by Steve Laube
With all the talk about Independent publishing vs. Traditional publishing and the talk about how writers can get rich if they follow a certain plan…I got to thinking. Maybe we should do a quick look at the Economics of Publishing to see if anyone is making off like a bandit. Sorry for you non-numbers people, but it is critical to understand the infrastructure (i.e. the lifeblood) that keeps your ideas in print.
The detective in the movie says “Follow the money,” so we shall. But first a disclaimer. These models are estimates based on years of reading contracts, profit and loss sheets, spreadsheets, and royalty statements. Your mileage may vary.
Follow the Money
Let start with a paperback book that retails for $15.00 and is projected to sell 10,00 copies the first year.
Expenses per book:
|Royalty to Author||$1.08||7.2%|
Explanation of each line item
Trade Discount is the discount given to the retailer/wholesaler: $8.25 (I’m using a 55% discount as the average. This number can fluctuate wildly depending on the account which is buying the book.)
This leaves $6.75 for the publisher to work with. (also known as the Net Receipt)
Print cost: $1.25 (based on the cost to print a ten thousand 240 page books. Includes freight to the warehouse)
Royalty to author: $1.08 (based on a 16% of net royalty rate. On contracts that use a 7.5% or retail royalty this number would be $1.125)
Marketing/Publicity: $1.00 (a wild guess that varies from book to book and author to author and where the money is spent. But in general conversations the publisher will look at a book’s first year sales projection and plan on $1 per book sold to determine the marketing budget.) This cost also includes any graphics design work for catalogs, advertisements, banner ads, etc.
Publisher overhead: $3.00. This is where they pay for the editorial work (content, copy, and proofreading edits); cover design; typesetting, warehouse, collections, sales team expense, telemarketing, accounting, legal fees, administration, etc.)
Five things to note:
1) Ebooks only eliminate the print cost. There is still production costs which fall under the publisher overhead section.
2) There is no mention of the cost of returned inventory for unsold books. I lump that into the Publisher overhead cost.
3) Many independent and maverick writers will be thrilled to read this saying “Whoopie! I can get rich because I not only keep the royalty, I keep the publisher overhead too!” And there is the rub. If the author can generate the sales and is willing to handle the infrastructure, then indie is a distinct possibility. But realize you are going into a business, not a hobby.
4) Independents must face the fact that there are costs associated with creating a fine product. Nothing gets published for free. Even time costs money.
5) Before you look at that 20% for the publisher overhead and start railing against the “money-grubbing” evildoers called “publishers,” stop for a moment. Would you say the same thing about a car dealership? (bad example) Or a dry cleaners? Or a bookstore chain called Borders? What about your own business? What about your church (ouch. You mean a church has expenses?).
If we create a cost analysis of the above model, except this time do it on the entire print run (multiplying everything by 10,000) we get the following profit and loss projection:
(Paperback book that retails for $15.00 and is projected to sell 10,00 copies the first year.)
|Royalty to Author||$10,800||7.2%|
|Total Profit||$ 420||2.8%|
Remember that model is for the first printing.
On a second printing there is no longer a cost for the cover design or editorial or typesetting. And even other costs become more efficient. So if a publisher is able to cover their cost on the first printing then they start making money. And the same efficiencies apply if this were an ebook. (And in this scenario, if the author had been given a $10,000 advance they would be getting a new check for an additional $800.)
But wait! Go back to that “Publisher Overhead” thingy again. Who gets paid out of that stash?
Editorial – $5,000 (again, a variable cost but if you consider hiring a high quality content editor like our own Karen Ball, a copy editor, and a proof reader or two, the cost will add up)
Cover Design – $2,500 (variable. I’ve seen cover designs cost $5,000. And if the designer is in-house then the cost is absorbed into general overhead.)
Typesetting – $500 (variable. Freelancers used to charge as much as $8 a page, but desktop publishing destroyed that price structure. But there is still a cost to have this done well. Have you bought an e-book that was formatted wrong? This is the place where those kind of errors can be fixed.)
Sales expense – $1,000 (if the publisher uses a commission based sales company then this number can vary. If it is in-house the cost to travel and manage an account properly is still the responsibility of the publisher.)
Warehouse – $1,500 (a wild guess because it is nearly impossible to do cost account per book against the cost of maintaining an entire warehouse. Usually that total cost is simply divided by the number of books in the warehouse.)
Admin., Legal, Accounting, I.T., Building Maintenance, Corporate Taxes, etc. – $19,500 The money to pay the rest of the infrastructure has to come from somewhere.
If there are any publisher types out there who read this and wish to chime in and verify or correct? Please do so!