Royalty Rates for Professional Books
May 30, 2008
What are the usual royalty rates for professional titles?
Based on our experience, the most common rate schedule for a professional title is:
10% on net receipts for sales of printed & ebooks to 2,499 copies
12.5% on net receipts for sales of 2500 to 4999 copies
15% on on net receipts for sales of 5000 and above
50% of the above royalty rate for sales of printed books made at a discount of 60% or higher
50% on net receipts for rights sales; permissions, bookclubs, television, etc.
No royalty on sales of printed books sold at less than cost
No reserve for future returns
Editorial Plan
May 30, 2008
An editorial plan outlines the publishing goals of a book publisher.
It sets forth, by subject area and acquistion editor, the number of manuscripts that the press intends to sign, the projected sales of those manuscripts, the manuscripts that the press expects to be turned in and the number of titles that will be published.
Example Editorial Plan:
2008:
Acquisitions: 5 Books (Cooking), 4 Books (Quilting)
2009
Acquisitions: 8 Books (Cooking), 6 Books Quilting, 2 Books (Fashion Design)
Manuscripts Received: 5 Books (Cooking), 4 Books (Quilting)
Publications Released: 5 Books (Cooking), 4 Books (Quilting
Literary Agents Boost Sales
May 29, 2008
When a client needs to quickly increase the number of titles released one tool to use is literary agents. These agents often have completed manuscripts waiting for a publisher.
The first step is to find literary agents that specialize in the subject matter favored by your press.
Then you need to contact the literary agent and let them know of your interest. We advise that you continue to contact them each month with an email to remind them of your interest, and keep them advised of your firm’s latest publications. Some clients send literary agents a post card with a cover image of each new book they publish in the agent’s subject area.
If you visit their city, take them out to lunch.
If you accept a manuscript from a literary agent send them a small momento or gift upon publication - some clients send them a framed cover of the book that highlights the publication date and press. The key is to give them something that will cause them to think of your firm when they receive a good manuscript.
Why this attention? Agents receive many manuscripts each year, and the big New York publishing houses can only accept a few. There are hundreds of publishers. You want the agent to think of your firm when a good manuscript is available. If all you do is send the agent an email or call them once a year, they will likely overlook your firm when considering which house to pitch a manuscript to.
Prepress Expenses & Inventory
May 26, 2008
Publishers frequently ask how should prepress expenses be handled?
Prepress expenses are the prepartory work that goes into preparing a manuscript for the printer. Typesetting, design, proofreading, editing and art work are examples of prepress expenses.
Publishers of medical books, educational texts and large reference works usually capitalize prepress expenses and amortize the expense over the expected life of the title - usually two to three years.
Publishers of trade books usually include prepress expenses as part of the inventoriable cost (printing, paper and binding). This expenses all of the prepress expenses over the sales of the first printing.
From the perspective of GAAP (Generally Accepted Accounting Principlies) both methods are correct.
The educational textbook publisher expects his books to have a life of three years and go through several printings. By amortizing prepress expenses over time these expenses are allocated accross all printings.
The trade book publisher expects that his books will “most likely” have a life of one year and thus including the cost of prepress expenses in his inventoriable cost is proper.
Paperless Office
May 25, 2008
The hot new trend in business management is implementing a paperless office.
A paperless office means that;
1. Important papers; think royalty contracts, don’t get misplaced
2. Important papers are always accessible
3. Important records are backed up to secure storage media
Some publishing software solutions; such as MSLG’s Elan Royalty Software, IBS Bookmaster ERP solution and the Bradbury Phillips support the storage of scanned documents. Others; such as Cat’s Pajamas, don’t.
Standard accounting solutions have their own document management solutions or 3rd party add-ons that provide this functionality.
Increasingly, more publishers are storing scanned copies of their royalty contracts in PDF format.
Finance departments are storing copies of vendor invoices and finding that handing a CD of invoices to their outside accountants can save them from having their staff search through file cabinets to find invoices selected by outside auditors.
Book Expo America 2008
May 25, 2008
Book Expo America is one of the most important events for a publisher to attend.
Here a publisher can see the latest trends in book packaging and book releases. They can meet with rights buyers and sellers. Its seminars can provide a nugget or two of information that will help them penetrate new markets or reduce their costs.
More importantly, they can talk to vendors and discover new and better ways to market, sell and produce their titles.
Royalty Contract Conversions
May 24, 2008
The hardest part of many implementations is the conversion of royalty contracts. Often a publisher will be told that it must be done by hand. In some cases this step can delay the go-live date of a new system by months.
However, some vendors have developed shortcuts to dramatically speed up this process.
Cyberwolf (ACUMEN software) has a conversion program that imports Cats Pajamas royalty contracts into the Acumen software.
MetaComet (Royalty Tracker software) utilized outside consultants; such as PubTech, to convert royalty contracts from Vista to their format.
Tha’ts Rights will convert your royalty contracts for you, if the contracts are in an SQL database.
Order Fulfillment Options
May 24, 2008
Should a publisher handle their own order fulfillment (ie storage, pick, pack and ship) or out source order fulfillment?
There is no one correct answer. If you are a publisher based in NYC you probably want to hire a fulfillment service due to the high cost of rent and labor. If you located in New Hampshire you might want to do it yourself due to the lower cost of land and labor and the greater control that this offers the publisher.
Quite often a publisher will start with their own warehouse in a garage, hire a fulfillment service as they grow, and then return to running their own warehouse operation when they grow large enough to see significant cost savings. If their growth continues they may once again return to using an outside fulfillment service or start a joint fulfillment operation in conjunction with other publishers.
What are the Pros and Cons
With an outside fulfillment service you can avoid the headaches and overhead associated with running a storage and shipping operation.
At the same time you do not have the same control over your inventory operations and if you run into financial squeeze you might find that your outside fulfillment service stops shipping stock until payment in received. Also, there is a slight chance that your fulfillment service can go bankrupt.
Fulfillment Services
A fullfillment service will pick, pack and ship orders that a publisher sends them. Many software packages can send an electronic file to these services and recieve a shipping confirmation file back. Fulfillment services that we recommend include;
- Biblio Distribution
- Bookmasters
- Maple Vail
- Publishers Shipping and Storage Corporation
- Ware-Pak
A more complete list can be found in the current edition of the Literary Market Place, at www.literarymarketplace.com, or at bookpublishingsoftware.com.
Ratio Analysis
May 24, 2008
Many managers look at the raw dollar numbers and miss important trends that can highlight growing problems in their operations.
Ratio analysis can identify trends before they have a chance to grow into major problems. Once you identify a problem you can investigate the cause and implement corrective actions.
Income Ratios
|
Qtr1
|
Qtr2
|
Qtr3
|
Qtr4
|
|
| Sales |
1.1M
|
1.0M
|
1.05M
|
1.2M
|
| Cost of Sales % |
45%
|
44%
|
48%
|
50%
|
| Gross Profit % |
55%
|
56%
|
52%
|
50%
|
| Net Profit % |
12%
|
13%
|
9%
|
8%
|
| Administrative Exp % |
12%
|
13%
|
14%
|
15%
|
The problem in the above example is that your gross margin is decreasing. You must investigate to find out why and take corrective actions. Is it caused by the pricing of your titles, excessive production costs, or increasing royalty expenses?
You should also investigate why administrative expenses are steadily increasing as a percentage of sales.
Balance Sheet Ratios
|
Qtr1
|
Qtr2
|
Qtr3
|
Qtr4
|
|
| Days of Inventory |
160
|
180
|
200
|
350
|
| Days of Sales Outstanding |
90
|
89
|
88
|
80
|
| Accounts Payable |
100
|
130
|
150
|
200
|
| Current Ratio |
1.6
|
1.5
|
1.2
|
1.1
|
Activity Statistics
|
Qtr1
|
Qtr2
|
Qtr3
|
Qtr4
|
|
| New Customers |
2400
|
2500
|
3000
|
2000
|
| New Titles |
5
|
4
|
0
|
10
|
| Sales per Employee |
200K
|
190K
|
170K
|
200K
|
A key statistic that we like is new customers per quarter. Ideally you want to see marketing acquiring a targeted number of new customers per quarter.
Intercompany Sales
May 24, 2008
Occassionaly we come accross book publishers that operate several companies and transfer books among these related companies for resale. The question arises as to what is the proper way to account for sales.
Some publishers account for them as normal sales. This recognizes income at the time of the stock transfer, even though the inventory has not been resold to the final consumer.
Others transfer the stock on a consignment basis. With this method the original publisher retains title until the stock is sold. This delays revenue recognition until the books are sold to the final consumer.
The proper way to account for these transfers is to treat them as consignment sales.
Why?
- You do not recognize income until the stock is actually sold to the end user (ie retailer, wholesaler).
- You minizime your taxable income.
