Here’s a post by Mike Shatzkin: Deep in the weeds of publishing economics, that I kinda wish the Big Five publishers would all take to heart:
[A] more precise statement of the reality of this math is that a few books deliver margins that exceed the house’s overall overhead percentage and that many, if not most, do not.
Here’s why this matters. It makes a house see specific titles as “unprofitable” even though the financial results of publishing them are actually indispensible to the profits of the house. Let’s unpack that a bit.
My father, Leonard Shatzkin, who is the person who long ago laid out this framework for publishing economics, suggested that every house that believes that assigning a percentage for “overhead” to the calculation of title profitability do the following exercise. Recalculate last year’s business but throw out — pretend you didn’t publish — all the books this overhead-inclusive analysis would call “unprofitable”. You lose all the direct revenues and you lose all the direct costs. And then you recalculate your overall performance.
What would have happened? You would have lost your shirt! … it is a mistake to require the minimum overhead contribution to equal the house’s average overhead contribution in order to deem a particular book “profitable”. In fact, if you think about that for even a couple of minutes, it seems nuts.
Here’s where 99.9% of all authors sigh and wish that their publisher’s financial people read this and believed it.
Shatzkin goes on to explain how his father’s conception of how to better calculate the profitability of specific titles led to the rise of St. Martin’s: Tom McCormack was an editor at Doubleday when my father was there in the 1950s inventing Dolphin Books, one of the first trade paperback imprints in a major hardcover house. McCormack landed the CEOship of St. Martin’s in 1969. Over the next three decades, McCormack built a publishing powerhouse which is now the backbone of Macmillan.
Click through and read the whole thing if you’re interested. The post may make you want to tear your hair, but it’s not that long.