Your Most Useful Numbers Tool: The Single-Title P&L
by Marion Gropen
You may feel you’d rather have your teeth pulled than wade into “numbers.” But publishers do have to do the math to survive and thrive. This means dealing with a lot of numbers, all of which interact, so you need spreadsheets to manage them. Having worked with a few thousand spreadsheets, I have a favorite format and approach. It’s called a single-title P&L.
The single-title P&L is a management tool for internal use only. It’s not intended to comply with accounting rules and regulations, and it doesn’t look quite like the Income Statements (informally called P&Ls) that your accountant might prepare.
If you like working with spreadsheets, it should be no trouble for you to build single-title P&Ls yourself. If you don’t, you should be able to find a template that you like pretty easily (for example, an inexpensive template is available from my site).
A single-title P&L is useful not only when you’re developing a new title (as in the example featured below), but also when you’re setting a book’s price, or deciding whether to do a special sales deal, and in literally hundreds of other situations.
To make your own, start with revenue, subtract all your variable costs (such as royalties, PPB, and distribution expenses) and your fixed costs (plant), and end with what we call “contribution to overhead and profit.”
You don’t want to subtract overhead from revenue in most cases, as it’s the cost of being in business rather than the cost of producing a particular title. This distinction is important in many situations, although not in all.
On the other hand, you do want to take account of overhead when you decide how high the contribution margin must be before a project is acceptable. That “hurdle rate” may be set as a percentage of sales, a percentage of your investment in a title, or a fixed amount per title, depending on the types of books you do, and upon your other strategic goals.
Running the Numbers
Let’s take an example about the development of a new title that we will call Are We There Yet?
The book title goes at the top of each spreadsheet you’ll create for your single-title P&L. You’ll need templates (that is, master versions) of four sheets, to fill in over and over again with different numbers. They include the Data Input spreadsheet and the Calculations spreadsheet discussed below, plus standard plant and marketing optimization spreadsheets. The plant and marketing spreadsheets are outside the scope of this article. Briefly, they itemize all the expenses in each category.
You’ll run so many versions of these assessments that it helps to have the basic parameters laid out clearly on the front page of each.
As you’d guess from the average discount rate, and the projected sales, this book is a trade title with a niche market. And as you’d guess from seeing that the royalties are calculated on sales net of discounts rather than on the number of copies multiplied by list price, it comes either from a publisher that does professional books or from a small press that isn’t competing with larger presses for manuscripts.
Here’s what appears next on the Data Input sheet:
The plant costs and the marketing costs that appear in the light green areas have been pulled from the conventional plant and marketing spreadsheets that itemize all the expenses in each category.
Apparently, this publisher isn’t doing a lot of general trade business, because it’s paying a relatively low fee per copy for fulfillment, and no fees for distribution.
The next sheet to prepare is a Calculations sheet dealing with the title’s contributions to profit and overhead.
When you look at the calculations sheet, you can see how the situation represented by all those numbers plays out. The best case would yield a contribution of a little more than $12,000, and the worst would have a loss before overhead of just less than $7,000. The most likely case would provide a meager margin of $5,700. This is not a book that’s “there yet.”
For Better Results
What would you do faced with these figures?
You might think through several possibilities. What about the plant costs? Could the book do as well with a less expensive cover? Can you find a simpler design/composition solution that would save money? Can you get a larger part of your market by changing your marketing, or perhaps by spending a little more on it? Or should you pay a “kill fee” and chalk this title up to learning experiences?
In short, consider how the book’s results might be changed for better or worse by elements under your control, and otherwise.
Your team needs to get together and brainstorm about solutions to any problems revealed by your single-title P&L. If you hadn’t used it to examine this book, you would never have known that it needed fixing before you released it.
Marion Gropen has been in book publishing for more than twenty years, and for the last eight of them has offered By-the-Question advice on financial and management issues in the book business. The e-book from which this excerpt was taken, The Profitable Publisher, is available through Amazon. To learn more:GropenAssoc.com.