Business: The Dirty 8-Letter Word of Writing

Autumn is in full swing as I write this, and that can only mean pumpkin spiced everything, fall foliage, the reassuring smell of chimney smoke, and publishing budgets.

Wait, what?

One of the most eye-opening experiences in the lives of many new authors comes during the year before and after publication of their first book.

Until that time, they have been steeped in the warm, encouraging womb of creativity, nurturing their manuscripts forth from the boundless abyss.

And then they come to realize that there is a whole other side to the writing game about which they have known very little: the numbers game of the business side. Print runs, publishing slots, stocking issues, shelf placement, and sell-through percentages. Mergers and trends, the effect of covers on sales, and the ever-changing tastes of the readers’ market. It’s a dizzying array of new jargon and industry slang.

It’s important for aspiring writers to arm themselves with as much knowledge about publishing as they can get. Learning as much about the sales process—laydown, sell-through, reversion rights—as you can will help you understand what’s going to happen and prevent many common miscommunications. Understanding copyright law, contract law, and accepted business practices within publishing means you are less likely to be taken advantage of and more likely to develop strong working relationships with your editors. Understanding what happens when you miss a deadline makes you less likely to miss a deadline. Knowing what rights you’ve signed away in your contract makes you less likely to pester your editor with inane questions. If you comprehend the business, you can be a part of the business.

Independent Doesn’t Mean ‘Alone’

There’s a common misconception that writing is a solitary act, and many writers buy into this myth. I know I did for a long time. I had a friend who was an aspiring movie director, and I remember helping him on many of his student films during the course of our misspent youths. There were grips and best boys to manage, lights and cameras and audio equipment to acquire and deliver to the set, setting details to manage, scripts to rewrite, and actors to wrangle. I remember saying to him on more than one occasion, “Man, I’m glad I’m just a writer. I don’t have to put up with all this nonsense, working with other people.”

But of course, I was wrong. I later spent twenty years as a cog in the mechanism of traditional publishing, I’ve participated in the publications of hundreds of books, thousands of magazines, and tens of thousands of journal articles. And over the last two years, I’ve been working independently with self-publishers who have really opened my eyes to the truth of the matter.

Writing isn’t a solitary act at all. It’s a collaborative venture. At nearly every point in the process, other people—editors, publishers, marketing directors, sales reps, and many more—will impact what a writer creates and how that work gets into the hands of readers.

And all those other people? They want to put dinner on the table just like you, which means working with them costs money.

The Dread P&L

If you’re seeking traditional publication, you may not already be familiar with the Dread P&L, aka, the Profit-and-Loss analysis that publishers use as a tool to determine which projects they will take on and which they will let go. Also known as a costing in the British publishing industry, it details the hard facts, like how much it will cost to edit, produce, market, and distribute the book, and the much more squishy “facts,” like how many copies the publisher expects to sell. The P&L is then used (along with the entrails of chickens and the casting of bones) to divine whether or not the book is a good business prospect for the publisher.

Many an aspiring writer has lived and died by the Dread P&L, for it often spells the difference between a good book and a marketable book.

If you’re an independent publisher, you might think to yourself, “Whew, thank goodness I don’t have to put up with all this nonsense, working with all those other people.” To you, I would say, “Have another think.”

  • Do you need a book cover? They cost money.
  • Do you need a book designer to do your interior layout? They cost money.
  • Do you need marketing, promotions, and advertising? They all cost money.
  • Printing, distribution, shipping costs? Guess what?

“Oh, but I do all that myself.” Great. How much are you paying yourself? That’s a cost of doing business. Not paying yourself? Then what is your time worth? Like the man said, “Time is Money.” Your time is still a cost of doing business, even if you figure it in hours, days, weeks, months, and years rather than hard currency.

Whether you’re traditionally publishing or self-publishing, it pays to understand the principles behind the Dread P&L. For traditionals, it can help you to understand that the rejection slips that keep ending up in your mailbox really are nothing personal. For indies, it can make the difference between making a living as a professional writer, or taking that job at Arby’s you never really wanted.

So How Does a P&L Work?

In most traditional publishing companies, acquisitions editors (commissioning editors in the UK) are responsible for putting together the P&L for every title they propose to sign. Books “under consideration” are expected to hit the publisher’s target profit margin before the acquisition editor is allowed to waste the pub board’s time with a proposal. The pub board is a weekly assemblage of key company players in editorial, sales, and marketing who collectively give the green light to contract authors and titles. Often, the advance that an editor can offer to an author is no more than the P&L indicates will be earned out through sales of the first print run.

The traditional publishing P&L is really not much different than any other business plan or pro forma. Though each publishing company has their own proprietary P&L formula, the principles are universal. An uncommonly public example from Berret-Koehler, an “outside of New York” publisher, can be found online, and is reproduced here for your convenience.

Here's an example of a P&L from Berret-Koehler, an outside-of-New-York publisher. It was distributed as a handout at the IBPA Publishing University Conference in San Francisco on 3-10-12 and was found here (http://www.slideshare.net/davidpaulmarshall/berrettkoehler-publishers-new-book-pl)

Here’s an example of a P&L from Berret-Koehler, an outside-of-New-York publisher. It was distributed as a handout at the IBPA Publishing University Conference in San Francisco on 3-10-12 and was found here.

Basically, you want to calculate your costs (the “losses” in “profits and losses”), subtract them from your sales and still end up with a positive number (the “profits” bit). Preferably a very large positive number. In other words, you want your sales to offset your costs and provide a tidy sum on the side.

Seems easy enough, right? Well, here’s the dirty little secret: sales forecasts (the number and value of projected sales for the first year or two of the book’s lifespan) are largely guesswork. Unless it’s the latest title in an established series or penned by a well-known brand (i.e., a Kardashian), and therefore has a built-in fan following that can be counted upon, no one really has any idea how many copies it will sell.

The weatherman on your network evening news has a better chance of predicting next Tuesday’s weather than most publishers have of predicting a book’s actual sales. In fact, it’s not unheard of for an acquisitions editor to bump up the projected sales to make a book look like a better investment.

Some publishers calculate their P&Ls backward from a standard author advance (for example $5000). Others calculate the author advance only after taking into account all other costs. Whatever the case, for our purposes here, we’ll assume that the author advance is a fixed cost. If you’re a self-publisher, this is how much of your business costs go to paying you.

Other title-specific costs also need to be taken into account:

  • freelancers (copyediting and proofreading)
  • cover design (fees for illustrators or photography, as well as freelance graphic design if needed)
  • a modest marketing budget (for titles in which there is much faith, this budget might easily run into five figures)
  • “other” (ghostwriting, permissions costs if not covered by the author, indexing if not charged against the author, interior art or illustration costs, etc.)

Already, you can see that there are a lot of little birds who might be dipping their bills into the relatively small bucket of money that goes into publishing a book.

An out-of-date book price chart for printing of soft-cover books, courtesy of Gorham Printing.

An out-of-date book price chart for printing of soft-cover books, courtesy of Gorham Printing.

But wait! There’s more!

Let’s not forget manufacturing costs. The unit cost of manufacturing a book depends on several factors, but page count, trim size, and print run are the primary determinants. As a rule of thumb, as the print run decreases (fewer books produced), the unit cost increases. This is due to what’s called “economy of scale”: Manufacturers can afford to offer lower production costs for larger print runs, because they earn the difference back through the larger scale of the job.

But wait, there’s still more! Freight costs will eat up about $0.08 per unit (book), assuming the title is printed domestically.

And then there are the overhead costs!

  • Internal editorial staff
  • Internal design staff
  • Legal fees (registering copyright, securing permissions, contract reviews, due diligence, etc.)
  • Infrastructure and capital investment (computer equipment; website development; the company Christmas party; the CEO’s lovely corner office with a view of the East River; the Strategic Planning Committee’s multi-million dollar “annual strategic planning meeting” in Provincetown, Massachusetts; etc.)

And then there are the returns (any retailer can return any book to the publisher, no matter how long ago they purchased it, and expect full-credit toward future purchases), and the discounts (publishers offer retailers a discount on purchases in exchange for in-store marketing and promotion of books; i.e., those pop-up displays at the front of your local B&N).

With all this information in hand, publishers then make their best guess at the number of sales they might expect, multiply by the retail price of each unit “sold,” and compare to the costs. In the simplest economic terms, if the revenue from sales exceeds the costs, the book has broken even or (better yet) turned a profit.

What This Means for Indies

If you’re a digital-only self-publisher, you’ll have lower ongoing costs. You might be a one- or three-person show, so your internal costs for wages will be much lower than a traditional publisher. You might be working off the kitchen table, so rent and utilities might be personal expenses, rather than business expenses. And once you’ve paid up-front for things like editorial and artwork, your subsequent digital ebook distribution costs are reduced to almost zero. Once you’ve produced the master ebook file, your manufacturing costs are done, whether you sell two books or two million books. Unless you’re selling more than 500 print books, you can used digital printing to gain cost-savings and it’s a once-and-done cost.

By comparison, a traditional off-set print publisher has to pay additional manufacturing costs if the initial print run sells out and enough demand still exists to justify second and subsequent print runs.

This is all to the good for indies. All you have to do is increase profitability if you aren’t expecting much in the way of additional costs.

But be wary! As a rule, there are two ways to increase profitability: increase sales or decrease costs.

Decreasing costs can be a valuable short-term strategy, but reduced costs often come at the expense of reduced quality. Indies are all familiar with the ghettoizing accusation that independently produced titles are, by definition, inferior to traditionally published titles. In many (by no means all) cases, this is often a true side-effect of attempting to reduce costs as close to zero as possible. However, the sad fact is that a low-quality book will often chase customers away to the point that both costs and sales are reduced to zero, as well as give the entire indie publishing industry a black eye.

So the smart money is on increasing sales, and this is where indies with digital titles have an advantage. Digitally produced books, whether in print or as ebooks, never go “out of print” and rarely incur additional costs (unless you introduce additional products like audio books, or run periodic promotions to boost lagging sales). Thus, indies can continue to count on long-term sales (the so-called “long tail”) and their newest books become advertisements for their entire catalog.

The Moral

If you’re a writer who intends to sell your work in the marketplace, you cannot be an island. You will need help, whether from volunteers or professionals, if you’re going to succeed in an increasingly competitive sales environment.

Produce the highest quality book available to your budget, track your costs versus your sales revenue, play the long game, and work toward increased sales. If you must decrease costs, try to do so without sacrificing quality.

Knowing the business of publishing, either as a traditionally-published author or as a self-publisher, is critical to becoming a successful author. You can cross your fingers and ask stupid questions, but you’ll get a lot farther if you do your research and learn the trade and the industry.

Resources

Three sample P&Ls (non-proprietary) in Excel format. (Disclaimer: Proprietary calculations and identifying information have been removed from sheet #2. Costs, prices, and formulae in sheets #2 and #3 are for example purposes only.)

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I am currently publishing a serialized fantasy novella, Hedge King in Winter, on Wattpad. I also have a full-length heroic fantasy novel currently on offer to publishers, tentatively entitled Heron Cry.

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About

Michael Dellert is an award-winning writer, editor, publishing consultant, and writing coach with a publishing career spanning 18 years. He is currently working as an independent freelancer. He lives in the Greater New York City area.

Posted in Publishing, Self-Publishing, The Business of Writing, Writing Life

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The Author
Michael Dellert is an award-winning writer, editor, publishing consultant, and writing coach with a publishing career spanning 18 years. He is currently working as an independent freelancer. He lives in the Greater New York City area.
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