The mathematics of e-book publishing

Tue, Mar 2, 2010


A lot of people think that the proliferation of devices like the Kindle and the impending iPad will be an unmitigated boon for book publishers. After all, the argument goes, digital copies of books don’t incur some of the more standard costs of publishing, such as printing and shipping.

But the e-book publishing is more nuanced than that, and the obstacles facing publishers as society increasingly becomes more digitized are far more pronounced than most are aware of.

The New York Times recently posted an article detailing the mathmatics behind the apparently intricate world of publishing, fixed costs, e-books, royalty rates, and the like. Check out how the whole shebang works after the break.

On a typical hardcover, the publisher sets a suggested retail price. Let’s say it is $26. The bookseller will generally pay the publisher $13. Out of that gross revenue, the publisher pays about $3.25 to print, store and ship the book, including unsold copies returned to the publisher by booksellers.

For cover design, typesetting and copy-editing, the publisher pays about 80 cents. Marketing costs average around $1 but may go higher or lower depending on the title. Most of these costs will deline on a per-unit basis as a book sells more copies.

Let’s not forget the author, who is generally paid a 15 percent royalty on the hardcover price, which on a $26 book works out to $3.90. For big best-selling authors — and even occasionally first-time writers whose publishers have taken a risk — the author’s advance may be so large that the author effectively gets a higher slice of the gross revenue. Publishers generally assume they will write off a portion of many authors’ advances because they are not earned back in sales.

Without accounting for such write-offs, the publisher is left with $4.05, out of which it must pay overhead for editors, cover art designers, office space and electricity before taking a profit.

Now let’s look at an e-book. Under the agreements with Apple, the publishers will set the consumer price and the retailer will act as an agent, earning a 30 percent commission on each sale. So on a $12.99 e-book, the publisher takes in $9.09. Out of that gross revenue, the publisher pays about 50 cents to convert the text to a digital file, typeset it in digital form and copy-edit it. Marketing is about 78 cents.

The author’s royalty — a subject of fierce debate between literary agents and publishing executives — is calculated among some of the large trade publishers as 25 percent of the gross revenue, while others are calculating it off the consumer price. So on a $12.99 e-book, the royalty could be anywhere from $2.27 to $3.25.

All that leaves the publisher with something ranging from $4.56 to $5.54, before paying overhead costs or writing off unearned advances.

At a glance, it appears the e-book is more profitable. But publishers point out that e-books still represent a small sliver of total sales, from 3 to 5 percent. If e-book sales start to replace some hardcover sales, the publishers say, they will still have many of the fixed costs associated with print editions, like warehouse space, but they will be spread among fewer print copies.

Moreover, in the current print model, publishers can recoup many of their costs, and start to make higher profits, on paperback editions. If publishers start a new e-book’s life at a price similar to that of a paperback book, and reduce the price later, it may be more difficult to cover costs and support new authors.



2 Comments For This Post

  1. Dan scanlan Says:

    Here’s a question I don’t hear being asked:

    When books are primarily digital, what happens to the used book market — second hand and thrift stores, yard sales, etc?

  2. MacPredictions Says:

    Nice article – mathematics and publishing are two of my favourite topics 🙂

    One niggle: you double-counted cover design.

    One comment: publishers don’t make a tidy profit on all their books as this suggests. Many, or even most make a loss, and then a small number of best sellers make huge profits. Of course, in an ideal world, you’d only publish profitable books, but you can never be sure which these are going to be. When looking at average figures like this, it’s important to remember the high standard deviation in these figures means the mean average is atypical.

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