Tag Archives: business model

The Taxman Cometh…

No, this is not a blog about the fact that I am going to spend this weekend finishing royalty statements and doing my 2013 income taxes. Rather, it is a blog about another annoying set of forms I apparently now need to fill out – applications for state reseller identifications.

I live in a state (New Hampshire) that does not have an income or sales tax, but many of you live in states that have both (and I do feel for you). I found out last week that for me to ship you books (even complimentary author or review copies), my printer is now going to charge me sales tax based on the state you live in. Their reason? Because the states are coming to them and demanding that they charge sales tax on any books they ship that are not for resale. Further, most states will only consider a shipment not for resale if the publisher has a reseller’s permit on file with them. Last time I checked there were 45 states that have a sales tax, so I am not looking forward to all the applications.

I contacted my printer and informed them that none of the books I ship are the result of retail sales – they are either copies authors have ordered to give away or for signings (in the second case they would in fact be for resale), or they are complimentary copies of the book. Thus, none of them are subject to sales tax. It would actually be as easy as the printer adding a checkbox on the order form saying “complimentary copies” and not collecting sales tax on those orders. I was informed that, in order to make things easier for the printer, they have adopted a “one-size-fits-all” approach to this problem. Thus, unless I file paperwork with all of the states requiring reseller IDs and then file those IDs with the printer, I will be charged sales tax even on the free books I ship.

I know the states are claiming that they are just doing this to “level the playing field” so that stores can compete with online retailers. However, when you consider shipping, online purchases are often just as expensive as in-store purchases, even with the sales tax. The truth is this is all about state revenues – when you are a government it’s always easier to find new sources of income than to control your spending.

While I could have books shipped to my home and then reship them (avoiding the sales tax that way), I would now be incurring twice the shipping costs for each order. Thus, I really only have three options. The first is to pay the tax. The second is to file paperwork with every state that has a sales tax affirming that nothing I ship to their state is subject to sales tax. The third is to find a new printer that is not implementing a one-size-fits-all approach to this problem.

I suspect most people who have known me for a while can guess which option I am looking into…

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From the Dead…

I promise this is not another blog about why I’ve been gone so long, because in fact it’s been about two weeks. I also promise I am not preparing our company to publish the material required to survive the Zombie Apocalypse, nor are we starting to publish books targeting a zombie audience in preparation for the upcoming event. Finally, this is not a blog to announce that, in fact, the Zombie Apocalypse has already occurred and resulted in the creation of “Tools of the Publishing Elite.”

This is a blog about a letter from an attorney.

I pick up the mail about three times a week from Divertir Publishing’s P.O. box, and I must admit I don’t often open the mail until I am sitting comfortably at my desk with a glass of cognac. That is also how I sometimes read your query letters, and given that it puts me in a much less stressful mood after a busy day you should be glad that I do. But a letter from an attorney’s office is something I thought should be opened right away. Are we being sued? No, the letter was something much more mundane, but I though it warranted comment.

The letter was from the Executor for the estate of a man who had recently passed away. In the assortment of items that the estate needed to “find a home for” was a manuscript. The letter was asking me if I would be interested in publishing the manuscript. I can’t fault the attorney for his inquiry – by law the manuscript is an asset of the estate, and as Executor he has a fiduciary responsibility to try and get as much for the assets of the estate as possible, even if the asset was created on an old typewriter. But after thinking about it I realized that a small publisher bringing this book to market would not make sense, either for the Executor or the publisher.

In the case of the Executor, he wants an advance that will most likely cover, if not exceed, the expected royalties for the book. Again I can’t fault the Executor  for this – he probably does not want to spend the next five to seven years cashing royalty checks, and again has an obligation to obtain as much for the asset as possible. But there are two problems with approaching a small publisher. First, most small publishers won’t give the Executor the type of advance he is looking for. Second, it’s not a good business decision for the small publisher. As I’ve said before, people do not buy book because they say Divertir Publishing on the title page. They buy books because of who the author is or because the book was recommended to them. Thus, at a time when over a million books – either from traditional presses, small presses, or self-published books – come out each year, an author who is not actively engaged with their readers and potential readers will probably not be discovered by new readers. An author who is not present at all, for whatever reason, will probably not be successful.

So for now Divertir Publishing will not be looking for manuscripts to publish at estate auctions – at least not until the Zombie Apocalypse, at which point we may need to rethink this business decision…

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Comets and a New Year…

I’m guessing by now some of you are wondering if I am in fact a comet – I briefly appear, only to disappear again leaving people to wonder if there is any pattern to my orbit (and thus my appearances). This month the thing that took me away from writing my blog was our government – in particular the IRS. In short, I needed to send out 1099-MISC forms to our authors by January 31st, which means I don’t really get until April 15th to worry about my taxes like most people.

At the beginning of a new year, most people write resolutions (like “I will blog regularly”), which they promptly ignore as soon as their orbits take them someplace else. Instead I wanted to write a list of the things I didn’t do last year and why they are important. If nothing else, this list will give Jen Corkill, our new Senior Editor (congratulation Jen), something to point to as she kicks me in the butt to remind me why I need to do something.

  • I’ve said this before: while our website is functional, it is not flashy. It’s also probably not someplace where the “hip and cool” kids want to hang out. We need to make our website much more interactive so that people will not only want to visit the site, but will want to stay a while and browse. This is the best way we can get the readers of one of our authors who visit our site to “discover” the other authors we’ve published, and we owe this to our authors as a way of helping them market their books.
  • As part of our new website, we had planned an online magazine (which would also be available in eBook format) that would contain a mixture of short stories, author interviews, and useful articles for authors on what we are looking for in the way of new titles. This is one of many ways we can keep the content on our website from becoming static, and we need to move forward with the magazine this year.
  • I must admit that I’ve never been much into social networking. Perhaps it’s because I’m usually up at 2 am typesetting manuscripts, working on cover art, or sending emails and find I just don’t have time for it. But in the age of digital publishing, it’s recommendations from others that make people buy books, and the best way to have a large group of people discover a new book is through social media. This means it’s time for me to once in a while turn off the desktop publishing software and my email in order to take a stroll into what some people now consider the “real world” – or as real as the world can get on the internet.
  • People don’t walk into a bookstore and say “I would like to buy the latest book by Divertir Publishing” – they walk in and say “I would like the latest book by a certain author.” But while it is true that authors need to actively promote their books by doing things like blog tours and setting up an author site, we need to get better at helping authors get started with what to some is considered a daunting task – marketing. This goes hand-in-hand with updating the website – we need to be actively searching for places (like other web sites and blogs) for our authors to promote their books, because at the end of the day their success is our success.
  • I have always believed that short story collections are important for publishers in that they are a great way to expose the work of a large number of writers to an audience at one time. I must also admit they are one of my favorite things to read. Divertir Publishing started by publishing short story collections, and I think it’s time we get back to publishing more of them (and maybe even trying to do a poetry collection again – the last one was cancelled because we did not get enough submissions). Other than the fact some of my favorite authors write short stories, it makes good business sense to begin working on more anthologies again.

In September Divertir Publishing will be celebrating our fifth anniversary. This is no small event, in that 95% of new publishers do not survive past their second year. I want this year to be special, and think we have the staff in place to make that happen. If you are interested in joining us in making this a special year, either by reviewing submissions we are considering for publication, editing a short story collection, or providing content for the online magazine (either short stories or articles), feel free to contact me at info@divertirpublishing.com.

Now I just need to settle into a more predictable orbit…

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The future of reading revealed – at the gym and airport…

Two weeks ago it was my turn to take our daughter to her Saturday morning gym class. I always bring my Kindle in order to, among other things, get caught up on reading queries. What really struck me on this particular morning was the number of parents that were reading – and more important what they were reading on.

I was reading on my Kindle. The woman to the right of me was reading Hunger Games on her iPhone, while the woman next to her was reading a magazine on her iPad. To my left, a man read a paper copy of the Wall Street Journal, while the girl next to him was reading a book on her Nook (I didn’t ask which one). Only the man reading the Wall Street Journal was enjoying the smell of paper on the particular morning.

Fast forward two weeks. I’m sitting in Manchester Airport right now waiting for a flight to Newport News, Virginia, via Baltimore. I count thirteen people reading on various electronic reading devices, while only five people are enjoying the feel of paper between their fingers.

In short, the way that people are reading is changing, and there is nothing the large publishers can do to stop it.

I’ve seen this change in reading habits based on our own sales; 60% of the unit sales for Hurricane are the eBook. So while there are people in the blogosphere who are more than happy to talk about how publishing works and why this is the only correct model for a publishing business, the truth is that how people are reading and getting information is changing. Publishers large and small need to recognize the change that is already occurring and adapt to it. Failing to do this will make publishers nothing more than the next typewriter vendors in the age of computers…

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Yog’s Law

For those who have been following my blog for the past two weeks you know that I recently received a submission for a novel that I really like. However, because of the current word count I don’t believe I can publish the book at a profit. My first blog on this topic talked about what it costs to print a book of this size using digital printing, while the second blog talked about the cost and risk associated with doing an offset print run for the same book. In this blog I would like to talk about something that the author wrote in an early email to me:

I would not be averse to considering making an “investment” in your company to get this book published if you ever do anything like that.

The short answer is that we don’t do anything like that, and the reason why is Yog’s Law.

Yog’s Law was coined by author James Macdonald (the same person who brought us Atlanta Nights) in response to a question from an aspiring author regarding how much one should expect to pay to get their book published. Yog’s Law is

Money should flow toward the author.

It’s that simple: unless you’re self-publishing, it should not cost you anything to publish your book. Period. You should not be asked to help pay the production cost for your book or to buy a set number of copies as a condition of publication. You should never be asked to pay a fee to have an agent or editor read your manuscript. The costs of editing and cover design should be paid by the publisher. Most importantly, a publisher should be willing to answer questions about their business model and the compensation you will receive before you sign a contract.

If a manuscript cannot be published at a profit then no amount of investment an author is willing to make will change that. Most publishers will be honest with an author about that. Most vanity presses will not. For Divertir Publishing, this blog really serves two purposes. The first is to share my experiences starting a publishing company so that others can learn from what I’ve done (the good, the bad, and the less than sane). The second is to create a convenient place for authors to obtain information about our philosophies on publishing.

In case you’re curious, we are currently working with the author of this manuscript both to look at the current word count and to see what options exist for publishing her manuscript. None of these options will involve the author making an investment in our company, because money should flow towards the author. Period.

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The Myth about Offset Printing…

We use two criteria for determining whether we will offer a publication contract for a manuscript. The first is the quality of the manuscript: is it a well written manuscript that will entertain our readers or contains information that should be shared? For a publisher this must always be the first criteria. The second is whether we can produce the book at a profit. This should not come as a big surprise to anyone; publishing is a business, and businesses that are not profitable tend to go out of business.

In my last blog on word count, I show that using print-on-demand (POD) to publish a 450 page book (which costs $6.75 per copy to print using POD) will probably not be profitable for a genre where the average paperback book price is $15. The obvious question at this point is why not use offset printing? Most people will tell you that printing costs tend to be twice as much using POD and that most publishers use offset printing so that books can be sold in bookstores. But is offset printing really the best way to print books? Consider the following facts:

  • An offset print run of 1,500 copies for a 450 page book costs $5,160, or $3.44 per book (about half the price of POD printing). One would need to print 5,000 copies using offset printing to get the price down to $2.05 per book.
  • The average book in the US sells 500 copies (Publisher’s Weekly, July 17, 2006) and only 1 in 10 books are successful.
  • The discount given to bookstores is 40% of list. Net sales (the amount of money the publisher receives) is 60% of list

Assuming that the book in question has a list price of $15 (which seems to be the average for mystery & thriller paperbacks), your net sales per book are $9.00. Thus, if you sell the average number of books (500) your net sales are $4,500, or $660 less than the cost of the offset print run. If you also use a distributor (most charge up to 15% of list in addition to the retailer discount), your net can be as much as as $1,785 less than the cost of printing. Most important, if you only sell 500 books your actual printing cost per book sold (total cost of the offset print run divided by number of books sold) is $10.32 per book, which is $3.57 more per book than using POD. Thus, the possibility exists that you will actually pay more per book sold using offset printing than you would have using POD if the book does not sell well.

If you include author royalties, editing and cover design (estimated at 25% of net in my last blog), you would need to sell 765 copies of this book (or 51% of the books printed) to break even if you do an offset print run of 1,500 copies. Is it possible to sell this many books? Of course it is – people wouldn’t get into publishing if it wasn’t. But the point of this article is that, given the low success rate for books, you are just as likely to lose the investment you’ve made on that offset print run.

Someone recently asked me what the break even for our short story collections was. For Damn Faeries, our break even was 91 copies sold using POD. This includes in the fixed costs the one-time payments made to the authors for use of the stories. My break even for Damn Faeries would have been 369 copies, or over 4 times the number of books sold, using an offset print run of 1,500 copies. Quite frankly, the reason we feel comfortable doing short story collections (which are never big sellers) is that we are able to minimize the risk associated with printing costs and returns using POD.

As a publisher, the choice is yours. You can assume the additional risk associated with offset print runs and make more money per book (assuming you reach break even) or you can make less profit per book but also assume less risk using POD. Caveat Emptor.

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A Word on Word Count…

I received a query three months ago that will be the topic of my next three blogs. This is not because it was a bad query. In fact, we requested the manuscript and in my opinion the novel has great potential. It’s not because the author was unprofessional, which we unfortunately see far too often. It’s because the query serves as an example of three different topics that I want to talk about. The first topic is word count.

The proposed novel was an action thriller where the bad guys come up with an ingenious way to attack the US. The good guys respond by coming up with an even more ingenious way to thwart them. The plot was very clever, and while there were many ‘dead spots’ overall there was plenty of conflict and suspense. So why did I send a rejection letter? Simple. The original manuscript was 150,000 words.

In my letter to the author I pointed out that our upper limit for considering a manuscript is somewhere around 100,000 words and that I would be more than willing to review the manuscript again after the author took my comments about the length and a few other issues into consideration. I must admit I was actually excited when I saw we had received an updated submission. Unfortunately, the revised manuscript was 135,000 words. It arrived with a very nice letter from the author saying that this was as much as she could cut without doing damage to the story. As much as I like the manuscript I’m just not seeing how we can move ahead with publication.

Go to any blog which gives advice to authors and you will see the same thing: while it varies a bit by genre, the optimum word count for a novel is around 80,000 words with an upper limit of 100,000 words. “Query Shark” Janet Reid recently responded to a query that 200,000 words was “twice as long as you want something like this.” So why is word count so important, especially for a debut novel?

As the number of words goes up so does the cost associated with publishing a manuscript. For a debut novel where the author has no track record, the cost associated with publishing the manuscript and the popularity of the genre are really the only information a publisher has to go on (other than the quality of the work) when making a decision concerning publication.

Let’s use the above query as an example. Go to Amazon and do a search for the bestselling trade paperbacks for “Mystery & Thrillers” and you’ll see most of them are priced at just below $15.00 (this excludes mass market paperbacks, which are always priced lower than trade paperbacks) . Books of this type are generally priced in this range because this seems to be what people are willing to pay. At 135,000 words, the best I would be able to do when typesetting the book is to get it down to about 450 pages, which means my printing costs at a minimum will be $6.75 per book. Knowing that the average retailer discount is 40% of list and that I pay 25% of net on average for author royalties, editing, and cover art I can compute the profit I can expect from each book sold:

List Price $15.00
Retailer discount (40%) -$6.00
Printing costs -$6.75
Royalties, editing, and cover design -$2.25
Profit $0.00

In short, we would make no money from publishing this book. In fact, given the size of the manuscript, the additional editing costs might result in the book losing money for every copy sold. There are other issues regarding the readability of a manuscript of this length that are addressed in the blogs I mention above that I won’t rehash here. But the above example demonstrates why most publishers will likely pass on a debut manuscript of this length.

So what is an author to do? In my opinion you have three options. The first is to self-publish your work. It is important to note that you will have the same issues regarding profit margins that I outlined in the table above if you try to publish the book as a paperback. Thus, unless you have a large amount of money to invest in a large offset print run this would most likely limit you to publishing as an eBook. The second option is to reexamine the manuscript to determine if it really needs to be the length it currently is.

If after an honest examination of the manuscript you determine there is no way it can be shortened and you decide that self-publishing is not for you, then no matter how great the manuscript is, it is probably not a good candidate for a debut novel. Your third option is to put the manuscript aside for now and begin working on your next novel. I know this is hard advice for most authors to hear, but it really is the best advice. If your goal is to become a published author, sending queries for a manuscript that will be rejected by most publishers and agents based solely on the length without even being read is probably not the best strategy. Sending the same manuscript to a publisher that you already have a relationship with will most likely at least get it reviewed.

I know one comment that will be made is that I can significantly reduce my printing costs (and thus increase the profits) if I just went to moderately sized offset print runs. While this is true, it would also introduce a significant new risk that I will discuss in my next blog. Regardless, there is a reason most publishers have word count guidelines. Following them is the best way for a debut author to avoid a form rejection.

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