Tag s | Writing Craft

Who Gets Paid in Publishing?

The economics of publishing is a bit of a mystery if you are just coming into the business. With all the talk about indie 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.

A detective in a movie says, “Follow the money,” so we shall. But first a disclaimer. These models are estimates for the traditional publisher, based on years of reading contracts, profit and loss sheets, spreadsheets, and royalty statements. Your mileage may vary.

Follow the Money

Let’s start with a paperback book that retails for $15.00 and is projected to sell 10,000 copies the first year.

Expenses per book sold:

Trade Discount $8.25 55.0%
Print Cost $1.25   8.3%
Royalty to Author $1.08   7.2%
Production $1.00   6.7%
Marketing/Publicity $1.00   6.7%
Publisher Overhead $2.00 13.3%
Total Profit $0.42   2.8%

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).

I could have set this up with the following expenses as a percentage of the net receipt but chose to base these numbers as a percentage of the retail price for simplicity’s sake.

Print cost: $1.25 (based on the cost to print ten thousand books at 240 pages in length; includes freight to the warehouse). Prices fluctuate, depending on the printer, paper availability, type of paper stock, number of books printed in a single printing, etc. If you were to use print-on-demand, each book would cost approximately $3.60 for a 240-page book.

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 $1.25). Note that this scenario does not account for any upfront advance dollars paid to the author. If the author was given a $10,000 advance, the monies earned in this column would go toward offsetting that expense.

Production: $1.00. This is where they pay for the editorial work (content, copy, and proofreading edits); cover design; and typesetting. While this is a fixed cost, I’m basing this on the first 10,000 sold or about $10,000. (This may seem high, but the top-level editors and designers are worth their weight in gold.) Even if all work in this section is done in-house, it is still an expense that must be covered (salaries/benefits).

Marketing/publicity:  $1.00. (This is 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. Also do not forget that the editorial department is involved in writing back-cover copy, writing catalog copy, proofing advertising, and more.

I intentionally separated sales (see below under overhead) from marketing. They are separate divisions in a publishing house with separate budgets.

Publisher overhead: $2.00. This is where each book sold contributes to pay for office space (rent and utilities), warehouse, returns of unsold books, sales-team expense, telemarketing, accounting (accounts payable and receivable), legal fees, bad debts, unearned advance write-offs, administration/management, nonbook-related editorial costs, etc.

Six things to note:

(1)      Ebooks only eliminate the print cost. There are still production costs that 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. Recently, an article interviewed an author who claimed to have spent only $300 to produce their book. That author obviously did not pay for freelance editors.

(5)      Before you look at that 13.3% 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? Or a dry cleaners? Or a bookstore chain? What about your own business? What about your church? (You mean a church has overhead/expenses?)

(6)      It is not necessarily true that having more books creates less overhead per book. Certainly there is an economy of scale in some service areas, but we are using generic estimates in this post. One cannot compare Penguin Random House with Small Press Ten Titles Book Company.

Bigger Picture

If we create a cost analysis of the above model, except this time do it on selling 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 10,000 copies the first year. A value of $150,000 at retail.)

Expenses (combined):

Trade Discount $82,500 55.0%
Print Cost $12,500   8.3%
Royalty to Author $10,800   7.2%
Production $10,000   6.7%
Marketing/Publicity $10,000   6.7%
Publisher Overhead $20,000 13.3%
Total Profit $ 4,200   2.8%

Remember that model is for the first printing.

Note that if the author received a $10,000 advance paid before publication, that has been offset by royalty earnings and the author has received an additional $800.

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. Similar efficiencies apply if this were an ebook.

Go back to that “Production” section. Who gets paid there?

Editorial: $6,000 (again, a variable cost but if you consider hiring a high quality content editor, a copy editor, and a proofreader or two, the cost will add up). There can be as many as five or more editorial people involved in the direct editing of a book.
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 ebook that was formatted wrong? This is the place where that kind of error can be fixed.)

But wait! Go back to that “Publisher Overhead” thingy again. Who gets paid out of that stash?

Sales expense: $1,500 (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.)
Production manager and managing editor: $2,000 ($1k per person per new book published–a wild guess). These people are critical to the smooth running of a large publishing house. The production person is not only involved in this one title, but also the inventory management and printing of older titles. If a book (4-color) is being printed overseas, there are a number of logistics that must be managed. The managing editor insures overall work flow inside the editorial department. In my days at Bethany House as editorial director of nonfiction, I leaned heavily on my managing editor.
Acquisitions expense: $500 (a wild estimate for this contribution). What about all the time the editors spend reading proposals and full manuscript submissions only to have to decline them? That is time not spent on editing contracted books. That expense is part of overhead that does not produce sales.
Administration, legal, accounting, IT, building maintenance, corporate taxes, etc.: $14,500. The money to pay the rest of the infrastructure has to come from somewhere.

A client of mine, a debut author, visited the headquarters of his new publisher last Fall. He said, “I met 35 people who were involved in the management, production, marketing, and sales of my book. I had no idea!” Imagine if he were an indie author. He would have to be all 35 of those people and be an expert in every aspect. That is why a traditional publisher keeps around 80% of the net revenue (approximately 20% going to the author in royalties). Those people have earned their living.

[A previous version of this blog was posted in October 2011.]

 

Leave a Comment

The Only Answer

Hope you had a blessed Christmas!

The last four weeks I have posted what was, in actuality, an Advent series. Note the key words in each post:

Wait
Prepare
Expect
Give

 The Christmas season is one that is full of family, fun, food, and friends. But under it all is the foundation of our joy. The answer to our greatest longing. Of course, saying there is an answer assumes there is a question. Finances, relationships, job, writing, family, church, and school all ask different questions.

Read More

Writers Give to Others

My hope is that this headline is true. While the writing profession (or obsession as some describe it) is a solitary one, it is in giving to others where its impact can be felt.

Time

The gift of time is precious as we are given a finite amount in this life. To mentor another writer. To blog freely. To teach at a conference or school setting. All are example of a beautiful way to both give and receive.

Talent

To use your talent to its fullest is a gift to others. To hone that talent so that it crescendos into the heart of a reader should be the goal of every writer. This talent must be shared. To hoard it for oneself would be a travesty and tantamount to the deadly sin of greed.

Read More

Writers Expect Good News

Writers expect good news…any day now. Is it the curse of eternal optimism?There is this hope within each writer that it will be their manuscript that is chosen for publication. And the money will rain on them like a spring shower.

Despite the odds.

Despite the competition.

Despite the cynical, horrible, no-good, very-bad agents who review them.

Expectations

Are these expectations realistic? Of course they are. It is the essence of hope. For without hope there is no reason to continue the pursuit of the craft. You have to believe that you have what it takes.

Are these expectations practical? Of course not. Who said the writing profession was “practical?”

Read More

Embedded Writing

During World War II, one of the highest profile journalists who wrote about the war for Americans back at the home front was Ernie Pyle. Ernie was one of the first “embedded” journalists in wartime and he lived and wrote while among the soldiers. He focused his stories on individual …

Read More

Brainstorming: How and With Whom?

Brainstorming is one of the fun parts in the development of a book. The key for the author is a willingness to hear other ideas. The second, and most critical key, is discovering those with whom you should brainstorm. Those people need to be willing to have their ideas rejected in the discussions and be willing to let an idea they created to be used by someone else. It takes a special person…many times a professional…to achieve that.

I’ve heard complaints from some authors who try this in a critique group only to be frustrated. Egos get in the way or the ideas generated are singularly unhelpful. Or the discussion doesn’t move the project forward, instead it gets sidetracked by numerous differing opinions on the direction of the piece.

Read More

How to Annoy Your (Fiction) Readers

Some people are more annoying than others—and you know who you are. And some writers are more annoying than others—and you may not know who you are. So I’m here to help. Here are six ways writers of fiction can annoy the heck out of the readers: Give your characters …

Read More

Promotion: Faithful or Self-full?

“What’s the difference between promotion and self-promotion? How do we promote ourselves/our books so that we honor God, respect others, and use common sense?”

The constant tension between marketing and ministry has plagued the Christian author, speaker, bookseller and publisher forever. Why? Because Jesus threw the money changers out of the temple. Because we are commanded to die to self and to humble ourselves in the sight of the Lord….

And yet, our society…our culture insists, even demands, that we market and promote our message.

Read More

Create Magic with Words

Years ago, I took my five-year-old daughter to Toys R Us to meet “Barbie.” “Barbie” turned out to be a cute and charming teenager who, yes, looked like the classic blonde image of the doll. She wore a pretty pink gown. I expected a lot more fanfare around this event. …

Read More