Making Money / Making Books
By Stephen J. Kerr

Book publisher’s that make a lot of money and have little or no debt cannot understand publishers that are constantly in debt and can’t make a profit. There are some fundamental differences between profitable and unprofitable publishers. As a financial consultant to the publishing industry I see both kinds and in this article I have offered the financially strapped publisher six ways to rethink their company and put it on a path to profits and success. A word of caution here, none of these ideas are simple to implement. They all require some degree of sacrifice and may require you to rethink your own role in the company.

First of all, if you did not already realize this, the economics of publishing are allied against you ever making money. This is just fine with some publishers because they do not believe that they have the right to profit from publishing books. The money cycle in "trade" publishing makes it difficult to make a profit – even with an eight time mark up on printing/paper/binding (PPB) costs. The discounts required by distributors, wholesalers and retailers leave precious little margin for the publisher. After paying for royalties, marketing costs and administration – what’s left over for investment in new titles and YOU?

To turn your publishing company from a money looser into a money maker, you should:

Every Book Makes Money. No orphans, no losers, no feel good projects – publish what you should publish, not just what you like. Talk it up, hype it up, jazz it up and hold it up! Every book makes money! Every book. The average economic life cycle of most books is about 16 months. That means that it has made about all the money that is going to make within 16 months. This is not because the book is no longer valid or relevant to the audience – mostly it’s because publishers are bored with marketing it and have a new crop of "children" to promote. In the publishing industry this is called "orphaning" a book. Most new books are born orphans because the publisher gives up on it before it ever has a chance to find an audience. If a book is worth publishing, it is worth building a market for. The author and the publisher must form an alliance that will keep each title in front of the public long enough to get noticed and get read. This means personal appearances, TV, radio, special mailings, etc, etc, etc.

Use your distributor to the maximum or dump them. Distributors know, but will not admit that they can do little to promote and market your books. Have you ever been in the warehouse of a distributor? Thousands of books collecting dust, marking time in jail until they can be returned to you en mass. Distributors do respond to pressure and you need to follow up every move they make. But never, never rely on them to sell your books for you. Most distributors are no better than the wholesalers and function primarily as trans-shippers and holding pens for your books. Your battle for recognition is with the public and the retailers. If you promote your books well and build an audience for each title the distributors can be relied on to send them to the stores. Just don’t be fooled into thinking that they are going to do much else.

Book stores are the WORST place to sell books. Get out of the book stores and target as many customers directly as you can. For instance, if you have a great book on building rocking chairs, you need to be in wood working tool retailers, wood working magazines, furniture making publications, etc. If you have a great story of personal triumph over drugs and alcohol…send promo copies to every Alcoholic’s Anonymous chapter, half-way house, county program, hospital run drug abuse program, etc.. Not many people are going to be able to find your book on the shelf at B. Daltons bookstore with the 500 other titles in this genre. Go make a market for each title outside of a bookstore.

Make every book a profit center. Not every title has the potential for making money as a foreign edition, magazine serial, movie, CD-ROM, school sale, library sale, book club release, continuity series, infomercial or premium sale – but many do and you must find ancillary and subsidiary markets for each and every title that you publish. Even a book as targeted as, "Biking Trails of San Antonio" can have multiple outlets. Every bike shop, tourist shop, sporting goods store is a potential outlet. It can be excerpted in the local newspaper, lifestyle magazine and college rag in San Antonio. Bike shops could buy copies in bulk and give it away with each new mountain bike that they sell. The point is that every book can make money if you use some imagination.

Star Power. Any way that you can attach a brand name or celebrity to a book project, do it. If you published a book entitled, How To Make Bent Wood Rocking Chairs, how many could you sell if you partnered with Fine Woodworking magazine, The Yankee Woodshop (PBS TV), Craftsman Tools or Bob Vila. People buy books because they trust the information and the source of the information. You probably could have celebrity tie ins, famous person endorsements, and corporate sponsors that you have never explored. Have you ever thought that Jay Leno might want to have his own cookbook, or that Nordstroms might want to create a beauty book? If you could sell 5000 copies of Day Hikes for New Yorkers, how many copies could you sell of Eddie Bauer’s Day Hikes for New Yorkers? Star Power sells books – use it whenever possible.

Control costs. This is not an advertisement for off shore printers, but you have an obligation to your own bottom line to seek the best printing prices that you can. If that price comes from Hong Kong, Spain or Minnesota – that’s where you print. I have seen too many publishers ruin their companies because of their own personal egos. They have to have the fancy office, high priced editors and marquee printers. They don’t make any money but they feel important. Today you can run a publishing company practically in cyberspace. Editors and art directors can be freelancers working from their own homes, shipping and handling can be handled by a fulfillment center, marketing and publicity can be outsourced. You need a big staff and overhead like you need a hole in the head! The more overhead you carry the less money you will have for new and better titles, marketing and YOU. Keeping costs from rising as fast as your titles on the best seller list is one of the fundamental lessons a publisher can apply for long term survival.

I know lots of publishers that are making 10% to 30% net profits, year in and year out.

How do they do it? By following one or all of the six, money making steps, that I suggested, of course. To make big (net) profits in publishing, watching your (gross) profits needs to become a religion for you. Profitable publishers usually start with a gross profit of 60% or more. Gross profit is defined as income after returns, PPB costs, shipping, handling and royalties. It may also be after some direct marketing costs. If you can attain a gross profit of 60% to 70% then you can make 10% to 30% net profits. Few publishers can achieve a 60% gross profit if they have a distributor and are selling books on a returnable basis, primarily through bookstores. Your gross margin will be somewhere around 40% and that’s where your net profit went. Foreign rights, movie rights, book club and special sales can all elevate that margin from 40% to 60% (or higher). Professional and training publishers regularly enjoy gross margins in the 60% to 80% range, because they receive a high price for their product (usually over $100) and sell most of the books direct to the end user.

Trade publishes need to learn how to build more margin into their titles as well and bask in the glory that high margins and prosperity will bring you. Unless you are waiting for your reward in Heaven, start applying these six lessons to your publishing company and start enjoying the fruits of your labor here on Earth.