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Originally Posted by Steven Lake
I don't know why they can't figure out profits. It's just simple math across the top, and this comes from someone who's not a math wiz. All you do is start with your total profits from all sales over a given time period (don't count distribution fees or anything that the distributors themselves take as that's money that never sees your hands, and thus shouldn't be put into the math.), and start subtracting things like marketing costs, formatting, labor, corporate overhead, etc. Whatever is left is your profit.
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If you rephrase that "total revenues" instead of "total profits", yes. Revenues - expenses = profit.
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I think though that they don't understand how to do a simple expense breakdown for an individual product since they've been working at it for so long and are so big. Being with a small house it's really darned easy to do a full breakdown on the sales of an item. But I suspect that big house have a LOT bigger expense footprint, and thus it would be hard for them to get a full accounting of the cost associated with each ebook. But even so, it can't be *THAT* hard. The first time you do it things will be a bit hard, but once you have a baseline you can use that number to do a rough profit calculation on any product.
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Oh, they understand how to do it: every book has a P&L. Ebooks muddy the waters a bit.
Print/bind/warehouse/distribute amount to perhaps 20% of the total budget of a printed book. The other costs all occur before publication happens in any form.
It's a fair assumption that costs common to all forms will be allocated across all forms. Ebooks don't come along for the ride for free, with the costs of production born by the print books. (What do you do if the ebook is the
only format in which the book is issued?)
Profit calculations are fraught because you don't know what sales will be, and won't know for a while. eBooks simplify this in one respect: printed books have a "reserve against returns" factored into the costs. The distribution chain can be convoluted, and you may not really know what you've sold for 6 months to a year, as it can take that long for all returns to straggle in. And publishing has historically had a 100% returns policy, with full credit being issued for
any unsold titles. (According to a long time editor, that policy originated to get bookstores to take a chance on new books by unknown authors back when. "Didn't sell? No problem. You can return all unsold books for full credit!" Publishing seems to be unique in this respect. Retailers selling other products are expected to estimate what they think they can sell and order accordingly, because they
can't simply return any unsold merchandise.)
Yes, that big house will have a much larger expense footprint. One of the fun parts will be deciding how to allocate corporate overhead to titles.
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Dennis