The second hat is a creative thinker. You have to start thinking out of the box, because you need to understand that pricing is also a risk, pricing is an art, and pricing takes you to an adventure.

Before you attempt to price, you have to understand that you will be making an informed decision based on the knowledge of your market, your reader, and the marketing strategies of your editor.

You have to watch, look attentively, notice everything that is going on around you.

“Looking in” first because prices speak

You need to understand how your organization works, what is your operational mode, what are your indirect costs, what are your direct costs, what is your cash flow situation? As a publisher, you need to look at yourself really attentively.

Why? Because prices speak—just as people speak, books speak. Prices speak to people. Price communicates the value of the book to your target audience. It communicates the value of your book to the reader. Price positions your book into the right category. And the right pricing helps promote your book, which is really, really important.

The stakes of pricing

Prices can do some mean things to you. If the pricing is wrong…

• the book is less competitive
• you can have cash flow problems
• it increases your inventory
• it makes make your investments inefficient

As a Christian publisher, your business is making the Word of God known to people. But to do this, you invest money into your business, and you make books. All your financial investments should be efficient. And wrong pricing can make a big hole in your budget.

Pricing can also do good things for you…

• they can increase sales
• they can improve cash flow
• they can help us to have healthy inventory levels
• they can give us sufficient return on investment
• they can make the business more viable

The tension of pricing

Pricing is always a tension, because at least three parties are involved:

• As publishers, we want the price to be as high as possible.
• Our readers want the price to be as low as possible.
• Booksellers all want discounts.

Our goal is to find the golden needle and try to make all parties involved happy if possible.

Things you need to know before you set prices

• Overheads (indirect costs)—operational expenses such as rent, salaries, warehousing, legal and professional expertise, freight, transportation, office expenses
• Percentage of the overheads that will go into the price of each book
• Direct costs—rights and permissions, royalty advances, cover design, internal design and illustrations, editing, proofreading, printing

Each type of production has cost. Know all those costs, and remember them when you price your books.

Pricing by the market

It’s very popular to take the printing amount and multiply it by five, seven, eight, by ten in some countries. Some collect all their costs, decide what discounts they will be giving to the distributors, then they decide what percentage of profit they want.

I want to present to you the marketing option—because everything is only worth what its purchaser will pay for it. How much will your market pay for the book? Will this price give you enough profit?

Remember that your book is an investment. It’s an investment because it helps you to plan for a price that will cover your costs, include discounts given to distributors, and you also need to plan for profit.

You also need to consider if every title must be self-sustaining, if important titles might be cross-subsidized by others, and whether to change prices on reprints.

Finance terms to know

• Gross profit: All your net sales minus your direct costs.
• Net profit: Gross profit minus indirect costs.
• Net profit as percentage of sales: Divide net profit by the total net sales as a percentage.
• Return on investment (ROI): Net profit divided by indirect costs + direct costs.
• Breakeven on sales: The number of copies that need to be sold to recover costs.

The tricky thing about discounts

You need to plan certain discounts—the money that different distribution channels get. For example big book chains can have discounts up to 50-60%, general bookstores 40%.

You need profit because you have operational expenses, need to reinvest into your production, and you need a certain reserve against financial challenges. 

Which titles bring you more profit?

New releases bring the lowest amount of profit. If they are successful and go to your backlist, they start generating much more profit.

The backlist generates the largest amount of your profit. We have many titles that stood 8 to 10 print runs and are still in print.

Academic books and dictionaries, have high pre-press costs will be big, so the profit percentage will be smaller.

Fiction books that sell well will generate more profit.

How the book was produced also matters.

Print-on-demand (POD) gives lower profit margins, but good cash flow. (Cash flow is the net amount of cash moving into and out of your business, and your goal is to have a positive cash flow.)

Print-on-demand, short digital print runs, and e-books ensure better cash flow—but remember that digital printing and e-book prepress costs still need to be recovered. I’ve been changing our operational model to use more short digital print runs and POD instead of offset printing due to our economic situation.

With offset printing, books sit in the warehouse, which isn’t as good for cash flow, though the overall profit is bigger. If your market is doing well and sales are good, stick to offset printing.

Tips for pricing well

Watch your market and customers constantly. Be flexible and willing to change. A businessman once told me, “One of the rules is you shouldn’t be in love with your business. If the business dies, let it die.”

As Christian publishers, we shouldn’t be blindly in love with the business structure itself, but we should be in love with the message of Christ, being willing to adapt to be better channels for that message.

Watch competitors’ titles of the same size and quality in your category. Know their prices, and try to do everything better in terms of quality. Understand your customers—academic communities have a higher perceived value and are prepared to pay more, while fiction readers expect to pay less.

Position your book correctly. Positioning is a promise you make to your customer. Initial perceived value depends on how you position your title, and your customer should never feel deceived. If a customer is happy with the book, they will never regret what they paid. Our publishing house sells Christian titles in the general market, and sometimes that accounts for 50–60% of our sales.

Keep analyzing title performance to see if prices should be adjusted. Ask yourself:

• Should I reduce the price to make it appealing to a wider group, or will a lower price attract the same number of readers?
• Is it ethical to ask for more when I can ask for less?
• Can I lower my costs, or should I raise the price?
• Should I look for a grant or recover losses from the revenues of other titles?
• Is it an option to lower the profit margin to improve cash flow?
• Will cash flow improve if I sell in the general market or switch to POD?

Practice is the best instructor. Pricing is an adventure, so go ahead, be brave, and succeed in bringing the Word to people.