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

[slamlander.livejournal.com]

What you've just laid out is so much like the software publication business that it's scary.

Yes, I have a book out. However, the business model is completely different at Lulu. No, I don't pay for artwork, I do it myself.

I worked as a Product Manager, the software business equivalent of an editor. Yes, product life-cycle P&L can be a bitch.

[alg.livejournal.com]

Publishing tends to... well, be publishing. No matter where you are or what it is that you're publishing.

Sorry, I've never heard of Lulu. Is it an imprint of a larger house?

[stephanielynch.livejournal.com]

Excellent article even though I had to google Dominar Rygel the 16th. dammit.

[alg.livejournal.com]

Hahahah. Thanks. :)

[whitemunin.livejournal.com]

Excellent post, Anna. It just warmed my accountant heart to no end. And the numbers tell an intimidating story. There is a great deal riding on the sale of a book. The upfront capital alone just to get it to market is amazing.

breaking down some line items

[(Anonymous)]

Almost every paragraph in your fascinating post could spark another comment, but I'll keep this down to a couple of specific points based on the P&L, rather than on the more general publishing/sales & marketing/returns issues.

I'm a bookseller who also does some publishing -- see www.crumcreekpress.com for more about my publishing work and www.statelyhuangmanor.com for more about me. One of the authors in my publishing program was originally published by Tor/Forge; another one of my authors is currently with Tor/Forge (I have one of her deep backlist titles).

I'm puzzled by the inclusion of "fixed cost to keep the lights on in the factory..." in "typesetting and design." Does Tor/Forge own its own presses? If not, why aren't these costs covered under PP&B? My publishing firm contracts with a printing company (several different ones, actually) to manufacture books. Their fixed costs are theirs, presumably built into the PP&B price that I pay. I can't figure out why your situation would be different.

This question isn't necessarily worth asking just for itself, but it is part of my overall reaction, which is that you're spending way too much here. The PP&B cost isn't outrageous, but $2,700 for typesetting & design? What part is type and what part is design? If there's any cost here at all for type, why is there a cost? The author should have turned in an electronic file that could easily be adapted for design purposes. The last book I published -- my first fiction original -- came in on disk from the author. Even when we have paid -- to re-key a book that we were restoring to print -- the cost is generally $350 or less, start to finish. (Yes, I'm outsourcing to India.)

$4500 for printing covers? We run covers for marketing purposes along with the covers for production, which means we spend $100 to keep the presses rolling just a little longer to produce the extras, instead of the thousands it would cost to run covers twice, once for promotion, once for finished books.

I realize that everything in New York is more expensive, but these numbers sound really high.

Jim Huang
Crum Creek Press / The Mystery Company
www.crumcreekpress.com
www.themysterycompany.com

Re: breaking down some line items

[alg.livejournal.com]

We separate out our "manufacturing costs" from our PP&B costs. We do print about twice as many covers as we estimate that we're going to need, and sometimes we need even more than that and have to go back to press.

I'm sure the numbers look high to you, but they are real numbers that really exist. The way big NY publishing works, as I am sure you know, is really different from the way small press works.

And we don't outsource to India.

[edrik.livejournal.com]

Thank you for writing this. It was not actually far from what I would have expected, but I'm glad to have read it all the same.

Questions and Thanks!

[(Anonymous)]

First, THANK YOU for shedding a little light on the problems you face. As an unpublished author, these are the problems I face, too. And, now that I know more about them, it helps me understand the why (or, perhaps more importantly, why not.)

I have a question, though.

What if I offered my $5,000 advance back to the publisher as an investment in marketing?

Obviously, I believe in my book. Why not let me put my money where my mouth is? Even if I don't break even with whatever royalties I earn, my goal is to build an audience and warrant a second and third book. That's where the money is going to be made anyway, eventually.

It seems unfair that it should still be so hard to get published by a major house when I'm willing to share the financial risk. Even beyond the advance, why not open a door for authors who are willing to fund some of the other expenses in return for your brand and expertise?

Jeff

Re: Questions and Thanks!

[alg.livejournal.com]

Authors "willing to share the financial risk" are not actually sharing the financial risk. It only seems that way. The advance is actually shorthand for "advance against royalties" -- the publishing company still bears 100% of the financial burden.

[arador.livejournal.com]

So the author got a royalty of 8%...is that common? Seems somewhat low, since I know at least one author (relative) who gets ~18% royalties. Though the royalties probably vary based on the genre.

[alg.livejournal.com]

It is common NY big house publishing that on a mass original, the author receives 6% to 150,000 copies sold and 8% thereafter. It is just now becoming common NY big house publishing that on a mass market original, the author receives 8% to 100,000 copies sold, and 10% thereafter.

Bestselling authors receive a larger royalty.

Small press authors may or may not receive more. E-pubbed authors will often get up to 40% or 60% of the cover price -- less overhead = more profit.

[dunsany.livejournal.com]

It's why I went web-comic with my novel. Why try to break into an inudstry that's hurting when I can lead in a new one.

[kallisti.livejournal.com]

Thanks for writing that up. I can now point people at this...

I've heard this analysis of the costs of publishing a book any number of times...I used to run CAN-CON, an SF convention that David Hartwell used to frequent, and it always fascinated me how all of this anaylsis defines how a book can affect the career of a writer. It is scary how so much of the success of a writer depends on good estimating by publisher. A bad job of estimating will stall or ruin the career of a new writer, which is a shame. But it is an important piece of information for writers to know about, and plan their careers with.

ttyl
Farrell J. McGovern

...Co-Founder of CAN-CON, The Conference on Canadian Content in Speculative Arts and Literature.

[alg.livejournal.com]

Not only estimating, but any part of the human factor! What always scares me is how much luck everything takes.

[madamruppy.livejournal.com]

Great article, I wish I could have this to hand out to people who want to join my writer's group. They have all written the great american novel and know that it will make them tons of money. Gah.

[minnehaha.livejournal.com]

Fascinating. Thank you.

B

Strange

[ryanlrussell.livejournal.com]

Totally different market for the trade paperbacks, then?

I write for Syngress, technical books. They tend to be priced in the $30-50 range, list. I think printing runs are more often in the 8,000-12,000 range, costs per book are in the $15-20 range, returns actually are returned and restocked & resold. I take a pretty modest advance usually, if I take one at all. Being a hobby writer, I don't actually need an advance to pay the bills. I don't think I've ever lost money, as in had to pay back, on a book. Publisher keeps a reserve amount of royalties for returns until the book is retired.

And I mean "lost money" as in having to give some back. I'm not counting the fact that my time ends up being minimum wage sometimes. :)

Now, it's not just that my friends and I write killer books that always sell well. :) Is my publisher just structuring things so that I can't get into trouble? Just a totally different market for the tech books?

Re: Strange

[alg.livejournal.com]

Totally different market for the trade paperbacks, then?

Not entirely. But what you are describing is different -- technical books are non-fiction, not novels.

[captain-taybin.livejournal.com]

This was helpful to me, and I *work* in the publishing industry for a medium sized publisher. (of course, I only do IT, but whatevs)

Antitrust issues

[rakslice [typekey.com] (from livejournal.com)]

>Note that every single bookselling outlet corporation must be offered the incremental coop. If we offer it to B&N, we also offer it to Your Mom's National Chain Bookstore. It has to do with monopoly laws, I think.

Uh...

Don't publishers sometimes agree contractually to give a distributor a price that is no higher than they give any other distributor (a so-called "Most Favoured Nation" clause)? Of course, I imagine that publishers wouldn't want to have a lot of distribution agreements with such clauses -- and certainly not all of them -- because even a handful would constitute price fixing, which is 100% the opposite of what antitrust law requires.

Of course I don't mean to suggest this is why your employer does it; I'm sure there plenty of other possible reasons. Fnord.

Maybe the "cooperative" nature of the advertising turns the tables somehow...

>Don't quote me on that.

Whoops... Too late. =)

Re: Antitrust issues

[alg.livejournal.com]

I have no idea. That's more involved than I've ever asked the explanation to be -- this particular area is not one in which I am an expert.

Propaganda

[(Anonymous)]

Book publishers, like the music and movie publishers have always tried to convince everyone they lose money on every product and only run their business as a charity. It's simply not true. They would not keep doing it book after book, year after year if they did not make money.

The publishing houses have made their top people very rich off the work of others.

Re: Propaganda

[mariongropen.livejournal.com]

As someone who used to cut the paychecks and the royalty checks in a modestly sized publisher, I can only say:

Are you ***kidding?!!?***

Even the execs are severely underpaid for their level of talent, education, experience and effort. And let us have a moment of silence while we contemplate the sad and sorry state of compensation for the entry-level folks.

[beagley.livejournal.com]

Hi... gratuitous friending, here... I want to go back and read this a few times. Thanks for the insider's view!

I am especially interested in the, "However, she can't get another book deal to save her life," comment.

Is this a frequent occurence? Isn't it the publisher's fault, for giving the author too large an advance? Or was your comment more about the poor performance of the book than the fact that the advance wasn't met?

Can a book be written that only INTENDS to sell 8000 copies? I guess your example (mass market) doesn't really apply to that...

[alg.livejournal.com]

Can a book be written that only INTENDS to sell 8000 copies?

I don't know too many people who write a book saying they are only going to sell 8000 copies! Everyone wants their book to be the next 250,000 copy bestseller.

However, an 8000 copy hardcover run is not bad at all!

On Editor Compensation

[(Anonymous)]

Hello. Great article; sure shines a light on mass market book profitability!

I had a couple of questions:

1) Does an editor such as yourself have a bonus?
2) If so, is that bonus tied to the profitability of a book such as Crichton is an Idiot? Is it tied to revenue?
3) If not, what are the rewards to the editor for choosing profitable books? What are the disincentives to the editor when they choose an unprofitable book?

Re: On Editor Compensation

[alg.livejournal.com]

The answers all depend on which publishing company one works for and how profitable the book is.

In general, if an editor has profitable books, that editor will see the profits reflected in the P&L done for the editor at the end of the year by the finance department. It shows the profitablity of all the editor's books, and adds them all together to show the editor how much money the company spent on that editor's books, and how much money the books made for the company. If you make the company money, you generally will get a good performance review and a raise of some kind.

Editors are not "entitled" to anything like a bonus -- i.e., most of us do not have it written into our "contract" with the publisher that we get bonuses when books we edit do well.

Some editors might. Most editors are just hired and fired and given performance reviews, and sometimes get a couple thousand dollars in bonus for books that do well. That's not often, though.

I think I read somewhere that the kid who acquired The DaVinci Code got a $2000 bonus.

...and, IMO, the biggest disincentive to an editor for choosing unprofitable books is that every single book builds an editor's reputation -- every single successful book builds a good reputation, and the unsuccessful ones build a bad reputation, and an editor with a good reputation has a lot more freedom, and can actually use the good reputation to get more house support for his/her books.

I never knew...

[(Anonymous)]

Ya know, I spent 5 years working my way through college as a lowly bookstore clerk, and I never knew any of this! Damn man, I feel all stupid!

[(Anonymous)]

That to me says 'give up all hope ye who want to write books'. If your first attempt bombs you're unlikely to recover.

not always

[(Anonymous)]

All the author has to do is change her/his name. Clean slate.

Movie Biz and Why this isn't totally honest...

[(Anonymous)]

Well I should say it is totally honest. But the question is how does a company stay in business then? The answer is that it is the same model as movies. MOST movies/books do horrendous and lose money for the company. However... the ones that are profitable, are usually HUGE for the company... and off-set the loses.

10 projects lose the company $21,000 each for a total of $210,000. But they have one book that hits the NY Times best sellers list and makes them $500,000... that's $390,000 more and can off-set the cost of 10+ more projects. Plus that same book that hits the NY Times best sellers list, well it turns out that Ron Howard really likes it and wants to do a movie of it. He offers to buy the rights for $500,000. But oh wait... A smaller director wants to do it... and he wants it to be his firt big hit, so he offers $750,000. But Ron Howard can dish out more so he ups it to $1,000,000. You get the idea.

Books become profitable when they sell off the subsidiary rights, including movie, tv shows, paper back rights, foreign rights.

This right up makes it out to be that the only profits are people buying books.

Re: Movie Biz and Why this isn't totally honest...

[alg.livejournal.com]

You will notice that I say several times throughout both the comment threads and the post itself that this is one example, and should not be taken as the only example, nor as The Word Of The Gods Of Publishing.

The subsidiary rights for books are only profitable for the publisher when they are owned by the publisher, or when they affect the rights owned by the publisher.

self-publishing comparison

[stevewhan.livejournal.com]

Thanks for a wonderful analysis. It re-affirms the main reason I ended up going the self-publishing route. Here's my math for comparison:

1. Copyediting/proofreading: $300 per book
2. Cover artwork: $150 per book plus an 8% royalty to the artist for each copy sold
3. Layout, etc: free, I taught myself how to use QuarkXpress
3. First print run, 1000 copies: $4400 (glossy cover, good quality paper); Reprint, 1000 copies: $3300
4. Marketing: web site, http://www.autumnjade.com, $24.95 per month; email: free

Sales to date:

#1 Bullets on the Bund: 1454
#2 The Emperors' Pendant: 1039
#3 Sing Song Girls: 651
#4 Sisters of Shanghai: TBA later this year

I sell the books through my web site for $7.99 or the three set for $21.99. Doing the math that's ~$2.50 profit for a first printing and ~$4.50 profit for subsequent printings (books #1 and #2 are both into their second printings).

I get paid at the time of the purchase. I've never had a returned book. I will have stock as long as my niche market remains active (families like mine who have adopted children from China). I also have complete control over my intellectual property.

I can't imagine going the traditional publishing route, it's just not worth it for 99% of the authors in the world.

Thanks,

Steve Whan
Autumn Jade Mystery Series
http://www.autumnjade.com/

[imaginarycircus.livejournal.com]

Did you see the article in the most recent poets & writers about this same subject? I also spent the weekend meeting with Literary Agents who summed up what you said without all the detail. The publishing industry overwhelms me. I'll just sit over here and work on my second novel.

[defrog.livejournal.com]

Just wanted to say thanks for posting this, and that yr timing couldn't be better. I've just completed my first novel and and already working on the second, and while I always figured the book publishing game was harder and more complicated than it looked, well ... there's knowing, and there's KNOWING.

Reading this almost makes me want to quit while I'm ahead. Almost. But I'm one of those people who will write stories even if only my small circle of friends ever reads them. So I might as well submit them. Looking forward to future tips and advice.

Cheers,

This is dEFROG

Brava!

[mariongropen.livejournal.com]

I very much liked this entry. You did an excellent job of presenting something that's inherently complex in a simple way, and of translating accounting and math back into English. I have reason to know that it's hard -- I did an article on Single Title P&Ls for an industry newsletter a little while ago, myself. I don't think mine was nearly as accessible.

So, once again, kudos on a grand job.

[(Anonymous)]

Awesome redux of the lecture I got as an intern! Thanks, Anna!