Publishing 101: What Goes into the Pricing of a Book

It’s come to my attention that some members have some misconceptions about the publishing industry and the roles of publishers, editors, agents, publicists, etc. Publishing is a business and as such it is geared to make money, ideally for all concerned. But it does have its quirks and can be frustrating and infuriating at times. As I’ve worked in the industry for about 40 years now (a realization that just hit me as I typed those words—ye gods!) in a wide variety of capacities, and it was suggested that I write a series of articles designed to explain how the industry works—in effect a Publishing Industry 101.

Before I begin, some background about myself. I actually got started in the industry on an amateur level in high school in Devils Lake, North Dakota, in 1970. No, I didn’t work for the school newspaper, though I did work on the annual. Rather, my best friend, Dave, and I produced two science fiction fanzines (the term a contraction of “fan” and “magazine”) which we typed up on mimeograph paper, stained our fingers blue (and got woozy from the mimeograph chemicals) printing out 30 to 50 copies and then mailing them free to friends and fellow science fiction fans across the country. We graduated to the “big time” of offset printing when I got a job at a local print shop and learned print production. It being a one-man shop (I was the first hire the owner ever made), I was taught how to do everything from shooting and developing negatives to printing and binding. After hours, and with the boss’s permission, I’d then print the fanzines, paying for materials at cost.

By that time I knew that I wanted to get into publishing. But I didn’t have the skills yet in place to be a professional writer. So, I decided to take a somewhat indirect route and learn the printing trade. I attended the North Dakota State School of Science (now the North Dakota State College of Science) and graduated with a diploma in graphic arts. From there I landed a job at the University of North Dakota Press where I worked mostly in the darkroom, and occasionally in the pressroom.

By this time Dave and I had stopped doing the fanzines. In Dave’s case, one of the fanzines we did helped him land a job as an assistant editor at Marvel Comics in New York City. We stayed in contact and during my vacations I would visit him in New York. After about three years at the UND Press, I quit my job and in 1977 made the huge leap from North Dakota to New York and with Dave’s help landed a job in the production department at Marvel.

Over the years I have been:

• A writer of comics, coloring books, articles, sales/promotion copy, fiction, non-fiction, books for the children’s and adult markets, cover and back cover copy, dialogue for television program,
• A ghost writer for best-selling and Pulitzer Prize-winning authors,
• An art director,
• Foreign sales director,
• Domestic licensing agent,
• Comic book editor at Marvel Comics and Comics Interview Publications,
• Executive editor at Topps Comics (a division of the trading card & Bazooka bubble gum company), and
• Senior book editor at Byron Preiss Visual Publications, a mid-sized Manhattan-based publishing house.

If it involves words in print, chances are I’ve done it at one time or another.

Since going full-time freelance in 2006, I’ve got 10 books to my name, with two more coming out this year, and have written a couple hundred articles, with more on the way.

I’ve had the highs of seeing my name in print (something that never gets old, even now) and associated with such characters as Spider-Man, the X-Men, and of seeing my first book under my name turned into an award-winning television mini-series. And I’ve experience all manner of lows, the worst being when a career-launching book project I was working on spectacularly blew up in my face, causing me to almost commit suicide.

By the way, if you think I’m rolling in dough, you’re wrong. You’ve heard about the 99% and the 1% groups? Well, when it comes to being a professional writer, that breakdown is about the same. Most writers have to have a regular job in order to make ends meet. I supported my writing habit with the aforementioned assortment of day jobs. There’s a reason I’ve written as much as I have—I need to in order to survive! Book advances are not what they used to be, and I’ve struggled to make ends meet. I am so happy that my wife has the day job to pay the mortgage and most of the regular expenses.

This series of articles is not designed to promote one aspect of book publishing over another. All the different formats have their advantages and disadvantages and what works for one author might not for another. In my case, my career has gone the traditional publishing route and I’ve had experience writing books for small, medium, and major publishing houses. I have an agent, but only for my children’s/young adult books. To date, all of my adult military histories were the result of personal relationships with editors or book packagers who came to me with their projects. Agents perform a valuable service (and good agents perform an invaluable service) and I’ll discuss their role in a later article. Here I’ll simply state that circumstances have been such that I’ve not had a need for an adult market agent, and thus have been able to pocket the 15% commission that would otherwise go to him.

But enough of me, let’s get on with the industry itself. And, let’s start by talking about the little item without which there wouldn’t be a publishing industry: the book. Specifically, I want to talk about a book’s price and the factors involved in determining it. Nowadays there are many forms of publishing: traditional, self, vanity, subsidy, and ebook. Like the music and movie and television industries, the publishing industry has had a difficult time coming to grips with the market changes caused by digital technology. And we’ll probably see some additional fallout in the next few years. But for now, I’ll use as a baseline a regular hardcover book. And, I’ll use as an example my book, Uncommon Valor.

The retail price for the hardcover edition is $25.99. The wholesale price, in other words the price distributors (Baker & Taylor, Ingram, Amazon, etc.) pay my publisher St. Martin’s Press is usually 50% of that. In some cases the wholesale discount can be as high as 60%. The 60% discounts are usually given to companies that purchase books on a non-returnable basis (Costco is a big player in this market).

Using the 50% discount, St. Martin’s Press sold hardcover copies of Uncommon Valor at a unit price of $12.995. Out of that $12.995 the publisher has to pay the following costs:

Overhead

• management
• editorial
• design, sales/marketing
• legal
• accounting
• maintenance staffs
• housing, heat, electricity
• shipping
• warehousing
• taxes.

One-off costs — in other words non-royalty based expenses associated with the book — include:

• freelance designer
• freelance editor
• photo research and rights acquisition
• cover artist or photographer
• marketing
• postage
• galleys/Advance Reading Copies/F&Gs used for review and advance quote purposes
• printing (printing is the largest expense and I’ll get into a breakdown of that in a bit).

Then there’s the author expense that comes in two forms: advance against royalties, and royalties. Finally, there’s the X factor that looms over every traditional book: returns. Failure to account for returns can cause a publisher to go bankrupt. (It has happened.) So, since they’re such a huge factor in the success or failure of a book (and more to the point, when an author can receive royalties), what are these things called returns?

Well, you have to understand two important terms: sell-in and sell-through. Sell-in means the number of books ordered on consignment and stocked by a bookstore. Sell-through is the number of books actually sold. Subtract the (lower) sell-through number from the (higher) sell-in number and the difference is called “returns” because those books are returned to the distributor after the shelf-life of the book has expired. Though it’s not as locked-in as a food product expiration date, all books have one, it’s just more flexible. In the past, distributors would then tear off the front cover of each unsold book and send the covers back to the publisher as proof. Years ago I remember some department stores having display bins loaded with coverless paperbacks. Selling of these coverless books was actually illegal and constituted fraud. It got pretty bad for a while. The only practical thing publishers could do was appeal to customers’ probity, which is why publishers printed in the front a page that said something to the effect: If you purchased this book in a coverless condition, you need to know that this is an unauthorized sale and that the publisher and author are not receiving any money from the sale.

Getting back to returns, it’s important to understand that no book, no matter how popular, has 100% sell-through. Not even the Harry Potter or the Twilight series. Now, those two had fabulously high overall sales that made their respective authors enviably rich and their publishers wonderfully profitable, but there were still unsold copies whose expense had to be deducted from gross revenues.

When an editor does his P-and-L (Profit-and-Loss) assessment of a book, if the company’s big enough, he works with the marketing department and his publisher to determine the profitability of a project. With smaller companies, he makes the determination on his own. Once all the hard costs for a book (printing, advance, design, etc.) are tallied, he then looks to see how many books he’ll have to sell in order to reach the break-even point. Then, he increases that number, sometimes by as much as 50%. The reason he does this is because returns on a book usually run between 20 to 30% of the print run. Once they get above 30%, the publisher starts sweating because that’s starting to eat into his thin profit margins, and if it hits 50% he’s got a money-loser on his hands.

Regarding those hard costs, the single biggest one is the printing itself, and the biggest cost in printing is the price of paper. Major publishing houses have bulk order contracts with paper manufacturers in order to keep that cost as low as possible. Thus when designers begin the task of figuring out how a book will look, they will have a limited choice of papers to choose from. If a paper isn’t in the publisher’s inventory, then it’s not going to be ordered. Smaller publishers have more flexibility than the big houses, but the options are still limited.

To prepare the designed pages of a book for printing, they are arranged in what’s called a signature. Signatures are always in multiples of four and the most common book signatures are 16-page and 32-page signatures. These have proved to be the most cost effective. If you go to the back of a book and see a lot of blank pages (or a lot of in-house ads), the reason for that is that is because it was actually cheaper to print the book with the excess pages than to try and use a smaller signature (the second biggest cost in printing is press time). I know, on the surface of things it doesn’t seem to make sense, but speaking from experience as a printer, switching from one signature size to another on a project increases printing press downtime because the pressmen have to readjust the press. So the money you might save in reduced paper cost, actually is more than lost through increased press time. Someone has to pay for that added time and it’s not the printer.

Some rules of thumb regarding printing costs are in order. The production cost of a hardcover is basically twice the cost of a trade paperback. The use of four-color at any place in the book (cover, color insert, or color throughout) increases the cost of that part of the book by a factor of four — the sheet of paper has to make four passes through a printing press, one for each color: black, cyan, magenta, and yellow. Black and white illustrations or photographs are an added cost. Embossing, foil stamping, debossing, die cutting and other enhancements (usually on the cover) are all added costs. When all the different costs are totaled, a publisher wants to hit a unit cost sweet spot anywhere between $5 to $7. If the unit cost is higher than $7, then he has to raise his retail price. If the unit cost winds up being lower, he’s going to pocket that money because he knows he’s going to need it somewhere down the road to cover the costs of a book that tanks (and every successful house has some of those — I’ve even written two books that wound up dying in the market). So, taking the $12.995 wholesale price of Uncommon Valor and subtracting $7 leaves the publisher with $5.995. If we subtract the $5 unit cost of printing, he’s got $7.995 to pay for all his other expenses.

At this point you’re probably wondering about royalties. Okay, let’s talk royalties. Payments to authors come in two forms: advance against royalties and royalties. An advance against royalties is exactly that — the publisher pays an author for a manuscript in advance of actual sales. As sales come in, they are tallied against the advance. If final sales are less than the total advance, then the publisher has lost money and the only money the author will receive off the project is that advance. If book sales revenue surpasses the advance total, then royalties are due the author. A variety of factors affect royalty rates and they include:

• Format (hardcover, trade paperback, mass market, digital, website, book club, specialty sale, the list goes on, some contracts get very detailed about this)
• Print runs (generally speaking the royalty percentage payout to the author incrementally increases based on trigger levels of sales)
• Foreign sales
• Ancillary rights sales (television, movie, other media — some publishers, usually small houses, split this royalty with the author, some leave those rights to the author intending to make their revenue off increased sales of the book should it be turned into a media hit).

With a traditional publisher, royalty rates usually range between 8 and 12% of retail cover price depending on the above-mentioned factors. For convenience sake I’ll take a straight 10% royalty rate to do my calculating. That means out of the whopping $7.995 per book revenue now burning a hole in my publisher’s pocket, he has to give me and my co-author (John D. Gresham and I collaborated on Uncommon Valor) roughly 30% of that ($2.599), leaving him the princely sum of $5.396 to cover all his other expenses. If he wound up with the $5.995 figure, then he gives us more than 40%, leaving him just $3.436 to cover all his other expenses.

One final note: remember earlier I wrote that a bookstore orders its books on consignment? Well, distributors accept books from publishers on consignment. This means that the publisher has to front and carry all book costs, which for a major house can be anywhere from $50,000 to $100,000 (more for bestsellers), for up to two years before he sees any money. It takes anywhere from 12 to 18 months to produce a new book from writing start to printer finish. The earliest a publisher will start to receive money for his investment is one month after a book goes on sale.

Until sales confirm it, he has to hope that this decision made as much as two years ago was the right one.