Title Budgets

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ANNA WEIDMAN, UNIVERSITY OF CALIFORNIA PRESS

The AAUP Business Handbook >> Part Two: Accounting, Budgeting, and Financial Management >> Budgeting and Financial Accounting

Contents

Introduction

There are two kinds of profit/loss statements prepared at a press. One kind, at the macro level, is the press-wide operating statement which is prepared monthly. This revenue and expense statement is one of the basic financial statements which we present to our boards. The other kind of profit/loss statement which we regularly use is at the micro level: it is the title budget which should be prepared for every new book and reprint proposed for publication. Accurately and realistically preparing title budgets insures that the financial health of the organization will be reflected from individual title performance all the way through its operating results.

Title budgets are an essential management tool for any publisher. Who prepares the title budget at a press is less important than that everyone at the press knows how to read one. An up-to-date title budget should be referenced every time a project is discussed in detail including: the pre-contract stage, the in-house acquisitions meeting, editorial board meeting, launch meeting and as the seasonal catalog is being prepared.


Components of a Title Budget

There are many different forms for title budgets throughout the AAUP; however, there are certain elements that should always be included:

Basic Information
  • Date Budget Prepared
  • Name of Preparer
  • Book Information (author, title, series or copublisher-if applicable)
  • Rights (market restrictions)
  • Acquiring Editor
  • Season (anticipated season of publication)
  • Length (character count, manuscript or printed pages)
Essential Elements of Title Budget Proposal
  • Print Run
  • Price
  • Discount
  • Format (cloth, simultaneous, paper)
  • Royalty Terms (%, net or list, advance-if any)
  • Projected Revenue (or average proceeds): (print run - non-sales copies) x (price - average discount)
  • Direct Costs (plant, edition, royalty, and possibly—translation, permissions, or other special costs)
  • Indirect Costs (i.e. overhead assigned)
  • Gross Margin % and/or Bottom Line
  • Subsidy (title subsidies applied for and/or received)
  • Signature of Preparer
  • Approval and Date
  • Space for Comments

In addition to the basic elements which should be present on all title budget forms, there are several optional enhancements which can be included to complete the picture and establish a basis for long-term revenue forecasts and expense projections.

Optional Enhancements
  • Subject or Subject Codes
  • Contractual Obligations
  • Inflation Factor
  • Manuscript Delivery Date
  • Future Editions Planned (paperback?)
  • Comparative Plans (same title with different print runs and prices)
  • Projected Sales Patterns for First Three Years
  • Comparable Books (from your own press as well as from other publishers)
  • Break-Even Quantity


Organization of the Title Budget

The sections of a title budget should follow the form of an operating statement:

1. Revenue: (print run - non-sales copies) x (price - average discount)

2. Cost of Sales

Total Manufacturing Cost:

  • Inventory Cost = Cost of Books Sold before Inventory Write-Down
  • Inventory Write-Down of Books Unsold after 3-5 Years (depending on the press’s inventory reevaluation policy)
  • Royalty Expense

3. Overhead and/or Gross Margin Requirement


Operating Expenses (i.e. Overhead)
  • Specific operating expenses such as design and editing budgeted for effectively on a title by title basis.
  • Overhead: all indirect costs associated with book's publication including but not limited to the salary and benefits of every in-house person who works on this title (this book represents a portion of their annual workload), fulfillment expense, all sales and promotion expenses (including gratis copies sent out, advertising, exhibits, catalog listings) and everything else (building, furniture, lights, travel, supplies, phones, janitorial services). These costs are not effectively budgeted for on a title by title basis so many presses apply an overhead formula which completes the financial picture of a title and shows whether or not the project (at the price and print run proposed) adequately supports the associated publishing program costs.


Gross Margin Requirement

Some presses do not assign overhead to projects in their title budget process; however, in most cases they determine that the press’s operating costs are being covered in the aggregate by setting a gross margin requirement. (Usually separate targets are set for new books with higher targets for reprints.)

We know that the gross margin of a project is the revenue minus the direct costs (manufacturing and royalty expense) and the gross margin percentage is the gross margin divided by the net revenue, if the overall operating expenses of a press run at 65% of its net sales, then overall the title budgets for a press should carry a gross margin expectation of at least 65% in order for the press to achieve break-even. However, this simplistic equation does not take into account other support the press may be regularly receiving such as parent institution support and/or contributions from a press’s journals program or fulfillment company.

Within our association gross margin targets for new books range from between 55%-65% with reprints averaging around 65%-70%.

Finally, title budgets are only as useful as they are accurate so it is essential that they are updated as the project progresses through the publishing process and every time the nature of a project changes. For example, if a project is originally presented at an in-house editorial meeting in 1997 but the author doesn’t turn in a revised manuscript until 2003, the original title budget will be of limited value. Among the factors that warrant a new title budget being prepared are: 1) the previous title budget is more than a year old, 2) the proposed format, price, or print run has been changed, and/or 3) the length of the manuscript or the art program has significantly altered.

Title budgets are an important tool for raising the level of financial knowledge of all staff at a press and can reinforce how individual contributions toward lowering costs and increasing revenue benefit an individual title specifically as well as the press as a whole. For ultimately, the bottom line is the result of our individual decisions made day to day, title by title, program by program.


Title Budget Glossary

Net Sales Gross Sales - Returns

Cost of Sales Direct expense incurred when books are sold (includes plant cost, edition cost, and royalty expense).

Gross Margin Excess of sales over the cost of good sold (Net Sales - Cost of Sales); also called gross margin from sales, often expressed as a percentage.

Gross Margin % The gross margin divided by the net sales.

Break-even The number of copies of a book that must be sold to recover the cost of a book's publication. Often used to express the recovery of direct costs only.

Edition Cost The variable costs in manufacturing a book which increase when the print run is increased including paper, printing, and binding.

Non-sales Copies The number of books (often 10% or more of a print run) which is distributed free of charge (such as author, review, or exam copies) or become hurt or unsaleable in the warehouse.

Operating Expenses/Overhead Expenses other than cost of goods sold incurred in the operation. In title budgeting, overhead formulas (or contribution to overhead targets) are often used to allocate indirect costs that cannot be specifically identified to a single book in an economically feasible way. A press's fixed overheads include salaries, office rent, utilities, etc... Variable overheads may include editing, design, and marketing expenses.

Plant Cost The one-time (fixed) costs in manufacturing a book such as: composition, plates, art preparation.

Profit/Surplus/(Deficit)/Income/Contribution/Bottom-line (In title budgeting) The net result of a book publication for specific period. When revenue exceeds expenses, the bottom line shows a profit (or surplus); when expenses exceed revenue, it shows a loss or deficit.

Title Subsidy The funds received either from internal or external sources to offset the cost of a book’s publication. On a title budget subsidy is usually applied below the bottom-line to give a more accurate financial picture.


The AAUP Business Handbook >> Part Two: Accounting, Budgeting, and Financial Management >> Budgeting and Financial Accounting

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