The Profitable Publisher:
Making the Right Choices
Marion Gropen
Gropen Associates, Inc.
Copyright © 2010 by Marion Gropen.
All rights reserved. Published by Gropen Associates, Inc. at Smashwords.
All spreadsheets and charts excerpted with permission from packages produced and sold by Gropen Associates, Inc.
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Notice:
This publication is intended to help publishers improve the process of decision-making. It is not a substitute for your good judgment, nor should any information in it be considered applicable to all cases.
While every effort has been made to ensure the quality of the contents, there may be mistakes. Further, publishing is so complex, that no such publication can possibly be complete. You are urged to read widely in the ample resources available to you, and to filter all information through your own reasoning and experience.
Because of the above, neither the author, nor Gropen Associates, Inc., shall have liability or responsibility for any losses or damages sustained due to the application of any information contained herein. If you do not wish to be bound by those conditions, or if you are unsatisfied with any part of this publication, Gropen Associates, Inc. will gladly refund the purchase price. No further warranty should be understood or implied.
This work is dedicated to all of my students, who have helped me refine my approach to teaching this material, and to my daughter, Miranda, who is always my first reader and editor.
I'd also like to extend special thanks to early readers of this work. They bear no responsibility for any errors, but should be credited for many of the good points. Prominent among them were Jacqueline Simonds who owns Creative Minds Press and Beagle Bay (publishing and distribution), and my father, T. Gerret Dewees.
Table of Contents
Introduction
How To Estimate Sales
Estimating Costs: Cost of Goods Sold
Estimating Costs: Marketing
Best and Worst Cases
The Most Useful Tool
Example: Are We There Yet?
Example: Setting A Price
Incremental Analysis
Example: To Do Or Not To Do (This Deal), That is The Question
Some Last Lessons From The School of Hard Knocks
Any Questions?
Introduction
Most publishing folks would rather have their teeth pulled than wade into their "numbers." But, if you want to survive and thrive as a small press, you can't afford to avoid the math.
My aim here is to get you past any difficulties, painlessly. I've never found anyone who couldn't learn this material. Nor have they ever needed anesthesia! You can do this. You may even enjoy it.
The most important contributor to profitability is finding your mistakes in the planning stage, rather than after you've made them. The best way to start is by projecting what each book will do in a number of different circumstances.
We'll look at sales, at cost of goods sold, otherwise known as COGS, at marketing expenses and plans, and at how you bring them all together in a useful way. Then we'll experiment with ways to project the likely range of results, and use those numbers in planning.
We'll discuss my favorite tools for doing all of the above, including a type of P&L (Profit and Loss report) that I'm particularly fond of, and we'll be looking at examples all along the way.
Our number-crunching examples include
Estimating sales of future titles,
Setting the price of a new title, and
Deciding whether or not to take a high discount, high volume deal.
Before we start, let me introduce myself, so you can put what I say into context. I've been in publishing for 19 years now: five as an accountant with a Simon & Schuster unit, then eight as an executive running finance and operations part of a modest-sized company ($5 to $10 million per year), and for the last six years, I have been advising very small publishing companies. I tend to focus on trade books, or on niche non-fiction.
Our next housekeeping issue: some of you are reading this on an e-reader that makes reading the spreadsheets difficult. You can download pdf files of every spreadsheet from this part of my site: www.GropenAssoc.com/downloads/decision analysis.
Our last detail: feel free to contact me with your questions. I believe that feedback is critical, and learn best from the questions raised by my students, clients and readers. The easiest ways to find me are to:
Email me at: Marion.Gropen@GropenAssoc.com,
Ask your question in a comment on my blog, (hosted on my site, www.GropenAssoc.com), or
Ask the question on one of the larger publishing email groups or lists.
Now that we have the housekeeping out of the way, let's talk about how you can increase your profits, shall we?
How to Estimate Sales
Everything starts with sales. This number drives most industries, and we're no exception. Can you ever be certain what your sales will be? No. But you can do better than a gut-level guess. You can start by selecting the best set of comparable titles possible. If you have a marketing staff, this is part of their contribution to the team effort.
There are a number of ways to go about making projections. I'm going to discuss just three. Those three are:
Guesses based upon experience,
Estimating the sales of comparable books, and
Extrapolating from the planned marketing campaigns.
Let's start with the "guess method." If you happen to have a deep well of experience in this industry, you may be able to look at a book proposal, or sample chapters, and tell exactly what the resulting title will sell. There are, indeed, a few editors who can do that, and who can even tell authors exactly how to adjust their work in order to improve those numbers. Unfortunately, the vast majority of publishing people have less accurate intuition. We need more overt procedures, producing more reliable results.
Looking at the sales of comparable titles is one of those better methods. Start by developing a list of very directly comparable books. And, yes, some of you have books with unique content, but, given that there are more than 400,000 new titles produced in the US every year, there are always comparable titles.
When developing your list of comparables, you should select them based upon:
The need they fill,
The audience they fill it for,
The publisher,
The platform of the author,
The type of distribution, and
The likely marketing resources.
In other words, if you're a small press publishing travel books, your comparables aren't really Fodor's or Frommer's. The comparables are other small presses' travel books. The big presses' books are your competition (and you must match or exceed their appeal on almost all levels), but that doesn't mean you base your sales estimates upon them.
Once you find your "comps," you then estimate the sales of those books. You might do this using Ingram's iPage, or Bookscan, if your book will sell through bookstores. Or you might approach an acquaintance at one of those publishing houses. Trading information on sales is one thing that publishing professionals do frequently.
You can also try to convert Amazon sales ranks into estimates of the other title's past sales. This is where we start using spreadsheets. The computations are too involved to do it all by hand!
Collect the sales rank for each of your comps. Watch them until you know their normal range. Pick a number in the middle of that range for each title. There are services that help you track these ranges, including TitleZ and Sales Rank Express.
Here's a list of comparables and their average Amazon sales ranks. "Conversion Factor" is my name for a number that helps you convert a title's average Amazon sales rank into an estimate of the number of copies it sold through Amazon. Don't worry about it yet.
This spreadsheet excerpted, with permission, from the Gropen Associates' Pricing Package.
As you know, the sales ranks aren't the same as sales. Instead, within a given range, they're approximately proportional to the inverse of the sales rank.
Do you want that translated back into English? I thought you might! Let's slow down, and take it step-by-step.
Say that this title's sales rank wobbles around an average of 20,000. Divide 1 by that average sales rank (20,000), like so: 1/20,000, which can also be written: 0.00005.
That's the inverse of the rank.
Inversely proportional means that the sales will be roughly equal to some number, A, times the inverse. That number, A, is what I'm calling a conversion factor. It is specific to your book's range. To find it, you either use numbers for sales through Amazon and ranks for a book you know well, or you look at the data accumulated by Morris Rosenthal at Foner Books.
Our hypothetical title's comparables are in the range from 15,000 to 65,000, and our hope is that our book will sell in the 20,000 range. I looked at Morris' site, www.FonerBooks.com, and found his graph of approximate ranks vs. weekly sales. I found the sales rank of 20,000, and it showed sales of almost 10 copies/week, or 500 per year. (We're rounding things, to remind ourselves that these are all estimates, with lots of wiggle room.)
The conversion factor (CF) will be 500 times 20,000. Why? Well, using the algebra you vaguely remember from school, you have solved the equation:
CF/20,000 = 500, to find
CF= 500 x 20,000 = 10,000,000.
In summary, on the spreadsheet above, the 20,000 is the center of the range we're interested in. The "conversion factor" is the number that we divide by the rank to get an estimate of the sales for the comparable title. And the comparables are listed, with the ranks around which they hover, and the annual sales through Amazon that those sales ranks imply.
A few important notes: Nothing about book sales is written in stone. The calculations you are performing are estimates, and are dependent upon your selection of comparables, and the quality of the information you find about each of them. Second, when an estimate looks wrong, it probably is. Never, ever, ever let your calculations over-ride your common sense and experience.
Going from sales through one channel, to total sales: Once you have estimated sales for your comparable titles through each channel (Ingram, bookstores in general, and Amazon) as well as any insider information, try to understand how sales through those channels relate to your total sales.
Let's suppose that you have a very normal trade book – the kind that sells best through bookstores. Then you might say that Ingram will be about 50% of your sales, and that Bookscan will capture about 70% of your sales. Your insider would have information on all the sales, and Amazon might have about 1/8th of the total.
For other books, Amazon might be 30% of the total, or even more. Books that aren't really suitable for the average bookstore tend to sell large fractions of their volume online, and Amazon has most of the online market, as we all know.
Knowing this information about each channel, you take your estimated annual sales for each channel by book, and you divide them by the fraction of your total sales that might go through that channel. That gives you an estimate of that title's total sales. You'll have a different estimate from each channel.
Average all the estimates for each title, and you have a pretty good guess at how many books each title sold. It should be better than an estimate based on data from any one source alone. Errors based upon information from different sources usually cancel each other out.
Below, you see an example of those calculations:
This spreadsheet excerpted, with permission, from the Gropen Associates' Pricing Package.
When you know how the competition is selling, you have a couple of options: you can either project your sales as the average of the comparable titles' sales or try to guess how much better or worse your title will sell than each of the others.
Our last major sales estimation technique requires that you estimate your book's sales from each campaign in your marketing plan. Look at each one separately. How many of your desired readers are in the audience for it? What fraction of them will buy based on that exposure? (This number is rarely higher than 1%, and if your definition of the target reader is broad, it will be much lower.) Sum across all of your campaigns, and that's a good ballpark estimate of the number of sales you might be generating.