[As part of our ongoing “Does Literary Fiction Suffer from Dysfunctional Pricing” conversation, we’re looking at a hypothetical publishing company’s fiction frontlist. Our goal is to better understand the financial factors that drive the fiction market. Last week Mary Delli Santi presented an ideal first year’s results, and today we look at year two. –Levi Asher]
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Welcome back, books fans! Yesterday we introduced Simon Collins & Random Day, an ideal publishing company with the perfect publishing program. Remembering that SC&RD is a dreamlike, utopian sort of place, let’s momentarily let our thoughts drift back to its buoyant 30% profit margin…steady, predictable sales…room for growth. Working at SC&RD is like floating on a fluffy little cloud above the land of happy trees. Ahhh!
The Law of Averages
Well, forget it. Despite batting 1,000 during our first season as a mega-publisher, reality was bound to smack us in the face sooner or later. There are a few generalities we know about book sales:
- 1 in 8 books (or 12.5%) is very profitable.
- 1 in 8 books (or 12.5%) is very unprofitable.
- The rest (or 75%) either break close to even or lose money.
Despite SC&RD’s best efforts to keep the momentum going (T-shirts! Giveaways! Junkets to the Caribbean!), our next season fell slightly short of expectations. That’s right, books fans, it was a typical year and our profit margin was exactly what is most often reported as the industry standard: 10%.
10%: It’s a Magic Number
SC&RD scored a few home runs and made a few rookie mistakes in signing authors for its next season. Keeping the above generalities in mind, the following is what happened:
The Good News: 26 in 200 books (or 13%) were very profitable. Of these…
- 3 books were huge bestsellers and sold 100% of units printed.
- 3 books were big bestsellers and sold 90% of units printed.
- 20 books were bestsellers and sold 80% of units printed.
The Bad News: 26 in 200 books (or 13%) were very unprofitable. Of these …
- 3 books were monumental duds and sold 25% of units printed.
- 3 books were big duds and sold 30% of units printed.
- 20 books were failures and sold 40% of units printed.
The Rest: Well, let’s just say the remaining 148 books (or 74%) either broke close to even or lost money. In fact, they all canceled each other out to the point that their sum net profit margin was 0%, so we didn’t even bother to include them in the big spreadsheet.
And the bottom line is …
The Tale of the Tape
You might notice that this spreadsheet looks a little bit different from the one presented yesterday. A few things did change slightly influencing SC&RD’s profit margins, but none of them were big enough to sway our profits to either side of the infamous 10%. SC&RD’s profit and loss statement is meant only as a simplified example, so here’s our sleight of hand in the spirit of full disclosure:
- In order to make our lives and calculations easier, we rounded each number in the “Units Printed” and “Units Sold” columns to the nearest 100.
- “Marketing” and “Overhead” expenses were capped as soon as each book earned back the author’s advance. Although we spent a lot of hours copyediting and promoting at the beginning of the selling season, our employees eventually had to move on to working on next season’s books.
- As mentioned above, the big spreadsheet only presents the 52 books that had an effect on the profit margin. The other 148 titles all canceled each other out because breaking even means a 0% net profit. They were removed in order to make the P&L statement more readable.
There’s Always Next Year
You betcha, books fans! We’re going to learn from our mistakes and turn this company around. Next season starts tomorrow, and I guarantee SC&RD will be knocking its sales right out of the ballpark.
6 Responses
10 percentThanks, Mary. So,
10 percent
Thanks, Mary. So, if I’m understanding correctly, a 10% profit is considered a mediocre year? That is surprising, in a way — can you explain why 10% is not considered a successful year?
Oh no, a profit is a profit.
Oh no, a profit is a profit. Net 10% isn’t bad, but not nearly as good as what’s reported by certain other industries. Take a look at this:
The Online Investor – Top 10 Net Profit Margins
The top independent oil & gas companies, for example, have recently reported net profit margins of 32 to 104% (48.9% average). Holy cow!
Of course, scrolling through the list shows plenty of other industries with similar or lower margins. And 10% for publishing is merely an average, with some companies doing better and others doing worse. It’s a pretty thin margin, though, and explains why some houses operate by the skin of their teeth.
My intent wasn’t to convey the idea that 10% isn’t successful. Perhaps my tone was influenced by coming down from the high of SC&RD’s excellent 30% year?
10% is a good year!I’d take a
10% is a good year!
I’d take a 10% profit margin. Just imagine, as this includes BUYING PRIME SHELF SPACE in places like B&N and Borders, what it is like for small companies that have a much smaller profit margin on each title, and rely on reviews and word of mouth to create sales (not increase, mind you, CREATE). A few lead books don’t sell and *poof* most small publishers are gone.
Makes sense, Mary. In fact,
Makes sense, Mary. In fact, I think it’s correct that from a corporate parent’s point of view, a 10% profit is nothing to celebrate. After all, Bertelsbrinkette or HoltzPearson Livre (who owns Simon Collins and Random Day again? I keep forgetting) could have put their money into a Citibank savings account and gotten a 5.25 percent profit with a hell of a lot less effort.
coffee stain?Nice touch!
coffee stain?
Nice touch!
Thanks Bill. Fun with
Thanks Bill. Fun with Photoshop, you know.