Tuesday, October 13, 2009

P&L 2 of 4: The Details

Yesterday I gave you the basic breakdown of how a publishing house's acquisition P&L works. Today we're going to go into a little more detail, primarily with regard to how editors and publishers might play with the P&L numbers to turn a book that initially looks unprofitable into one that could make them some money.

So, let's say an editor runs the P&L on your book and it turns out to be either marginally profitable or flat-out unprofitable. They could tweak the following parameters to flip the book from the red to the black:

Scenario #1: Offer a smaller advance. This is a possibility if the editor and agent haven't had a lot of back-and-forth on the issue, but if the advance is more or less confirmed or is already at the point that the agent won't go any lower, the adjustments won't be made here.

Scenario #2: Change the format. If the P&L is returning a loss with the paper/printing/binding, freight, and return rates of a hardcover book, the editor may rerun the analysis for trade paper and mass market editions to see if it might be profitable in those formats. True, the price point will be lower, but the publisher will likely expect to move significantly more units of a trade paperback or mass market edition compared to a hardcover. If so, then those lost dollars per book are more than compensated for by increased number of units sold, lower direct/operational costs, &c, and the book will become profitable.

Scenario #3: Raise the price. Increasing the price point can result in fewer copies sold, but if the impact on net units is offset by a dollar or two increase in unit price, an unprofitable book can suddenly become a money-maker.

Scenario #4: Go big. The editor may decide that the book is really, truly phenomenal, despite low initial net sales estimates. He or she may then acquire the book on a losing P&L with the intent of feeding enough marketing dollars into it to turn it into a bestseller. Once the book sales start to snowball, the initial loss is recouped and the book turns a profit. This last one is almost an exception to the rule, however, and we'll deal more with those in-depth tomorrow.

You tell me, though: based on what I've told you yesterday and today, what would you, as an editor, do to convert a financially unpromising book into a fiscal winner?

10 comments:

  1. Get a celebrity to say they wrote it!

    Haste yee back ;-)

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  2. My preference (even from a writer's perspective) is smaller advance with more dollars thrown at marketing/promoting the book.

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  3. Scenario #2 sounds reasonable... how do book sellers/buyers feel about the Trade Paperback Originals?

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  4. Scenario #1: Advances never go into our p&ls. The p&ls are what tell us what the advance offer should be.

    Scenario #2: A lot of editors are not hard/soft -- they're hardcover only or paperback only. So if I think pb might be the way to go, I'll hand it off to our paperback partner to do the p&l, if they agree with my assessment.

    Scenario #3: Yep, that's one way.

    Scenario #4: We would never let anyone offer from a losing p&l. If the figures don't add up, they don't add up. If we truly think the book could go big, we'll put that gross/net figure in the p&l to start with. And we put those marketing dollars in the p&l to start with, too. They're a critical part of the cost, not just an add-on.

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  5. How do ebooks play into this? Since the majority of the reading public does NOT own an ereader--yet--and the ebook format removes some of the overhead and distribution costs, would offering a book in ebook format earlier help with the P&L by launching in ebook format and doing a smaller print run in hardcopy, but with the same marketing budget (and really leaning hard on online promotion opportunities)?

    How about shifting monies from the advance to the marketing/promotion in order to boost sales?

    How might a smaller advance with a higher royalty rate play into the P&L?

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  6. Hardcovers are so prohibitively expensive to produce that I think I'd go to a trade paperback almost every time.

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  7. I think I'd go route #2. Actually as a moderately-concerned environmentalist, I don't see why we aren't doing more first-edition paperbacks (high quality covers, etc., to make them attractive) so that they're cheaper (i.e., lighter) to ship and are better for the environment.

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  8. So if you get a large advance, does that mean they believe your book is going to sell well? Or that they plan on putting a lot of promo behind you? Or? I'd love to hear your take on that.

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  9. The paperback idea sounds good to me.

    I almost never read hardcovers. I read flopped down in a sand chair, on the couch or in bed. Also sometimes while doing household chores, like vacumming.

    Hardcovers are too clumsy. Paperbacks are easier, especially the mass market editions. I bet lots of people feel the same.

    It's too bad publishers can't afford more marketing for first time authors but I guess that's rare.

    Patricia's ideas appeal to me too.

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  10. Ask the author if they'd mind putting Dan Brown's name on the cover instead of their own.

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