Mark Terry

Tuesday, February 23, 2010

Book Pricing For Dummies

February 23, 2010
There's been some furor and backlash and general whining about the latest stink between MacMillan and Amazon over the price of e-books. I was interested to get a grip on how much it actually costs to publish a book, and although there are a fair number of articles about it, the numbers vary. So I'm going to add to the mix with some information as well, which we might call "Hardcover Pricing From 20,000 Feet."

My new novel, THE FALLEN, is priced at $25.95 in hardcover. First, let me say that I am pleased to be published in hardcover, and I had ZERO, let me repeat, ZERO, say in pricing (or what format it was published in).

These are very, very, very general breakdowns based on my reading about book breakdowns. That doesn't mean they necessarily apply to THE FALLEN or to any books from Oceanview Publishing or any other publisher in terms of specifics, but generally, these are in range. And I'll try to, in business-speak, drill down and give you some granularity, as well.

$25.95--book price minus any retail discounts. For instance, should I suddenly become a New York Times bestseller (oy vey, my lips to God's ears!), the chain stores will start discounting the book by anywhere from 20-40%. But it seems likely that if you should trot into your local Borders, B&N, or into your favorite indie bookstore, THE FALLEN will cost you $25.95 plus tax.

Author royalties typically range from 8 to 15%, depending on format (e-books are a different animal), how big a name you are, and how many books you actually sell. But for a hardcover, a 10% royalty is fairly typical and an easy enough figure to work with.

$25.95 (list price)
-$2.595 (10% author royalty)
= $23.355

Distributors, that is to say, Ingram, Baker & Taylor, and all the others, take about 10%.

$23.355 (list price - author royalty)
-$2.595 (10% for distributor)
= $20.76

Retailers, so I'm told, take about 40% off the list price. That is, if they're not discounting your book by 10-40%. In fact, it makes one raise the ol' eyebrows trying to figure out how Borders et al. makes a profit on a bestselling novel they discount by 40%. This piece also will not break down retailer expenses, such as shipping, returns, overhead, etc.

$20.76 (list price-author royalty-distributor)
-$10.38 (40% for retailers without discounts)
= $10.38

Book publishers typically claim 40-50% of a book's price on costs. For this we'll say 40%.

$10.38 (list price-author royalty-distributor-retailer)
-$10.38 (40% for publisher costs)
= $0

Okay, now. For a little bit of granularity, let's look at a publisher's costs. We're going to work some numbers out of that $10.38, which is 40% of a retailers cost per book. These are really, really fuzzy numbers. The percentages come out of the $25.95 list price, but I'll be subtracting them from the $10.38 figure, which is 40% of the list price.

$10.38 (40% of list price, or publishers cut of the list price)

Preproduction costs, which I assume means editing and layout and maybe even cover art, book design, etc., is around 12.7%. 12.7% of $25.95 is $3.29565 (and no, I'm not rounding).

$10.38 (publisher's 40%)
-$3.29565 (pre-production costs, or 12.7% of list price)
=$7.08435 (or, about $7.08 per copy of the book)

Printing costs around about 10.125%, or $2.6274375

$7.08435 (publisher's costs-pre-production costs)
-$2.6274375 (printing costs, or 10.125%)
= $4.4569125 ( or about $4.46 per book)

Marketing. I love this figure, because I bet it varies all over the board. If you're a big author, it's higher. If you're a nobody, it's practically zero. But from my sourcing, let's say 7.15%, which is $1.85857.

$4.4569125 (publisher's costs-pre-prod-printing)
-$1.85857 (marketing costs)
= $2.5983425 (or $2.60 per book is left over and might be considered publisher's profit)

Okay. Let's just say, on a $25.95 book, the author gets $2.60 per copy sold.

So, if the book sells 1000 copies, author gets $2600. (If you have an agent, the agent gets 15% of that, and the government gets about 30% of what's left over, but that's a different article for a different day). If your book goes totally stratospheric and sells 100,000 copies in hardcover, the author gets $260,000. I'm not doing the breakdown for a million copies sold in hardcover, that's so rare as to be in the Winning The Lottery category. Even 100,000 copies in hardcover is unusual. (And if you're in mass market paperback, and your book sells for $7.99 and your royalty is 8%, and you sell 100,000, you get $63,920, minus agent's 15% and the government's 30%, etc.).

Now, I wish I had more granularity here, because it's not clear to me where things like warehousing books falls. Is that part of the 10% for printing, distribution, or does it come out of the publisher's profits. I don't know. What about shipping? This is a hairball for bookstores and publishers, and the only winner that I can see is UPS. The books get shipped from a warehouse (run by a distributor?) to the bookstore. The bookstore presumably pays for that out of their so-called 40% profit. If they don't sell all the books, they can return them to the publisher (ie., distributor) and I don't know how that breaks down. Who pays for the UPS return shipping? If it's paperbacks, at least mass market, usually the covers are returned but the books are dumped in the trash. If it's hardcovers, the books are returned and the retailer presumably loses at least a little bit of money on the deal (although I don't know), but somebody gets hosed.

Here are a couple things I know. I know that the guy who did the cover art for THE FALLEN is a freelancer and if his rates on his website are accurate, the cover art costs my publisher about $3000-$3500.

My publisher did not spend much money on the author advance.

Although I don't believe they've actually told me this, they have said in at least one article I read about my publisher, that they keep aside $3000 for marketing. That number, of course, will vary greatly from publisher to publisher.

But you can see right from the start, that for my book, initial expenses before layout, printing, editing, mailings, catalogue, etc., is somewhere in the range of $7000-$8000.

How many copies will THE FALLEN need to sell to earn back just those initial costs? Well, go back to the $2.60 figure as profit and say 3,076 copies sold to earn back $8,000.

Okay, that's not quite right, is it. Go back to 40% figure, which is $10.38. About 770 copies, a very modest figure. But that's just to break even on initial costs.

Of course, I spent a couple hundred hours writing the thing, so what's my hourly rate? Oh, let's not even go there.


Blogger Eric said...

Wait, are you calling us authors dummies??!!

Seriously, though, this is a very interesting breakdown and pretty much as I've gathered. Although I thought reailers required more than a 40% discount. At any rate I've always had the impression that Poisoned Pen Press' cut of what a book made was pretty much the same as ours, except, of course, we are guaranteed to get our advance while they aren't guaranteed any profit.

Odd that those responsible for actually producing the books (i.e. authors and publishers) end up with the short end of the stick.

1:16 PM  
Blogger Mark Terry said...

We really don't break down how much it costs to manufacture a book outside of printing. I've heard numbers like $3.00 or $3.50 per hardcover book, but I have no data to support that. And I'm sure that if you're printing 1,000 or 2,000 hardcovers at $3.00 (or $3000-$6000), that's one expense; but if you print 10,000 copies, it goes down, say, to $2.50/copy, or $25,000, etc.). That would lend to the argument that your publisher should have a larger print run because their production costs decrease, but then again, you then run the risk of not being able to sell enough to cover your production costs.

It's also where the e-book argument starts getting considerably more traction, that and warehouse costs, which I suppose fall under distribution.

There's an expression that if you want to make money as a gambler, own a casino.

I've been writing a report about the clinical laboratory industry as it pertains to healthcare distributors (like Cardinal Health, for example). The entire US clinical lab industry is worth about $62 or $65 billion. The largest public lab company in the US is Quest Diagnostics with a little over $7 billion in annual revenue.

Then you look at Cardinal Health, which makes about $100 billion in annual revenue. And you sort of come to the conclusion that if you want to make money in healthcare, don't be a doctor or a med tech, but be a distributor or an insurance company.

I'm not sure about publishing. Sometimes it seems like if you want to make money in publishing, be UPS. And just imagine if everything paper dies out and it's all electronic! Distributors go broke, bookstores go broke (except Amazon), and UPS loses a huge chunk of revenue. Weird ripples.

1:25 PM  
Anonymous Brian Rush said...

"Preproduction costs, which I assume means editing and layout and maybe even cover art, book design, etc., is around 12.7%"

The problem with this statement is that these costs are not per-volume but per-title or in some cases per-month. The only per-volume costs are author royalties, bookstore discounts, and printing, distribution, and warehousing costs. Of those, only the first two apply to e-books.

The real question about per-title and per-month costs of publishing (some but not all of which would also apply to e-books) is whether they are in all cases really necessary. Some of them obviously are. Every book needs at least one editor, a proofreader, and a cover artist. But usually per-title and per-month costs go far beyond this.

Mark, let me ask you something as an author. If a publisher offered you a deal that included 50% royalties but zero advance, would you consider that?

I ask because I firmly believe that the future will hold something very like it, particularly in digital publishing.

1:50 PM  
Blogger Mark Terry said...

like I said in the piece, it's book pricing from 20,000 feet.

Now, as for your question about a 50% royalty with no advance. Well, my friend, my advance for The Fallen was $1000 and my royalty ain't 50%. So if they had said, waive the advance and we'll go 50%, I'd go for it in a heartbeat.

That said, I recently negotiated a nonfiction book contract. One of the points that we got stuck on was electronic rights, in which I was asking for 50%. They offered 10%. We haggled and got somewhere in between

When e-book rights were first appearing a decade or so ago, most writer organizations were saying 50% royalties for e-rights. Publishers, naturally, balked.

Recently Amazon has upped their self-publishing for the Kindle royalty to 70%, but I don't think any sane publisher will go with that. Amazon has no particular production costs in their Kindle self-publishing program, they just want content and lots of it. It's sort of the iUniverse model all over again--lots of product, few units sold.

I think if the whole industry shifts over to e-books, which is probably will in the next 20 years or so, if not sooner, we'll see higher royalties on e-books, but I wonder about 50%. Of course, it's possible that the publishing industry as we know it is doomed. If the go-to price for an e-book become $9.99, as Amazon apparently wants to set the prices for, and authors and agents expect higher royalties, then a publisher's overhead is going to get squeezed in a major way. That might be appropriate. They're going to need a bunch of people to edit (maybe), and do cover art (absolutely), and some people to do a little bit of layout (not much), and some to code for the Kindle (bunches and bunches), and then their marketing people are going to stay busy (although it's one place where publishers always seem willing to cut back), but their sales force is going to disappear entirely.

I just can't see big publishers with their NYC rents and high overhead surviving, but what I wonder is if you're going to find that publishers become less like publishers and more like a cooperative of authors. That is to say, publishers sort of disappear, and some authors self-publish to Kindle, but what really helps brand a book is a group of authors banding together under a specific co-op title, like MARK'S BOOKS, and there's 10 or 20 or 30 authors who all self-publish under that co-op, and a small fee is collected to support MARK'S BOOKS, but otherwise it's a self-publishing venture.

2:02 PM  
Blogger Eric said...

My feeling about advances has always been that unless you are making your living writing novels why does it matter if you get a small, or even no, advance and wait to collect royalties? Ultimately, an author is going to end up with a percentage based on sales. Unless the author gets a huge royalty, which far exceeds the amount justified by sales, in which case the author might laugh all the way to the bank but probably need not bother to return to the word processor because there won't be another publishing contract.

Now if you are making a living from writing novels and need the advance from one book to live on while you wrie the next then I can see the necessity of getting the pay for the work as soon as you've done it, which is, of course, the way most jobs work. Even so, living from advance to advance sounds pretty dicey. To do any kind of freelancing successfully you really should have some money in the bank for when things get slow.

I think you are right, that the big publishers might not survive and they will be replaced by new ways of disseminating books. Really, whether big publishers survive or not, writers will go on writing and readers will continue to read. The possible demise of big publishers is mostly a problem for big publishers.

8:07 PM  
Blogger Mark Terry said...

At the level of my novel advances, a lot of it comes down to how much promotion I'm expected to do. With a tiny advance I can say, "Okay, I'll make it on the back end, that's fine." Then the publisher says or infers, "Well, we want you to do as much promotion as possible. Are you going to ThrillerFest?"

Uh, no. Airfare to ThrillerFest will cost me almost as much as my advance came to, then there's the hotel (NYC!), and the costs to be there, then food, etc. Just one con and it costs 3 times what your book advance was (or mine, in any case).

In the past I've done damn near everything, from postcards, brochures, e-newsletters, hired a publicist, traveled around hitting bookstores, etc. I'm still doing promotion, but I'm being very, very careful about keeping costs down.

For the nonfiction book I'm collaborating on, I got paid pretty well to write the proposal by my collaborators. We didn't get an advance, but we've got a 3-way split on royalties, and since it's a medical business book, they'll be pricing it in the $60+ range, so the royalty split is pretty great. We'll see how it works out.

5:02 AM  
Blogger Erica Orloff said...

The PUBLISHERS pay all shipping on returns. And I can tell you that small publishers with distributors (i.e., I am sure like yours, rolling into a larger distribution net) pay EXORBITANT overhead. I once worked with a small publisher who was with a very well-known (one of the top three) distributors in the country . . . she got a bill of about $6,000 for a small number of returns but more the STORAGE of what amounted to about 5,000 books (or less). So she said, you know what, ship the books back to me and I'll store them . . . anyhoo, she got a bill for $2,000 JUST for Teamster fees, essentially, for the MOVING of a SINGLE pallet of books from the warehouse TO the truck. That didn't include the shipping, and so on. The tacked on fees are insane. If you have ever been to a BEA as a vendor . . . and you have a suitcase on WHEELS you will be stopped by Teamster locals in L.A. Now, I love the Teamsters, this isn't a union rag . . . but they charge an ungodly fee to essentially, carry your books from point A to point B on the floor of the convention center. You CANNOT have wheels at the convention center in LA.

Essentially, going into the book biz as a small publisher is like hopping in bed with the Mob. Which is why e-books ARE going to be great for the small guys. You eliminate some of the insanity.

5:08 AM  
Blogger Mark Terry said...

I don't doubt it. The one thing I've observed about most businesses is if there's money then there's going to be people lined up all over to get a piece of it. People think writers are either rich or poor, but if they understood how many people have their hands in your pocket they'd be shocked.

My father-in-law was a Teamster.

And although I'm basically pro-union, unions have hurt themselves with this sort of nonsense. My friend used to work for General Motors in media research and he said how frustrating it was that if you had a box of papers or work you wanted to take out to the car, you couldn't do it yourself, you had to call in the union movers to haul it out for you.

5:16 AM  
Blogger Erica Orloff said...

Believe me, many of my "uncles" are old-time union guys. I LOVE union guys. But when a guy weighing 300 pounds tells me I can't bring two cases of books to the signing area because they are on a little foldable suitcase/wheel thing . . . and I have to PAY him or CARRY them in my arms . . . it's just ridiculous. It wasn't like I was moving FURNITURE on a handtruck.

6:12 AM  
Anonymous Jim said...

Call me a Luddite, but I have no desire to stare at an electronic screen on some hand held device in order to read a book. I spend hours every day staring at computer monitors, but when it comes to reading books I much prefer the traditional dead tree technology. My opposition to the electronics is partly due to eye strain issues; ink on paper is still easier on my eyes than pixels on a screen. However, there are additional reasons why I do not want to have to spend two or three hundred bucks on an electronic device that can break or be stolen or get lost or misplaced. (Yes, I do sometimes lose books I am reading -- right in my own house -- and not find them again until a week or two passes. But if I misplace a Kindle, it would mean ALL of my books would be lost until I tracked down the damned thing.)

I have seen people talking about more money for authors with ebooks, but others say that authors could end up with less...

10:08 AM  
Blogger Mark Terry said...

I love paper, but from an economic POV I'm not sure it's going to be the dominant form of reading in the near-future. I do think there are a couple factors that might slow it down:

1. There are an awful lot of 1 or 2 or 3 book-a-year readers, the folks who pick up a book when they're going on vacation, or who get a book for Christmas. I don't see them buying a dedicated e-reader, especially at today's prices. Even if the e-reader was $100, I don't think they'll go for it. So either the publishing world will lose people who buy a few million books a year voluntarily, or they're going to have to come up with something. It's possible that multi-purpose things like the iPad will work better at capturing that market.

2. DRM or digital rights management. I don't completely understand this, but I can tell you that in terms of music I've bought that gets limited to a certain number of machines, well, it just pisses me off. These machines die, then what? And that just frankly worries me about books, because I want to be able to give them away when I'm done, or donate them to a library or a charity as a tax write-off when I run out of room or interest.

3. I have some worries about legacy issues. Got some VHS tapes lying around the house but no player? How about floppy disks and no drive?

10:18 AM  
Blogger Erica Orloff said...

I thought I would never switch. I am now a total convert. I love having a LIBRARY on me at all times. I read a minimum of four or fives, sometimes more, books at a time. It bookmarks them all. And like an iPod, my books ARE somewhere. If the Kindle flakes out and I get a new one, I can download my library again.

I also have four kids and serious storage issues. I have so many books I am busting at the seams, so from that perspective, I love it. If I was still living in an apartment in New York, this would have been the way to go ages ago (had it been available).

Oh. . . . and I have zero eye strain issues. LESS then print. I can also adjust the text size. My dad is blind (legally, can see some out of one eye). I can make it big enough for HIM to see it. LOL!

11:19 AM  
Blogger Travis Erwin said...

Thanks for breaking it down like this. I too have delved into the numbers and they always seem to get fuzzy.

1:12 PM  
Blogger Mark Terry said...

They still seem fairly fuzzy to me. As Brian appropriately points out, a lot of the expenses involved in publishing don't really break down all that neatly per book--some would be monthly overhead fees, some would be spread out across the entire publishing house's list--but from a really, really broad way of looking at book pricing, I suppose this works.

1:18 PM  
Blogger Linda Pendleton said...

Did you mention the reserves held by the publisher for returns, sometimes a rather large percentage, which means you may not get your money for a long time? Even years as they give you a little bit of it at a time.

And it appears now days, unlike twenty or thirty years ago, the publishers expect you to put monies out of your own pocket to market and promote--and if it is nonfiction you better have a platform, and one they consider good and active.

Of course, depending on initial pre-publication orders and then initial movement, the book may only be on the shelves a few short weeks.

Is it any wonder that some of us have chosen to leave the publishers out of the equation? (I'm speaking of createspace $39 and Kindle, and doing our own covers at no cost, just imagaination.)

And readers do not like spending $30 bucks for a book, especially in today's economic downturn. People are going out of their way to buy ebooks, or discounted prices at amazon, Costco, Target, or other places, and that again can affect the author's proceeds.

The secret, if there is one, is to get as big an upfront advance as possible and then be happy :-)

8:52 PM  
Blogger Mark Terry said...

No, I didn't touch on reserves against returns. I considered it, but it was long enough and complicated enough as it is. Reserves against returns are a headache for everybody.

5:25 AM  

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