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The Title P&L for Predicting Profitability

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           The Title P&L for Predicting Profitability

October 2013

by Dave Marx

 

Will this book make money? We all wish we could get a clear answer to that question when we’re trying to decide whether to publish a particular book. There are so many variables; how many copies can be sold, cover price, manufacturing and production costs, marketing budget . . . Of course, there’s never a rock-solid answer, but a single-title profit-and-loss spreadsheet can help you decide whether and how to proceed.

The common industry term for this is a Title P&L. It’s similar to, but not the same as, an accountant’s P&L (profit and loss) statement for a business. An accountant’s P&L reports results; a Title P&L is a budgeting tool. Because it’s a budgeting tool, the more you know about potential revenues and costs, the more accurate its projections can be.

The result of an analysis of this sort is a figure for gross profit, not a figure for net. Overhead expenses, which are rarely measured in this kind of analysis, still bear on the company’s overall profitability (and in the case of a start-up, on its viability).

Begin by building a spreadsheet template that includes price, costs, and units sold. Then test your initial, realistic assumptions for them. If those figures don’t return a profit, you’ll need to start working with the variables (price, printing costs, units sold, etc.).

You’ll find break-even points along the way, but there are almost always factors you haven’t accounted for, so looking only for a book’s break-even point can be a dangerous practice. Aim higher than break-even.

Using Microsoft Excel, Apple Numbers, or Apache OpenOffice, you can create a spreadsheet that automatically solves for a variety of scenarios, such as Minimum Cover Price Based on Projected Units Sold, and Minimum Units Sold to Earn a Target Gross Profit Percentage.


Spreadsheet Specifics

A Title P&L is too blunt a tool to measure a group of books, whether the group is a series or a list in an annual publishing program. It is designed to treat each title separately, so you can see the role that title is likely to play in the larger picture.

The Title P&L spreadsheet shown below is a simplified, totally fictitious variation on the P&L I use. Other publishing pros would give you spreadsheets that look completely different but do the job for them. However, they all boil down to:

 

Revenues – Expenses = Profit/Loss

Here is an example of the way you might analyze the viability of a print book project that includes trade sales in print and EPUB, plus special sales.

Revenue. The money you expect to take in after booksellers, wholesalers, and distributors/commissioned sales reps get their cut.

● Start with suggested retail price.

● Multiply by copies to be printed.

● Subtract from that a percentage representing returned and unsold books.

● Subtract from that the percentage of trade/wholesale discount (or commission, in some cases) given to wholesalers and booksellers.

● Subtract from that any commission/distribution fees charged by trade distributors and/or commissioned sales reps.

What’s left is Net Sales Revenue.

Expenses. The COGs, or cost of goods sold—that is, the direct costs you expect to be attributable to this book. In this example I’ve treated e-books as an integral part of the project.

Consider:

● manufacturing costs (aka PPB—paper, printing, and binding), including the costs of printing, and shipping from printer to warehouse

● production costs that can be directly attributed to the project, including author royalties and advances, and costs for editorial work, design, and licenses, among other things

● marketing/promotion costs directly attributable to the project, including the costs of promotional materials and activities

Subtract Cost of Goods Sold from Net Sales Revenue, and you have your Gross Profit (or Loss).

From the Gross Profit, you could deduct Allocated Overhead, the book’s share of the company’s overhead expenses (office and administrative salaries, rent, etc.) to arrive at an estimated Net Profit. And if yours is a start-up venture, or if the project would trigger a permanent business expansion, you need to do that (temporary business expansions belong in Cost of Goods Sold).

Do this kind of analysis separately for each core source of revenue, and each alternative binding style/format (separate columns on the spreadsheet will work), and structure your spreadsheet so you can easily change and experiment with every variable without editing the cell formulas. When you’re done, you will be able to see how each variable contributes to the project, and whether or not it is likely to be profitable.

Keep “likely to be” in mind, though, since so many of the numbers in your spreadsheet necessarily represent best guesses. Relevant prior experience may make your guesses more accurate, but they will still be guesses, so make sure your worst-case scenario won’t be fatal (e.g., 75 percent returns/unsold), and that you’re not deceiving yourself. Then treat this as a living document, and, if the project goes forward, update the numbers to reflect actual revenues and expenses, and adjust course as necessary.


Dave Marx, the publisher at PassPorter Travel Press and the coauthor of several of the company’s guidebooks, reports that PassPorter guidebooks have received more than a dozen awards, including IBPA’s Bill Fisher Award. He has spent 40 years in the media—print, broadcast, music, and online—and recently served on the IBPA board of directors.

 

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