As I write this, we are getting
ready to convene the Trade Distribution Committee in Chicago, and, as the
members of that committee know all too well, pricing mistakes often make it
necessary to reject a book for the program. Some books are priced too high and
some, believe it or not, are priced too low. Setting a price is an extremely
important determinant of a book’s success or failure.

Pricing Parameters

Let’s begin with the easiest
mathematical formula applied by many—the 8 or 10 times manufacturing cost
rule. At its most basic, this means: Take the print per-copy cost and multiply
it by 8 or 10 to get a price. Example: if a book costs $1.50 to manufacture
(note: the costs of design, editing, and everything else aren’t included), and
you multiply the $1.50 by 8 or 10, you come up with a potential cover price of
either $11.95 or $14.95.

It would be great if it were as
simple as this. But pricing is actually much more complicated. (For innovative
ideas on how to price books, see “Better Metrics for Crucial Decisions” by Mike
Shatzkin in the July issue and at <span
style=’font-size:11.0pt’>www.pma-online.org.)

If you start with the formula
based on manufacturing cost, don’t use the figure you get until you have looked
at books that will compete with yours in the marketplace and found out whether
your formula-based price falls within the range of their prices. If, for
example, you have a small gift-type book that is an impulse buy, you’ll find
that comparable books normally don’t sell for more than $6.95, and usually sell
for a lot less. So, if you’re paying $1.50 per unit for your title, this
formula won’t work for you. In fact, there’s probably no formula that will work
for you if you pay $1.50 for a book that needs to retail at $4.95.

Why is that? you may wonder. Well,
here’s another simple mathematical formula. To get your books into a bookstore,
which is where many publishers want their books to sell and also what our Trade
Distribution program is about, you must use a wholesaler and/or a distributor.

If you use a
wholesaler—which will have no sales reps and will not proactively sell
your books to bookstores but will act as a picker, packer, shipper, and biller
for accounts that you develop and that place orders—you will have to give
the wholesaler a discount of 50 to 55 percent off your cover price. Where does
this 50 to 55 percent go? Most bookstores today request close to a 45 percent
discount for titles from smaller presses, which gives them their cut for
placing your title on their shelves and, hopefully, selling through. The other
5 to 10 percent goes to the wholesaler for storing, fulfilling, and billing.

If you use a
distributor—which will have sales reps who call on accounts and attempt
to sell your title to booksellers—the required discount will be somewhere
between 60 and 64 percent. That percentage is allocated to retailers and/or
wholesalers as well as to the distributor.

So, let’s take a look at a book
that should retail for $11.95 to compete against comparable titles, and that
costs $1.50 to manufacture. If you use a wholesaler, you’ll receive $5.37 for
each copy that sells through (best-case scenario). If you use a distributor,
you’ll receive $4.30 for each copy that sells through (again, best-case
scenario). The reason I say best case is that books that don’t sell through are
likely to be returned damaged, thus reducing your profit level and, in effect,
adding to the discount number.

Best Pricing Procedures

Many times during Trade
Distribution Committee meetings, we see books that have been having some
success in academic circles and that might sell in the consumer market. But
these books are typically priced way above what the consumer market will bear.
For instance, an educational children’s book that has been selling to academics
for $25 would have to be priced at $15.95 or less for consumers. When a book is
priced above prices for competing titles and/or above what consumers will pay,
we have to reject it.

The reverse is true too. Often,
books come in with cover prices that are too low in the context of the
bookstore pipeline. If, for example, we see a self-help book priced at $8.95
and know that the manufacturing cost is in the $2 to $4 range, we have to
reject the book. A publisher that pays $4 for a book with a suggested retail
price of $8.95 will either lose money on every copy sold or clear less than a
dollar (depending on whether a distributor is involved), which means there
would be no money for marketing, advertising, publicity, royalties, and on, and
on, and on.

So, how should you price a title?
Well, do lots of research before placing any cover price on your book. I’d go
on the Internet and to retail outlets that are carrying titles like the one I
want to publish. I’d make sure I understood the range of relevant pricing, from
lowest to highest, and I’d look to see what might account for differences among
cover prices for comparable books (author recognition, artwork in color, number
of pages, etc.). Also, while I was checking out the competition, I’d try to
find out which comparable books were selling best, noting both their price
points and what they offer that I might be able to emulate.

Then I’d start querying printers
to see where I could get my best deal, knowing that the printer offering the
lowest price isn’t always the best one to go with.

After I’d figured out what price
I’d need to place on my cover, I’d work backward to see how I might charge that
price and still have money left over for the necessary marketing of my title.

Now, if you don’t want to enter
the retail market, but want books as a back-of-the-room sales tool, well,
that’s another pricing game altogether.

But whatever markets you’re aiming
to get into and whatever steps you take to decide on a price for a title, make
sure you do enough research and write a P&L considering all sales factors
before you make the price final.