Can you make money from publishing and marketing books?
There are many profitable publishing companies in the world today but when you boil down the costs and focus on each title, how many of the individual books published actually make a profit? The answer, most likely, is very few. This is due to a combination of low price, neighbourhood pricing and strong retailer power. Not to mention the short life span and lack of subscription potential.
For book publishers, the problem arises because most books are single transaction products with limited subscription potential. This means that significant effort has to be put into marketing individual titles – effort which can be (and often is) disproportionate to the revenue generated.
Many publishers hope for the blockbuster which will prove their publishing methodology right, but it is a sad fact that best sellers cannot be created internally, only the audience decides. Only when authors become more valuable commodities can an audience be relied upon in any volume to leverage revenue in anything like a predictable (and planned) fashion. But how do you create commodity authors without at some time having to market their first book?
What stands in the way of profitable marketing for books? Firstly, value. What is the book delivering? Many publishers are probably unaware of the end-user value of their products. What is it used for? Who uses it? Why? How does it make their life better? If a publisher does not understand their end user and their values, how can they pitch the value at a price likely to deliver a profit.
Then, of course, we come to the second issue, price itself. If the price is low, the publisher is compelled to rely on volume. Volume can only be created by consumer interest so extensive PR is a necessary investment to attempt to deliver anything like the volumes needed. At a low price, it is not cost-effective enough to permit focused marketing; instead, PR is often the route chosen. An in-house PR person does not come cheap and, really, if you measure their productivity you will probably find that he/she is only effective on 20% of the titles published. Match this cost against the successful books’ P&L and things start to look less rosy for the book. A low price puts intense pressure on every other element of a publisher’s business.
Thirdly, neighbourhood pricing. Most books sell through the book trade or via online retail stores. These retailers will tell you that books have to published within certain price point zones (<£10; £10-£15; £15-£20; £20-£25; £25+). This creates two problems: publishers are compelled to publish at a low price (resulting in the problems outlined above); publishers are pricing to price point rather than the value placed on a product by the customer. In other words, books which deliver real end-user value are being priced way too low in relation to the value delivered – money, profit, is being left on the table.
Finally we have the issue of the book trade itself. Irrespective of effort put into the marketing of books by the trade, the trade still demands a hefty trade discount – sometimes as high as 50% and sometimes even higher. This means that, even before the publisher has done anything, it has lost up to half the revenue opportunity provided by the books. This means further that the publisher now only has half the revenue to fund its costs and hope for a profit (even then assuming that the entire print run is sold).
The blunt truth of publishing – especially trade publishers – is that publishing books is increasingly a mug’s game. The model is dying on its feet and margins are becoming tighter. Alas, being a book publisher is akin to joining an international federation and then finding you have no power of your own. What is the answer?
Looking back at the problems above, we can see that publishers need to know their market and publish to that market. Not only does this create greater market focus, but also permits more effective use of internal marketing resources. Many publishers adopt a policy of floating a boat and see who buys it – they just don’t know who will buy the book but are happy to “take a punt” based on “gut instinct”. Such an approach creates a varied list of poor focus, causing huge marketing problems. This cannot be effective and relies on hope rather than manageable assumptions based on information.
While some may argue that such an approach is acceptable for fiction publishers, for B2B publishers it is inexcusable to publish without focused attention to a small and measurable market segments. Clearly, intimate knowledge of target markets is therefore key; a database of existing readers and prospects within those areas is crucial. And with data comes knowledge and with knowledge comes strategic information. It is surprising how few publishers outside the main companies pay any regard to the importance of data.
Pricing is the next key issue. It cannot be acceptable to publish to price “bands”. As we have seen, this surrenders value and profit and ignores the real benefits of books to the end reader. Price bands should only be adopted for strategic reasons (e.g. market penetration strategy for an unknown author) rather than being the strategy. Why should an unknown novelist be sold at the same price as an established author? Why should a B2B book delivering end-user business value be priced in the same zone as the latest blockbuster from J K Rowling? Price is therefore a strategic issue, not a consequence of doing business.
And then there is the issue of retail. There is no denying that for many publishers the trade (or online sites) are crucial to survival. But publishers need to ask themselves what the implications are of doing business on other people’s terms. If the trade helps you shift a certain volume of your stock, this may be useful for inventory management but inventory management as the driving force of business is surely wrong. A focus on known customers with targeted needs and demonstrable potential for value-add has to be the way forward. This is the same for housewife/husband wanting an easy read as it is for a businessperson needing intelligent solutions for business problems.
Some publishers – especially B2B publishers – know that the key to growth and profitability lies in high prices, a focused marketing strategy and data. Some of the UK’s biggest B2B, STM and professional publishers publish books effectively and profitably. Some of the prices charged by these publishers can be in the hundreds of pounds. And frankly, why not? If the value is delivered, why have a price point enforced at random by a third party?
While it is clearly the case that bucking the trend in pricing is a significant leap for book publishers, they must still ask themselves why it is that despite all they do, margins are still low. Marketing and management theory consistently argues against a generic strategy of production in the hope of finding a market.
If a publisher exists only to service the mass market, then it must have sufficient leverage over the routes to market in order for volume to create profit. Smaller publishers who slavishly follow this strategy will find themselves running a highly stressed and commercially volatile business. Staff turnover will be high; efficiency will be reduced. A more credible route now is to follow either a differentiated strategy or one focused on a core market. In this environment, a focus on known markets with a value-laden brand pitch will create a more robust business based on firm relationships.
The most profitable publishing businesses are those which know their markets and respond to their needs on a value-based, not a cost-based, strategy in order to deliver higher profitability and longer term survival. With the growth of e-publishing and the increased power of the retailer, publishers need to know their customers better than ever before if they are to survive.