Of course, the size of a publishing house determines the extent of its business side. A multi-division firm may have divisional presidents and staffs who, in turn, report to a group or corporate president, who reports to a CEO and board of directors. In a small firm, just a few people make up the management structure.
The business side operates very much like any other manufacturing organization except that in publishing there is a creative product-books. The publisher must install a system that has adequate resources to meet the payroll, give advances and royalties to authors, manufacture books, store and ship them to wholesalers, book chains, and retailers, and collect the monies due.
Today, most of these functions are computerized, which allows for greater efficiency, but doesn't necessarily speed up the inflow of money. Collection is the publisher's greatest woe. Many large chains do not render prompt payment for the books they order, since most are overextended themselves. Even college bookstores and state agencies are in the slow-pay category. When more money goes out than comes in, the publisher must resort to borrowing and with it, the cost of debt service.
Returns are a common problem for publishers. Mass-market paperbacks are almost always sold on consignment, and if sales run less than 50 percent of distribution, the publisher must account for this waste in its profit structure. Sales of hardcover trade books are usually sold on a return basis, so that books may sit on racks in a bookstore for more than a month, and then be returned for full credit. In recent years, the publishing industry has amended its returns practices.
Where the Book Dollars Go
Let's say you bought a popular novel at a neighborhood bookstore for $23.50, its list price. Of course, if you bought the same book at a superstore you might have received a 15 percent discount. However, for the purpose of our example, we'll deal with the $23.50 price. An article in the Los Angeles Times details who gets what of the price you paid for the book.
- Bookseller: $11.28
- Publisher: 4.93
- Paper, printing, and binding: 3.06
- Author: 2.00
- Promotion: 1.88
- Agent: .35
As we can see, the largest share goes to the bookseller. Yet this share is obviously reduced when a book is heavily discounted. The publisher, however, must meet its payroll and fulfill all its financial goals, including profits, on a smaller slice of the pie. That doesn't allow for much margin for error.
The largest items on a publisher's balance sheet are paper, printing, and binding, factors that run about one-third of a company's gross sales revenues. The bottom line for a publisher with gross sales of about $20 million may be no more than 4 percent, which doesn't allow for much margin for error.
The business side of publishing is less glamorous than the editorial side, but its smooth functioning is vital to a firm's operations.
