P&Ls and how books make (or don't) money: part the second: the hardcover to mass market profitable/neutral book
In which I explain how we figure out how much money to pay authors for their advance, and also in which I explain how sometimes books make money and sometimes they don't.
A few quick notes:
1) Please read "P&Ls and how books make (or don't) money: part the first: the mass market original complete failure".
2) These really are all real numbers. Please do not try to pick a fight with me about them. I don't have much influence over the way my company does business. I can't get you a job designing covers. I don't care about how your print on demand vanity press works. This is all just an example of models that I know about (and have experienced).
3) The publishing world is a tough place. This is an article about the business. If that's not what you're here for, move along. Try an entry about fanfic, or poetry, or food.
Now, a refresher course:
A P&L is done a couple of different times. The first time is when we are estimating what we think we will spend on a book versus what we think we will make. If we buy the book, P&Ls are done throughout the book's life.
P&L usually stands for Profitability & Liability or Profit & Loss.
In order to buy a book at Tor, we have to fill out a P&L to make sure that the book will be profitable.
We do something called an operating contribution P&L. These P&Ls do not incorporate people costs -- the time of people on staff, etc. The only people costs these P&Ls incorporate are freelance costs that are applied directly to the book.
I unfortunately had my company spend some money to send me to an NYU class during which I learned about "the business of publishing". I was bored for most of the time because a lot of it was about magazines and academia, and the stuff that was about book publishing was the stuff I already knew. This is stuff you learn as you do it. The more you do it, the better you get -- if you want to get better.
A lot of editors don't care enough, aren't interested enough, or don't think they are good enough at math.
Most of the time, this has nothing to do with math. Most of the time, a P&L is about figuring out which numbers to plug into an excel spreadsheet.
While our excel spreadsheet is 100% proprietary, I am going to give you a basic rundown of the things that we include in our P&L. Every company includes this stuff in their P&L.
We are going to do two fake P&Ls. These are totally made up, but the numbers are real. For the sake of argument, we are going to make a P&L for a mass market original, and we are going to make a P&L for a book that goes from hardcover into mass market. For the sake of argument, the mass market P&L will be a negative P&L, while the hc/mm P&L will be a positive/neutral one.
This in no way should imply anything to do with reality. I just don't want to have to do out the numbers for four P&Ls to show two positive and two negative. Savvy?
That said: This will be about the book that goes from hc into mm. This is also going to be a P&L that we do after the book has been acquired and published, rather than before, just for variety--and also because there are a lot of situations like this. More than you'd expect, I bet.
(Part the third will be about a successful mass market original, but we'll do two P&Ls--one with imaginary numbers done in order to acquire the book, and one with real numbers after the book's been pubbed. Exciting, huh?)
Dominar Rygel XVI is a really good friend of a publisher. Rygel has always wanted to write his autobiography of how he became the ex-ruler of 600 billion Hynerians, stuck on this crappy planet earth. The publisher of Farscape Books owes Rygel more than one favor, and sticks you, poor Editor X, with this book that is sure to be a flop.
However, you know that if you can do a pretty decent job on this, the publisher of Farscape Books will look favorably upon you in the future, so you put your back into it.
You make a list of people who could blurb the book, and you send it around without mentioning that Dominar Rygel XVI actually wrote it as non-fiction. You talk to the art director and write copy and do everything you can do without having to actually sell your soul to the devil. You get points with your damn publisher for always having the file to hand. (And every time you get off the phone with that little bug Rygel, you write your resignation letter and save it to a file called "I hate Sparky.doc".)
You didn’t have any input into how much Rygel gets paid for the book, and you don’t have much input as to what the marketing department does with the book--pretty much the whole thing sucks for you, because you have to do a lot of work, and there won’t be much credit to be had.
Except--shockingly!--your ploy works. David Sedaris actually thinks this crap is funny, and he gives you a blurb. So do a bunch of other humor writers who write stuff that’s borderline between being memoir and being story. Awesome. You win.
Originally, you’d expected Rygel’s book to print around 2,000 copies. Hardback books--also known as trade cloth, or TC--tend to only be distributed to what you will remember we call "the bookselling outlet corporations... any place that specializes in books and also sometimes coffee." These outlets have an average return rate of 35%. You figure that Rygel’s book will have a return rate of at least 50%. You are prepared for the worst.
But B&N loves the cover (which your art director made out of a collage of old photographs of Rygel’s childhood), and Walden and Borders love the quote on the cover ("Rygel is hysterically funny."--USA Today and New York Times bestselling author John Crichton), and Target wants to take some because B&N is taking so many.
(No one cares about amazon.com, because that’s less than 5% of the market anyway.)
Despite your less-than-enthusiastic feelings about the book, having the publisher's support means a lot. Marketing and sales and publicity may not bust their asses, but they do push the book. Sure, the marketing director knows that the publisher is doing this book as a favor, and she wants to put her resources behind books she considers more viable. Sure, another editor is launching a brand new imprint this season, which means the publicity department is kind of tied up--but this book has the publisher's favor, and everyone wants to score brownie points. You end up spending the barest minimum on adverts and galley mailings--but the book does get a 4/c galley (aka 4-color galley--aka full color cover on the bound galley).
And somehow your estimated laydown is 9,000 copies--everyone is surprised and yet thrilled, and the publisher is happy so you're happy--and your publisher decides to print 10,000, because that’s the break for cheaper paper, print, and bind.
Here’s your math:
|Printing covers for marketing use & the books, etc.||$5,328|
|Typesetting and design||$2,229|
The book does pretty well--it sells 1,000 copies its first week, 900 its second week, and 600 its third week. That's a little better than average and a little under 50%. Then the sales drop down to 300, 100, 70, 35, 10, 4... &c.
After all is said and done, it's sold 80% of its print run. That's excellent--better than average! And it got some good reviews. Your boss leaves a note on your desk, with the circled quote from The Romantic Times BookClub Magazine--"If Rygel was a real man, we'd snap him up in a heartbeat!"--and a scrawled "Use this on the paperback."
Now you groan, because--what? Paperback? Screw that! Sure, it did well in hardcover, but is that any reason to use a perfectly good mass market slot? NO!
Except you have to, because an 80% sell-through in hardcover is more than enough justification to do a paperback. And this isn't the kind of thing that works well in trade paperback--or is it? Your request to put this into trade is firmly denied.
YOU: But why?!
YOUR BOSS: Because the people who would buy it in trade have already bought it in hardcover.
YOU: But bu--but! *splutter*
YOUR BOSS: Now listen here, you young whippersnapper--we think we can break this into the wholesale market. We think people who shop at Wal*Mart will love to read this book. We're going to convince Wal*Mart! To use some of your young and hip jargon, it will be awesome.
Because in this fictional reality, you are always right… well, you're right! Wal*Mart, Sam's Club, and the airports all take 5,000 copies. Combined. That sound you hear in the background? It's the church bells across the way, tolling this book's death knell.
All told, your paperback is going to ship 20,000 copies. Out of 20,000, it's going to sell 10,000. However, the break for the cheaper PP&B is 26,000 and your company goes for that--so we have to do numbers again:
PP&B: $10,478. You use the same art, spend $1,549 printing proofs. It costs $313 to "shoot" the hardcover down--meaning reduce everything to mass market size--and you spend $2717 on extra publicity, hoping to jack up orders.
It doesn't work.
So let's figure this out now, using formulas.
10,000 copies. Everyone gets a 50% discount off the cover price of $24.95, which means we're starting out with $12.48 per copy.
The author gets the standard 10% through 5,000 copies sold, and 12.5% for the 5,000 after that, and 15% thereafter. This means the author makes $2.50 per copy through the first 5,000 copies sold, and then $3.12 per copy on the next 5,000 copies sold. This particular project sells 8,000 copies, which means Rygel makes a total of $21,860 on the hardcover sales alone.
The publisher has a basic expenditure of $42,097 on the book. The publisher earns back ($12.48 * 8,000 copies =) $99,840
- $42,097 (expenditure)
- $21,860 (author earned royalty)
= $35,883 (total publisher profit)
...which, of course, doesn't count things like paying the editor's salary, etc.
Wait, you cry! Anna, we still have the paperback!
Well, okay, if we must--
Mass Market Paperback
26,000 copies, but only 20,000 ship. Everyone, to be fair, gets a discount of 50% off the cover price of $6.99, which means we're starting out with $3.50 per copy.
The author gets 8%, which is better than standard. (Standard is 6%.) This is $.56 per copy.
There's a better than average sell-through of 50% on the mass market, so the author makes $5,600 on 10,000 copies sold. The author now has a total earned royalty of $46,147.50.
However, the publisher... well.
The publisher had a basic expenditure of $41,057 on the paperback, hoping that the mass market would be a sleeper hit the way the hardcover was, and that maybe they'd be able to make back some of their lost cash.
No way! The publisher earns back ($3.50 * 10,000 =) $35,000
- $41,057 (publisher expenditure)
- $5,600 (author earned royalty)
= - $11,657 (total publisher un-profit)
Sucktastic. The paperback actually sucked profit out of the hardcover! That means it was a waste of resources.
.............Choose your own adventure time!
Otherwise known as TP (like how hardcover is trade cloth or TC--get it?)
Remember the conversation you had with your boss? Let's pretend for a second that you're competent and your boss isn't a moron.
YOU: If we sold 80% on the hardcover, I bet we could put the quote from David Sedaris on the cover of a trade paper and sell even more. I bet we could redesign the hardcover and snag the hipsters. I bet--
YOUR BOSS: Oh, for the love of Pete, do whatever you want, just stop being such a snot-nosed brat about it all.
YOU: You sure?
YOUR BOSS: Just make sure the damn book makes money and Rygel stops calling me.
YOU: *cross fingers*
You have the art department make the cover look like a Joan Didion book (which costs nothing, because they use a photograph of Rygel), and you write hilarious copy for the back of the book, and you put the Sedaris quote ("Rygel makes me pee in my pants!") on the front cover.
When the time comes to pitch the book to sales, you craft your pitch carefully--"This hardcover sold through at 80%. With the trade paperback, we're targeting the younger crowd--it's got a fresh look, and some great quotes, and I think hipsters will love it."
Sales rolls their eyes, but B&N loves the new cover, and even the airports take some, and you get a laydown of 12,500. Which means a first printing of 15,000. Your PP&B is $17,250, and you wheedle your marketing director into $3,302 of extra promotions, and it costs $870.34 to shoot from the hardcover.
Whee! You are a success--the trade paperback has an 80% sell-through of the entire printing! You breathe a sigh of relief, and hope that now Rygel will stop calling you.
Here are your details: Everyone gets a 50% discount on the trade paperback's cover price of $13.95 (a lower price point to catch that younger market, the kids who maybe don't have as much disposable income). That leaves you with $6.98 per copy. Rygel gets industry standard 6% on the first 25,000 copies--that's $.84 per copy.
So let's look at it like this:
The publisher earns ($6.98 * 12,000 =) $83,760
- $21,422.34 (publisher expenditure)
- $6,480 (author earned royalty)
= $55,857.66 (total publisher profit)
This paperback contributes significantly to the publisher's profit! Huzzah!
Now, please recognize that this could have easily gone any other way. The hardcover could have been far less successful. The mass market could have printed 300,000 copies! Who knew there was such a Hynerian presence in the USA? Not us! The trade paperback could have printed 2,000 copies, shipped only to the one Waldenbooks in the USA's Hynerian Islands territory, and made no money.
There are any number of combinations this can twist and turn into. Hopefully now, armed with basic information, you can wreak destruction on your own brain by coming up with all sorts of scary publishing models for your as-of-yet unpublished work of genius. And stay tuned for Part The Third, in which we will do a P&L using imaginary numbers before we buy the book, and then a P&L using real numbers after it's pubbed.
*Phew*. Feel free to ask any questions here, and I'll do my best to answer them. Mucho thanks to serialkarma — , and to Melissa Ann Singer, who are two of the best editors an editor can have.