Over the past few years I’ve come across statements that show a misunderstanding of the basic costs and economics that book publishers and producers face. For example, there are regular complaints about the cost of ebooks in comparison to print books, generally suggesting that publishers have priced ebooks unreasonably high. Other statements imply that traditional publishers keep 90% of the profits of book sales, while giving the author just a small part. Still others assume that since the cost of producing each additional ebook is nothing, that ebooks will soon overtake print book sales and publishers will disappear.
As I considered these claims, I realized that they are often based on little or no knowledge of publishing economics. So I thought it might be useful to give a basic overview of the costs and economics of book publishing—something that might help those considering publishing their own ebooks, and that might help consumers decide if prices really are too high and authors understand why publishers don’t give them more money. I’m sure for some readers this is obvious—if so, then you likely agree with me about many of the complaints about publishers aren’t justified, or you will be able to tell me why I’m wrong.
Books, whether digital or print, are economically not much different from a lot of other manufactured goods. To manufacture a product, you first plan the production (design the product and how it will be made) and then actually produce the product.
To give a concrete example, the process is really not any different economically than making hor d’oeuvres for a large party, perhaps one in which you really don’t know exactly how many people will come, or how many hor d’oeuvres they will consume.
To plan for the party, you first figure out hor d’oeuvre you will make and what recipe you will use. You also need to consider what kitchen utensils and implements you need and even how many people will help you make these hor d’oeurves.
All of this planning takes time and costs either money or your effort (since you can’t spend the time you put into the planning doing something else you might want or need to do). You may need to consult with another chef, you might need to find workers to help you put together the hor d’oeurves or you will probably need to go to the store and purchase the materials needed to make the hor d’oeurves. You may also need to find or purchase the utensils and tools needed to make them—rolling pins, measuring cups, bowls, etc.
For what its worth, these planning costs are called by accountants fixed costs—because the total of these costs don’t change with the number of items (hor d’oeurves in this case) that are made. The costs of actually making each item are called variable costs—because the total of these costs changes according to how many items you make. In the case of the hor d’oeurves, all that planning might cost just a little bit, say$50, but the cost stays the same no matter how many hor d’oeurves you make. On the other hand, the cost of the ingredients and the time making the hor d’oeurves changes according to how many you make.
The most important and crucial costs for most books come in this planning or preparation phase. These preparation costs include not only all editorial costs (content editing, line editing, proofreading, etc.), but also design and layout of the book, preparation of the cover, design and management of marketing and sales, etc. At most large publishers, these pre-printing costs, all fixed costs, amount to at least several thousand dollars, and for the largest books they can amount to tens of thousands of dollars.
What large publishers do NOT include (but which most authors who self-publish should include) is the authoring cost—the cost of the author’s time and effort in writing the book. By agreeing to pay the author a royalty, the publisher converts that cost to a variable cost—the total depends on how many books get sold, and if the book doesn’t sell well, then the author’s time and effort isn’t paid for in full. But that fact doesn’t bother the publisher, because he only agreed to pay however much per book. But for the self publisher there isn’t any way to ignore or make into a variable cost the costs of time and effort writing the book.
The implications of the fact that such a large proportion of book publishing costs come up front, before a single book is manufactured, are huge. It means that book publishing is almost always about what kind of sales volume you can get. The basic math is simple: the larger the number of copies you sell, the lower these costs are per copy sold. If it costs you $5,000 up front to write and prepare a book, then selling only 500 copies means these pre-printing costs are $10 per book—quite a lot. But if you sell 5,000 copies, then these costs are only $1 a book, and 50,000 copies are just $0.10 a book!! Volume is everything.
Too often those unfamiliar with these economics ignore the editorial and other pre-printing costs, especially when considering book prices. Somehow, it is widely believed, a 9 x 6 200 page paperback book printed on standard paper should cost the same regardless of its contents. In fact, the most important factor driving the costs the publisher faces is how many copies it can sell. And the public’s belief that books configured the same should cost the same regardless of content, actually allows publishers to keep the price of bestsellers higher than they might otherwise.
These same costs are one of the factors that drive publisher reluctance to reduce prices for ebooks. The actual printing (variable) costs are a relatively small factor in pricing print books (printing for books is usually 1/5 to 1/6 of the cover price), so reducing that small factor to zero (as happens with ebooks) doesn’t save much money, and doesn’t allow you to reduce the price that much. Its not about cannibalizing print book sales, its about covering the editorial and other preparation costs. Unless the publisher is sure he will get a big bump in sales volume, he can’t reduce prices on ebooks much.
This is, of course, just one aspect of publishing economics, although its one of the most important aspects. I hope to address other aspects in the future, including distribution costs, sales patterns, and pricing.
I know this can be a bit confusing or daunting, and I hope I’ve made the concepts clear. In my mind, these concepts explain a lot of what goes on in book publishing, and indicate, among other things, why it is unlikely that ebooks, just because of their format, will have significantly lower prices than print books. If ebooks end up significantly cheaper, it will be because of many other factors.