising has to come out of the money that's raised by the project.
Again, we need to have a fix, and the fix for this is to understand that every tier has to have a margin floor. And the way that you figure out that margin floor is by understanding what the cost per tier is and what your overall project costs are going to be, and having them that you can spread across all the tiers.
Remember: A Win Is Not a Payday
Okay, here is the big idea underneath the three of these, and I want you to hold onto this one. This is so important. A win is not the same thing as a payday. Having you print a big project, payout in the sense of what that Kickstarter has shown as its top pledge isn't the same as the money that you will get in your account.
It's going to be less because not only is Kickstarter gonna take a cut, but not all those pledges will be collected. If you're using other service providers, they are all going to expect their percentage. So what you actually get as the payday is going to be different. So here's what I want you to walk away with and actually do.
You start applying a few of these things to your physical business, whether it's running Kickstarters or doing something with your TikTok shop or even your direct store if you're selling products. You'll immediately see that thinking through these things are going to change the way that you stock inventory and how you think about money moving through your business.
Number one, start tracking committed spend separately from paid spend. Understand your total commitments for a project to be completed and what it's going to cost you to get the project out the door. Number two, know your inventory value as its own number separate from cash. If you can't answer how much you have in your bank balance and how much of your money is sitting in boxes on your shelf, you don't understand your true cash position, and you don't understand how much of your cash is actually in a place where it could spoil just like a steak.
Number three, set margin floors for every physical tier or product before you ever launch, and treat each one of these as a real problem that you have to solve for, and that each time you do sell that product, it is going to be profitable on its own legs. Last, if you're running back-to-back campaigns, ring-fence each of these and have seed money in it for the next launch.
Too many people are using what happens in the second campaign to feed shortages in the first campaign. Eventually, this will catch up with you.
Put These Ideas to Work
Let's make this all concrete. Here's some ways to do this. Create a spreadsheet, two columns, committed and paid. List every vendor that you are using tied to your campaign or to your direct site, and update those columns each week. Know how much money needs to be going out and set aside, and how much you've paid.
Number two, before your next campaign goes live, take each physical reward tier and add up its real cost: materials, shipping, platform fee, fulfillment labor, packaging cost. Use all these numbers against your price. If it doesn't have a clear margin and meet a minimum floor for you, then you need to figure out do you raise the price or do you cut costs?
Number three, if you've got a campaign running right now or about to, do the gut check. Pull out your bank balance and subtract what you're gonna owe vendors. Understand where you're sitting with any inventory you're gonna have, what you're gonna have to buy in the short run to get things to hit deliveries, and subtract any of those costs out of your bank balance.
What's left? What is your real cash position? That number, not your bank balance, is what you need to understand. When these things start hitting, you'll watch your bank account balance just evaporate. So we really attacked the cash asset for this episode. Understanding that a win is not a payday and learning how to protect the money that comes into your business throughout any campaign you run needs to be proactive.
You don't want this to be always turning into a fire drill. So until next time, this is Joe Solari with the Publishing for Profit podcast.
