Wednesday, October 29, 2008

Do Larger Publishers Have More Overhead?

There is a perception among some people that smaller companies are better because they have a smaller overhead. I noticed this when talking about building contractors. A friend of mine thought a large company would tack more onto the contract to cover the cost of paying office personnel. I noticed that Jeff Gerke holds that same view as it relates to publishers.

Traditional Christian publishing companies have so many employees and so much overhead that they have to sell at least 5,000 units of any book in order to break even. MLP has one staff member and has such a low overhead that it needs to sell only 250 units of any title to break even. (Jeff Gerke, MLP Website)

Jeff’s assertion is that a company like Random House, the parent company of one of his former employers, with about 6,000 employees or even the much smaller Christian publisher Thomas Nelson, with about 700 employees, can’t make a profit from a book that sells only a small number of copies. That's an interesting claim, since, with about 17,000 employees, is making a profit by publishing books that are doing good if they sell as many as ten units.

But doesn’t follow the traditional publishing model. In their case, it is possible to make money because they keep their per book overhead down. The size of their company makes it easier to do that because overhead costs can be spread across thousands of projects rather than just a few. Consider that while Jeff Bezos’ salary may only add a few cents to the cost of the books they produce, Jeff Gerke’s much smaller salary may add dollars to the cost of each book.

The real story here isn’t the size of the company, but the publishing model. The traditional publishing model is expensive. Each book requires approximately $40,000 and that may be on the low side. That means that the publisher must get about $8 from each unit sold. If we take that $8 and apply it to Gerke’s 250 units, that means he is starting with a budget of $2,000 dollars on each book. $2,000 dollars doesn’t go very far when you have to pay for editing, typesetting, printing, cover design and promotion. But you also have to pay the talent. After all, the Bible tells us that, “the laborer is worthy of his hire.”

The fact is that you can’t get to the $2,000 dollar mark simply by reducing overhead. To break even at the $2,000 mark requires that you cut corners. Random House can make money from their 5000 units and still afford to pay employees and other companies to seek good writers, edit manuscripts, design books, print the product and promote the work. It is inconceivable to think that a tiny company of two people can produce three books in a year and make enough money to eat, much less pay production costs.