So what makes for a good idea (as referenced in this post)? A good idea is a smart idea, and smart ideas don’t lose money.
Let’s say, for example, an author wants their publisher to hire an independent publicist for $1500. According to Thomas Woll, author of Publishing for Profit (which I highly recommend), “the current data on profitability of smaller publishing companies indicates a range of profitability from 1% to 9.3%; the midpoint, 5% profit margin, is a reasonable benchmark for profitability.” That means, on a net profit margin of 5%, we need to generate $20 in revenue for every dollar we spend, just to break even. A $1500 expense has to generate $30,000 in revenue to not lose money. And that is incremental revenue, on top of what we would generate if we didn't spend the additional money. At an average trade discount of 50%, we will sell a $20 book to our customers for $10. Therefore, a $1500 publicity campaign must yield sales of 3000 copies in order for us simply to not lose money. If you’ve been at this any amount of time you know just how difficult it is to sell 3000 copies of anything.
If you take the time to work through this math it can really help you understand why publishers often say, “No,” to seemingly good ideas, even inexpensive ones. Imagine the math to justify a $30,000 ad in USA TODAY. It’s not difficult to understand why you don’t see a lot of ads for books on television.
Many authors don’t realize that a royalty rate of say 10% of the publisher’s net represents double the average publisher’s net profit margin. In some cases, it may make sense for the author to pay for a promotion themselves. Dollar for dollar, on a ten percent net royalty/profit margin, we have to sell half as many books for the author to break even. An author may also want to gain added exposure for himself or another business and it may make sense for him to take a loss on a promotion.
Many traditional marketing activities don’t yield the sales to justify them. As good business partners, we try to examine opportunities and be as forthright about the economics as possible. Chances are, if it is not a good idea for us, it won’t be a good idea for our authors. It is our aim to provide the best information we can to make the smartest decisions we can—together with our authors.