P&Ls and how books make (or don't) money

[alg]

Profit & Loss/Profitability & Liability: How Books Make (or Don't Make!) Money

A basic outline of what happens when an editor buys a book and wants to publish it. This is very much a basic look at publishing and publishing finance, with some explanation of terms commonly used by the marketing and sales departments.

Comments

[lepapillon.livejournal.com]

Wow.... who knew I'd learn so much from LJ?

But this is the stuff I'm interested in so I'm glad you're posting about it. I never knew it was that complex or involved I guess. Kind of scary for both a publisher and a writer.

[alg.livejournal.com]

You're not learning from LJ, you're learning from meeeee!! But now you can write your paid LJ account off as a business expense. ;)

[endelarin.livejournal.com]

After my first novel was published many years ago (not Tor), I wrote polite letters to the editor trying to find out how many copies had sold. I never got an answer and eventually gave up trying. As you might guess, I had no agent. To this day, I don't know for certain how many copies sold or if it earned back its advance. I'm assuming not.

Thanks so much for helping demystify this whole process! Had I been less intimidated by the publishing end, I would have understood some of the reasons WHY they couldn't give me a number.

[alg.livejournal.com]

To this day, I don't know for certain how many copies sold or if it earned back its advance. I'm assuming not.

They are required by law and your contract to give you copies of your royalty statement, which should tell you exactly how many copies sold!

[laast.livejournal.com]

Wow, Anna! Math scares the crap out of me, so I am hiding under the blankets. I love learning about all of this stuff you are telling us about publishing, and thank you for taking the time to do it! Let's say someday I or a friend or someone I knew (no agent, no nothing) was offered a contract. How dumb would it be to take the first offer if the author was just so happy to have an offer? I feel like I would jump all over any offer @ all. I agree with lepapillon. Those numbers are scary. Really scary.

[alg.livejournal.com]

Aw, don't be afraid of math. This is easy -- this is algebra. Just plug in the numbers and go!!

[oneminutemonkey.livejournal.com]

Wow. What a read. Thanks. Extremely fascinating and informative.
I knew a little of this already (2 years in a bookstore teaches you some strange stuff) but a lot is new to me.

It would be really fascinating to see the P&L treatment for anthologies, since they're a different kettle of fish from the average paperback.

Please don't stop enlightening us now.

[alg.livejournal.com]

Anthologies are done the same -- it's just that the person compiling/editing the antho is told how much money they have to work with, and they have to figure out how much they can pay each person. Or it could be done completely differently -- ask around.

[literaticat.livejournal.com]

Thanks! This is great info. Aspiring authors often ask me questions like this and, while I knew the basic facts, I never factored in coop or magazine jobbers, different discounts, &c.

There are so many trade PB originals coming out in the next year -- will their numbers look more like MM or HB?

Oh, and on a slightly related note, what happens when a book is remaindered? I know why a book gets remaindered; I mean, what happens then, does the pub call it a wash as far as royalties are concerned?

[alg.livejournal.com]

The basic facts are complicated enough!

There are so many trade PB originals coming out in the next year -- will their numbers look more like MM or HB?

"Trade" is actually a distribution term -- the only question is if it is "trade cloth" (abbreviated as TC, also known as "hardcover") or "trade paper" (abbrev. TP or tpb.) Most trade paper original numbers, as far as I'm aware, look like the numbers for hardcovers -- sometimes slightly higher, since the price point is lower and we estimate that more people will shell out $14 instead of $24 -- or slightly lower, since libraries decide not to take as many.

The simple answer to your remainders question is YES, it's totally a wash for royalties. They're considered a loss, and our "profit" on them doesn't actually exist. I'll do a post about remainders with more details eventually.

small advances

[(Anonymous)]

I'm an author with an independent publisher... I get a very low advance (usually $1-2000), but am offered a slightly higher royalty than bigger publishers. It means that i have very little to sustain me at the beginning of the process (so i have a day job), but start getting royalty cheques in the first six months. I personally much prefer this system, as getting an advance is a bit scary, because you're getting paid for something you haven't done yet! Getting paid in royalties instead makes me feel like I really earned it.

It also means that my publisher has more money at the beginning to spend on the design of my book, which makes more people pick it up and buy it...

Re: small advances

[(Anonymous)]

Indie music companies work much in this way: very small advance and higher royalites.

As Cool Indie Records, I might like The Hip Kids' sound and live show and the album they self-funded. So, I give them $1500 to $5000 to buy the rights to that album for specific terms and maybe I'll buy them a cheap van to tour in (which is like marketing: playing to new audiences who will hopefully buy the record).

The royalty split is generally around 60/40, 50/50 or 40/60, depending on the size of the company and their personal philosophies around the royalty split (artist run companies tend to give the most favourable royalties) (note - expenses, such as the cost of stamps and envelopes, long distance fees, % of in-house and/or independant publicist's salaries and expenses... are recouped at a pre-determined percentage - generally in favour of the label - from the artist's royalties.)

The Hip Kids have technically already earned their "advance" which isn't really an advance at all. As the creators of the music, they've already done the job of creating and recording the music, I, as Cool Indie Records am paying them for that job. It's no different for the writer: s/he's already sat down and written the book (the main labour of writing) and the publisher is paying the author for that job. It's a calculated risk whether the book/cd will sell and recoup the outlay.

I don't see it as very different from any other job. Most of us get paid to do something which generates profits for other people, but those people may not see the money from our labours for a long time. We are labouring and paid in advance of generating cash in hand for the bosses.

At the end of the day, The Hip Kids will likley break even with their cd. They will receive residuals in perpetuity in amounts that vary from $50 per quarter to $500 per quarter or more, based on sales and radio play. The bands will split the royalties portion between band members (according to their own percentages: maybe lead singer and lead guitatrist get a larger percentage than bass and drums, most likely they split it out evenly) and the publishing royalties, which are paid directly to the songwriters will be sent directly to those songwriters.

Back catalogues are important to indie companies. If Cool Indie Records releases 4 cds by The Hip Kids and that fourth cd starts generating airplay in the US and therefore record sales, the back catalogue will start generating lots of income. Cds and vinyl are warehoused a long time and stores send their overstock back for direct refund. I know of a Canadian artist who was a huge name in the "grunge"/"indie" heyday of the early 90's who is the largest grossing artist for one company who hasn't put out a cd for the artist for a decade. The first few releases on their label always sell at a slow trickle with little change in volume.

[amy37.livejournal.com]

Man, I love you for doing this. If I'd had a blog when I was still editing, I don't know if I'd have had the patience or the motivation to do it, and I tell you, it's so helpful! Even to me! Explaining this stuff isn't easy, and you do it about a thousand times better than I've ever been able to do.

(Just ask my very confuzzled mother.)

[alg.livejournal.com]

Aww. You are welcome!

[laast.livejournal.com]

ok, my other post didn't make much sense. small advances annon. answered more of what I wanted to ask. With all of the advance stuff, and the numbers you threw out there, it seems like there is a lot of shuffling. I guess this is where having an agent is a good idea so that they can explain what all of those numbers mean. I wonder if authors like a bigger advance or bigger royalties? I can't tell which would mean more. I never realized the advance was part of what the book is supposed to make after it hits the shelves. I love all of this info, Anna.

[alg.livejournal.com]

Anyone you work with in publishing should take the time to explain this stuff to you. If you have an agent, your agent should do it; if you don't, your editor should. That said, you have to ask -- no one is going to offer this information to you!

[plattcave.livejournal.com]

And people wonder why I'd rather work in advertising...

[alg.livejournal.com]

People wonder that?

Haha, not me, man. I bet you make at least twice the salary that I do.

[thecityofdis.livejournal.com]

As an aspiring editor, this is ineffably informative (and sarcastic). Thank you.

[alg.livejournal.com]

As an aspiring editor, you should give up now and go do something else. *g*

That's what we tell all our interns anyway -- don't work in publishing. If you can, do something else. If you can't... well, you'll be in good company.

[green-knight.livejournal.com]

Thanks for this fascinating insight into how a book can be a good enough read, but not attractive to a publisher.

[alg.livejournal.com]

You're welcome.

[trixalicious.livejournal.com]

Absolutely fascinating. I have two final research papers due in the next nine hours or so, but I promise you that I learned more by procrastinating and reading this entry than I did "researching" my paper topics (which is only partly because I haven't really started my research yet).

Seriously. Gold star!

[alg.livejournal.com]

Hahahahahaha. Awesome. Always happy to help the procrastinators!

[agamisu.livejournal.com]

'Kay. This is nice stuff. Also so depressing.

[lonp.livejournal.com]

This is fascinating stuff. Thanks for posting it. I was left wondering: What if any, significant differences arise on the YA side of the house?

For instance, often the books are shorter, so therefore probably cost less to print--is it enough less to affect marketing efforts/advances, etc.? I also suspect the distribution of buyers is skewed more heavily toward libraries and big chains than independents and general retailers. Do YA books tend to have a better sell-through, or the same?

Thanks again for such an educational post!

[alg.livejournal.com]

You're welcome!

YA publishing works the same. I am unfortunately not familiar with the intimate details of the sell throughs and such, but, as I said in the post itself, this is just one example of what can happen to one book. This is average -- though, perhaps, slightly cynical.

Returns - always bad?

[(Anonymous)]

This was great,

There's one area that's confusing to me regarding Aeryn’s career propects. 8,400 sales is bad, but only if you know that the publisher printed 25,400 copies. When her next publisher is looking at buying her books, don’t they only have access to sales (though Bookscan) not the print run? In other words, those 8,400 copies could be on a 10k print run, which would be great. How does the next publisher know that the book was unprofitable?

I ask because while it seems like returns can hurt the publisher, they shouldn't ruin an author's career, and cautioning away from pushing for larger print runs is problematic too, since print runs definitely affect the merchandising in the trade. If you don't print enough books, they can't put them in a display, etc.

It seems like authors (or agents, at least) should push for bigger print runs, hoping that the extra copies will result in better merchandising and get sales in the bank (bookscan) and let the publisher worry about the returns.

Or does that all just feed the vicious cycle?

Re: Returns - always bad?

[(Anonymous)]

I'm not Anna, but this is what I think given what she said.

Why would a pub print only 10K if they think there's demand for more? The more they print, the cheaper per unit cost becomes:

[(fixed cost + variable cost) / (# of units printed)] = per unit cost

Since fixed cost is the same, and the variable will change depending on the number of copies printed, and since the per unit cost of printing will be much less if you print more, a publisher is most likely to print as many copies as it thinks it can sell.

So the fact that Aeryn sold 8,400 copies means (in my non-publishing expert's opinion):

1. The publisher printed a lot and she only sold 8,400 copies -- crappy sell-through

OR

2. The publisher couldn't print many copies because nobody really wanted to order her books that much (meaning B&N, Borders, Walden, and other retail outlets) and consequently she sold badly

Either way, poor Aeryn's screwed.

Anna -- please provide more enlightenment on this because I may have been completely wrong!

[secco98.livejournal.com]

How much money does a book have to make to get an author a shot at another contract? Clearly, an author who (with the help of an editor...) costs a publisher $21,528.60 isn't going to get another contract. But what about a book that makes a small profit? Are publishers going to be happy that it made any profit at all, or will they take their chances that some other author can turn a bigger profit? I'm pretty sure the answer will be "That depends...", but I'm curious.

[pnh.livejournal.com]

The fact is, if publishers were in fact as hardnosed as we imply we are when we talk about this stuff, only a fraction as many books would ever get published.

[vonandmoggy.livejournal.com]

Good, solid article. Having run a bookstore (www.perfectbooks.ca) here in Ottawa, Ontario for a number of years, it's always fascinating to see articles done from the publishing side of things. Most of it I knew (and I'm a BIG believer in P&L statements) but it's nice to see it posted regardless.

And now that I've left the bookstore to work on my graphic novel, it's all the more interesting (especially if I wind up self-publishing). The Direct Market (diamondcomics.com) operates on a non-returnable basis (all sales are final - yay! The discount you need to give is between 60%-65% off cover - boo!) so I'm trying to pay quite a bit of attention to the numbers side of things right now.

Good insights. Thanks!

Von

[alg.livejournal.com]

I don't know anything about graphic novel publishing, despite that we're doing one or two in our trade list. That is a steep steep steep discount, though. Whoa.

[heather-brewer.livejournal.com]

Fascinating stuff. Can't wait for part 2!

[alg.livejournal.com]

Thanks!

trade paperbacks

[(Anonymous)]

trade paperbacks are more popular than ever. After you do hardcover to mass market, please, please, please do an analysis if a trade paperback origina!

Re: trade paperbacks

[alg.livejournal.com]

see here:
http://alg.livejournal.com/84032.html?thread=1602880#t1602880

P & L

[(Anonymous)]

Thanks, I think. As an author I appreciate the insight. I'm trying to decide if I should be happy, sad or frustrated.
:0)
Alice Wootson
www.alicewootson.net

Re: P & L

[alg.livejournal.com]

You're welcome!

I think you should be all three. There's nothing wrong with being conflicted. :)

Wow, this is amazing.

[sandycou.livejournal.com]

Thank you for going into so much detail! All I can think, as an aspiring writer is, "Well, I guess I'm not going to quit my day job any time soon!" I'm also eagerly awaiting Part 2 for the "good news". Also, if I write a single title romance, I'm going to get myself an experienced agent who knows how to negotiate the contract for me!

experienced agent??

[(Anonymous)]

I don't know, I think getting an agent is harder than getting published. How do you go about getting an experienced agent? Surely they're not going to tell you they're inexperienced. Hey, maybe Anna will share with us some of her more professional agents that she likes to deal with? And you know, she's just controversial enough that she may even name those to stay away from...those agents the publishing houses shudder when they hear the name. What do you say, Anna?

[the-lady-m.livejournal.com]

SO this is why every book has to be a best seller.

*SIGH*

Well ok then - on to best seller dom I go.

Anna - have you got any ideas what a home based cover artist could do?

I just started playing around with covers for friends - and I guess now is as good a time as any to ask that question. SOme of them are pretty good. So wanted to know what was available - -if you have any concept. (If you want to see them on your spare time they are over at http://ladymwrites.blogspot.com ) Starting in March...

But I kinda would like to know if there is ever a chance in hell that I might be able to break into that industry.

Many hugs - thanks for the info.

Lady M

[alg.livejournal.com]

I am not sure, but it sounds like you're asking me about freelance cover design work -- which is the purview of the art department and has nothing to do with me. However, from what I know about freelance cover design, it generally costs about the same as doing it in house, and has far more variables.

Something that would be helpful

[deep-bluze.livejournal.com]

You emphasize several things that help a book, or hurt it. Among these things were blurbs from known authors, reviews, etc. What would be helpful to some of us would be somewhat of a breakdown of what sort of impact these things have, and a ranking of importance?

For instance, your Crichton is an Idiot author had one pity blurb, and their one good review was in RT (which I know you pretty much only get if you have a paid ad). The other review, in Booklist, was awful.

In your figuring of the P&L how much weight do blurbs carry? Unfortunately, until you've already been granted money to print the galleys, you won't get the reviews, but once you HAVE the good reviews, on an average, how much do they change the outcome?

I ask this as an author with solis A+ reviews from Publisher's Weekly, but on HC books out from smaller publishers. Blurbs good in both cases (and more available from best-selling authors) but there has been no interest thus far from larger publishers for either taking these books to mass market, or in subsequent books (also with the same good blurbs).

That leads to another question. Being with the smaller / medium level publisher, who does very very low print runs, does the fact that the print run is very low, and sells through count for anything, or is it only taken into account that a low number were sold?

I'm looking for a formula, I guess, to assign importance to different factors, as opposed to other factors, with an eye toward plugging all of the useful information you provided into a workable "plan".

DNW

Re: Something that would be helpful

[deep-bluze.livejournal.com]

(Sigh) SOLID A+ reviews, not Solis (not in typing, you see...the A+ is in writing)

How paperbacks came to be sold like magazines

[pnh.livejournal.com]

"Another reason is that paperback books are sold like magazines. You might think this is stupid. It is not. This is pnh's cue to jump in with a comment explaining how this all works and why."

Very simply, there are two kinds of books: trade and mass-market. The distinction is not actually one of binding or trim size; it's one of distribution terms.

Unsold trade books are generally returned to the publisher's warehouse whole. Unsold mass-market books are usually stripped and their covers returned -- or, increasingly commonly, the books are pulped entire, followed by an affadavit attesting that this has happened.

Most trade books are hardcovers and "trade paperbacks"; most mass-market books are rack-sized paperbacks, but there are exceptions in all directions.

Cheap paperback books have existed for centuries. The modern American "paperback revolution", beginning in the 1940s, was driven not by the invention of inexpensive softcovers (which already existed) but the invention of the mass-market paperback distribution model. The sequence of events went roughly like this:

[1890 through 1941:]

WOULD-BE PAPERBACK PIONEERS: "Stock our 25-cent paperbacks, please!"

BOOKSTORES: "Nothing doing. Two or three of them take up the same shelf space we could use for a $2.95 hardcover. Begone with you!"

[Exeunt omnes, pursued by World War II.]

WOULD-BE PAPERBACK PIONEERS: "Hey, it's the postwar period! Here's an idea: forget the damn bookstores, let's sell our 25-cent paperbacks through the same system of jobbers and wholesalers that distributes magazines and newspapers to every newsstand, drugstore, bus station, and grocery store in America."

MAGAZINE JOBBERS AND WHOLESALERS: "Okay, Mac, but you gotta make 'em strippable, just like COLLIER'S and LOOK. Also, make your lists monthly. None of this carriage-trade 'season' stuff for us burly, down-to-earth practical men."

PAPERBACK PIONEERS: "No problem. Here, have a couple of dozen titles."

AMERICAN PUBLIC: "OMG! SQUEE!"

PAPERBACK PIONEERS: "Have a bunch more!"

AMERICAN PUBLIC: "SQUEE SQUEE SQUEE!"

BOOKSTORES: "Hey, wait! Can we stock these too after all?"

Re: How paperbacks came to be sold like magazines

[roadnotes.livejournal.com]

I am impressed with the clarity of this explanation, and gobsmacked by the concept of pnh typing "OMG! SQUEE!"

The universe is indeed a strange and wonderful place.

Mass Market Returns

[thedragonweaver.livejournal.com]

I used to work for a Borders, so I'll just comment that the whole idea of a MM paperback being "pulped" is a bit of a dream. What we actually did was strip the covers and throw the books in the dumpster (because there was no good paper recycling in our area.)

Mind you, this was the same dumpster being used by the restaurant next door, so the phrase "turned to goo" isn't too far off. But this is why paperbacks have that little notice about "if you purchased this book without a cover..." printed on the copyright page.

Re: Mass Market Returns

[(Anonymous)]

This is all incredibly interesting. One question I have is what sort of books end up at Overstock.com or Bookcloseouts.com or those discount bookstores where they have the 'remaindered' mark a lot of the time. And how do those books get there? Is buying from those places hurting publishers or authors?