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independent publishers guild
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Pricing
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In order to make any profit, the publisher must price a book at a level that more than provides for bookseller discount, all direct costs associated with that book, and all overheads. But it makes no sense to price at that level (or to do the book at all) if it makes the product too expensive for customers to actually buy. Conversely, if you find that the market price coupled with the expected sales provides an even bigger contribution than you normally expect, then do not reduce the price: no one would thank you for a decrease in price and you might manage to ‘subsidize’ past mistakes.
The approach here is prescriptive and assumes that the publisher wants to make a profit. If the publisher is a not-for-profit organization then it will still need a certain level of net profit in order to invest in further new titles.
Determining a market price
Deciding what consumers will be prepared to pay for a book is (unless you are Readers Digest) more of an art than a science. Nevertheless, there are some obvious avenues to walk down.
How are similar or competitive books priced?
To research this question you might acquire competitors’ catalogues, use Amazon as a database, browse the relevant sections in terrestial bookshops, and ask sales reps and booksellers(as they can tell which books actually sell at what prices).
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Does the length of the book or the type/number of illustrations appear to make a difference to the market price?
These factors obviously affect the production costs but they may not affect the market price proportionately.
The old publishing rule of thumb was that the price should be 5 or 6 times the production cost per copy. This had no respect for the market price and tended to encourage overprinting to get both the unit cost and the price down.
Discovering whether at that market price the project is viable.
1. Before contracting any project, you should complete a standard profit and loss form for each book.
2. ‘There are a number of essential ingredients to a title P & L but first and foremost, conservatism is essential. Any book has the potential to break out of the pack and become a bestseller. Few actually do.’ (Woll, Publishing for Profit, p.111) So, take a conservative view of what sales will be in the first year of the book’s life (and try not to tie up cash for more than a year).
3. Calculate the retail turnover (volume sales, excluding free copies to author, reviewers etc. multiplied by list price); then calculate the net revenue to you (deducting from the retail turnover the average percentage that goes as discount to booksellers, wholesalers, overseas distributors and direct customers). If you are selling only specialist books at full price to your end customers, then your average discount will be 0%. If, however, you are selling mainly more general books to UK high street booksellers then your average discount might be 55%.
4. Estimate the total costs directly associated with the book:
• all the development costs and production costs [and if you are doing print-on-demand, you should use all the development costs and the production costs associated with the first year’s sales; and your better cash flow should mean you need to make a smaller gross margin to meet your targeted net profit]
• any fees directly associated with the book (eg, permissions, referees, illustrations)
• it is also salutary to include something for the stock write off that you will do sooner or later on many of your titles; and/or you may need to make an allowance for those bookshop returns that you cannot recycle
• the author (and series editor) royalty; if you are unwise enough to pay an advance on royalties that exceeds the royalty payable on the first print run, then you should use that advance in your calculations (instead of the relevant percentage of net receipts); and the adverse cash flow will mean you need a higher gross margin to compensate
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5. Calculate your gross profit in £s (net revenue minus total costs) and as a percentage (gross profit divided by net revenue x 100).Here is a worked example:
Author: Ivor Problem
Title: How to Remainder
Royalty (% of net receipts or of list price): 10% (of net receipts)
Fees: £100
Promotion/free copies: Paperback 100 Hardback 25
Average discount: 40%
Print run: Paperback 1500 Hardback 200
PAPERBACK HARDBACK TOTAL
List price £19.99 £60.00
Sales volume 1400 175
Retail turnover £27,986 £10,500
Net revenue (subtracting 40%) £16,792 £6,300 £23,092
Production costs £3,250 £1,000
Fees £50 £50
Stock write off (5% net revenue)£840 £525
Royalty £1,679 £1,050
Total costs £5,819 £2625 £8,444
Gross profit £10,973 £3,675 £14,648
Gross profit % 65% 58% 63%
For most publishers this gross profit percentage should be 50-65%. This gross profit must then be enough (for your list as a whole) to cover costs less directly related to individual titles:
• salaries
• marketing costs and sales commissions
• warehouse and fulfilment
• rent
• general and administrative costs
• bank interest and charges
• bad debt
• net profit
You will probably need to target around 10% net profit to ensure you have the cash to invest in future books. Some trade publishers might make 10% net profit on 50% gross margin; some specialist and academic publishers might need 65% gross profit to make 10% net profit. Other than because of different overhead structures, most larger trade publishers can live on lower gross margins because they might earn up to 10% of their overall revenue on subsidiary rights deals (serial rights, book club rights, film rights, audio rights etc.). This is not the case for most academic or smaller publishers. Even if you see subsidiary rights potential for your book, it is probably best to ignore this possible income in your profit and loss forecast (and pricing) for the project. This source of revenue is unpredictable and generally much less easy to mine for smaller publishers. It is usually best to treat this income as a ‘bonus’.
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Reprints and re-pricing
On reprints the unit production cost (unless it is a very short run) will be lower. But, of course, this does not mean you reduce the price. If it is worth a reprint then the book must have been selling at the established price – so retain that price.
On backlist books (reprinted or not) then it is good practice to review prices at least annually, and to increase prices selectively or across the board to what the market will bear now. Also, however, it might be worth considering periodically a ‘sale’ where you offer overstocked backlist books at special reduced prices.
Further Reading
Publishing for Profit, Thomas Woll (1999), pub. Kogan Page.
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