The Surprising Truth About How Publishers Buy Books

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The Surprising Truth About How Publishers Buy Books by Tim Sanders

November 27, 2012

Have you ever wondered how publishers arrive at the book advance they offer authors?  In my case, I've sold four books to traditional publishers, and in each case, the formula for their offers were secured in the black box of publishing. (There are many mysteries surrounding the publishing industry we'll be addressing/smashing over time).  Until earlier this year, I could only guess at how they came up with these numbers. 

At Net Minds, we are creating both a platform as well as a market place for team publishing.  To do this, we need to help both authors and their prospective freelance partners know what a book project's commercial potential actually is.  So, to that end, we've conducted dozens of interviews with publishing professionals to identify their algorithm for book advance offers.  We've talked to publishers, acquisition editors, literary agents and retail book buyers about how they estimate an author's sales potential based on a book proposal or manuscript.

Not surprisingly, the industry still uses rules of thumb, trusting their instinct at the end of the day.  It's more Art than Science, that's for sure.  In our research, we've also found out how it's working for them.  Not that well.  In most cases, if there's a literary agent involved, they over pay for books and have to make up the losses on the occassional block buster. Like a venture capitalist of sorts, except without all the process.  If there's no agent, then they under offer, which often leads to the author self-publishing or not publishing at all.  In the cases where they take a skinny offer, authors are often abandoned if the book doesn't garner starred reviews or advance orders from retailers. 

That being said, there is a predictiable rhyme and reason behind what a publisher will offer you for your book.  In technical terms, you sell your book's world wide exclusive publishing rights to a publisher for a defined amount up front and royalties to come once the advance is recouped. 

Here's their formula: First year sales X royalty rate = advance offer.

They are interested in first year sales as it represents their desired window for getting their money back.  Most publishers told us that 80-90% of the book's sales occur in the first six months of it's publication, barring a major development, like a movie deal or instant celebrity status.  The royalty rate for ABA books (secular) is usually 15% of the suggested retail price of the book for hardcover, and 8-10% for paper back or eBooks.  If, for example, a book is priced at $25.00, the royalty rate is $3.75 per hard cover unit sold.  If a publisher thinks your book will sell 25,000 copies of a $25.00 MSRP product, then they'll offer you between $90,000 and $100,000.  If they only predict 10,000, you'll only be offered about $40,000.  This is why we scratch our heads when we read about mega offers to celebrities, when celebrity books seldom sell 500,000 to a million copies in their lifetime! (Note: For the Christian Book Association titles, the royalty is usually 20% of net profits, not a percentage of the book's price point.  Not much difference at the end of the day.)

The trick for you then, is to understand how first year sales are forecast by publishers.  If the author has already been published, then it's a pretty straightforward process.  You look up the sales figures for the last book, and either give it a little discount or premium, then make your offer.  If the last book sold 20,000 units, and the author hasn't dramtically increased her profile or platform, then the most you will predict is 20,000.  If the last book was a 100,000 unit sales hit, then you can also predict that (plus or minus progress) in your offer.  They will stick to this even when the topics or genres were different, as they claim it has an impact on the book buyer at retail.  It's not fair, because your last book's sales figures could have been influenced by timing, the publisher's engagement with the book or it's topic/genre.  This is also why, unless you are the next Malcolm Gladwell or Steven King, your first book advance will be your largest.  Because they had to guess!

What I was looking for was the magic formula, or algorithm, for predicting first year sales when there is no historical sales data on the author.  Here are the factors most publishers use for their first year sales formula:  Category Sales, Quality, Platform and Release Terms.

Category Sales: First year sales of comparable titles are analyzed.  What is the average?  A hit?  Is the genre or sub-genre on its way or down - or does it have a consistent year over year sales performance?

Quality: Will the author's voice stand out in the category?  Is his perspective compelling or fresh?  Is he a presence, meaning, would he do well in media interviews or live events? (Think Category Sales +/- Quality)

Platform: What is the marketing platform for the author in terms of following, audience, addressible customers? Is the book's content related to the author's platform, meaning, if the rock star writing a book about the band VS a cook book or financial service tome?  If the book's not core to the platform, then publishers discount the gross reach or following of an author when making their offer. (This is of growing importance to publishers, who devote less resources than ever to marketing/PR.) 

Release Terms: When will be book come out? Meaning: When will the publishers start to get their money back?  Is this book a high dollar hardcover, a trade paperback or an eBook dominant release?  Meaning: Is the royalty for the formula $3.75, $1.50 or .99?

While this is still not science or software, it gives the acquisition editor some way to make an educated guess about first year sales and royalty rate.  What about book proposals that create a bidding war?  The forumla is the same, except in this case, the publisher picks an advance they think will win the deal, and they back into the required first year sales numbers to 'make it work.'  That's when they win a battle, but lose the war for profits. 

Your book proposal gives them inside information for all four of the categories, and hopefully our findings help you build a better one.  In the future, your book project will much more accurately be appraised for it's potential, creating a currency of sorts for it when building a team or gathering parnters.  This means less mega-advances to famous people and more great books receiving the green light to be made and released. 

More reading: Mega Advances Are Harmful For Readers


Tim Sanders

About Tim Sanders

Tim is a bestselling author and former Yahoo! executive with a mission to disrupt the traditional publishing and self-publishing industries and share knowledge with authors looking to publish and market high-quality books.

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