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The Business of Publishing

For further perspective on royalties and the "business" of publishing, Figure 3-1 shows the breakdown of expenses for our publishing operation, across all our books, for the first half of 1994. These figures are all based on the net amount received, not on the list price.

Figure 3-1. Breakdown of Publishing Costs

On average, printing costs absorb 17% of the net. Editorial, production (formatting and typesetting), and design costs (what most publishers refer to by the somewhat odd name "plant costs") absorb another 12%. Author royalties are another 10%. We consider that the "cost of goods"--a total of about 39%.

Then comes the "cost of sales." We allocate about 20% of all sales for promotion, including advertising, trade shows, catalog mailings, free books to reviewers, etc. Half of that amount is for actual "hard costs" such as advertising, trade shows and direct mail promotion. The remainder covers the costs of our sales and marketing staff. Our order-entry and fulfillment costs add about 11%. This is considerably higher than the industry norm (5.4% for most technical book publishers) because of our greater emphasis on single-copy mail order sales. That's a total cost of sales of about 31%--and leaves a total of 30% to absorb our overhead, invest in future product development, and hopefully generate a profit.

Our overhead is typically about 20%. (This "overhead" figure includes the cost of acquisitions (including books that never make it to print), administration, rent, equipment, and all the other usual goodies.)

That leaves us with a profit of about 10%. And to be frank, that's the average across all our books. Most of the profit is actually contributed by the bestsellers, and by books that have been around long enough to earn back their up-front costs. Most new books don't contribute significantly to profit in the first year or two.

Go back to Chapter 3.

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