3 Steps to Profitable Business Planning
A strategic business plan creates the blueprint for your success as an independent publisher. It is made up of several complementary plans that are not mutually exclusive, but mutually dependent parts of the total planning process. A properly integrated business plan is like a compass, pointing you to profitability.
There are many ways to make a publishing firm succeed, but there is one sure way to make it fail. That is to create a business plan that does not orchestrate your marketing plan, sales forecast and financial plan into one harmonious program.
Three steps are required to coordinate these elements of a business plan. The first is to create a marketing plan describing how you expect to publish, distribute, price and promote your books. The second step is to calculate a sales forecast projecting the unit sales for each title. And the third step is to conduct a financial analysis revealing the amount and timing of your revenue, expenses and profitability.
Step One: Create your marketing plan
Your initial marketing plan is a wish list of what you would do if you had sufficient funds. Wait until later to eliminate any programs that are not currently feasible. Begin your marketing plan with a sentence stating your overall objective for the upcoming period. Next, make a list of your strategies that outline your general game plan. Finally, describe your tactics which are the specific actions you will take to fulfill your strategies and achieve your objective.
Objective. Write a specific, quantifiable, motivating and realistic statement of the revenue or unit sales you intend to achieve and the date by which you will do it.
Strategies. Make a broad statement of the strategies you will take in each of four areas.
1) Product mix. What will the makeup of your product line be? Do you intend to publish only books, or could audio and video programs fit into your mix?
2) Distribution. Will you distribute through the traditional network to retail stores and libraries, or directly to your target markets?
3) Pricing. Will you invoke a penetration, skimming or competitive pricing strategy, given your distribution, discounts, competition and costs?
4) Promotion. How will you combine sales promotion, publicity, advertising and personal selling to promote your titles?
Tactics. Create a description of the specific actions you will take in each of the same four areas. There are many considerations for planning your product line, method of distribution, list price and techniques for promoting your titles. Those described below serve only as examples and should not be considered an exhaustive list of possible activities.
Product line tactics
How many titles will you introduce? To what target markets will they be directed? For instance, if you are publishing children’s books, will you specialize in preschool picture books or non-fiction for young adults? What will be the cost for editing each? What about cover designs and internal layout? Will you use four-color or black & white artwork, if any?
The packaging for one title may be different for various target segments. For instance, you may decide to release a title in hard cover for the library market, soft cover for book stores and in a small, 4″ x 6″ size for gift markets. The same title might also be customized for your corporate prospects.
For each market segment and title, decide whether you will market through distributors or wholesalers, or directly to the customer. If your title describes the job-search process, you might choose Baker & Taylor to approach the library market and Ingram to service bookstores. You could also distribute it directly to colleges, state governments and corporations.
Describe the idiosyncrasies of each channel. Will the wholesalers assess their usual 55% discount (65% or more for distributors) or will you bargain for other terms? Who will pay shipping? What fees will they charge for placement in their catalogs? In what time period will you be paid? What percent of sales do you expect to be returned?
The costs of production and distribution are two of the components to consider when pricing your books. If you choose a penetration or skimming strategy these may not even be factors. And, if you decide upon a competitive pricing strategy you might differentiate your titles by offering coupons or refunds.
Divide your promotion plan into four sections: publicity, sales promotion, advertising and personal selling. Publicity includes low-cost ways of getting attention such as press releases, reviews and media performances. Examples of sales-promotion items are sales literature, pens, pads and calendars. Advertising typically has a long-term impact on revenue, depending on how you write and place your ads. Direct mail is usually included in this category. Personal selling encompasses face-to-face communication such as at trade shows or through personal sales calls, personal presentations and book signings.
Instinct plays an important part in marketing planning. Your publishing experience has probably given you an intuitive sense for the tactics that are most successful for your titles in each target market. Given your product mix, an advertisement or a review in Library Journal might generate more sales than direct mail to bookstores.
Furthermore, you might use different tactics for different markets for the same title. This would be the case if you promoted one title to bookstores with an exhibit at BEA, to libraries via direct mail and to corporate buyers through personal sales calls. Your promotional plan could also be different for each author. One might excel in media performances and book signings while another may loathe them.
Calculate your initial marketing expenses
Some business planners allocate a fixed percentage of sales to create their marketing budget. However, this makes marketing a consequence rather than a determinant of sales. Instead, determine the cost of each tactic. Then total the individual costs to compute your overall marketing expenditures.
Step Two: Calculate your sales forecast
Although forecasting is more an art than a science, a skill honed through trial and error, a reliable estimate of sales is based on market opportunity and not on the optimistic perceptions of an entrepreneurial publisher. Your ability to predict sales accurately will be enhanced when you make the distinction between how many booksthe market will buy and how many books you want to sell.
Your forecast will be more accurate if you prepare a series of monthly plans instead of making a lump-sum prediction of the total number of books you expect to sell in a year. When in doubt about expected sales, be conservative in your estimate. It is better to be pleasantly surprised than discouraged by an overly optimistic approximation.
Begin by estimating the unit sales resulting from each marketing action you listed in your plan. For example, determine how many books you might sell as a result of sending out review copies. According to a rule of thumb you should receive one review per ten copies you send, and sell 20 books for each review. Therefore, if you send 100 galleys out for review you could stimulate 200 sales. Similarly, if you decide to make one personal presentation per week to a group of 100 people, and you generally sell books to half of the people in the audience, you could forecast 200 copies per month from your presentations.
Once you complete your sales forecast, go back over your marketing plan. Manipulate your promotional strategies to see how you might increase sales by trying different tactics. How would your sales change if you put more effort and money behind Title B in the college market and reduced the effort behind Title C among bookstores? What if you sold Title A directly to corporations instead of through wholesalers? What would happen if, instead of mailing a flyer to acquisition librarians in February, you waited until May when their fiscal year is about to expire? Could you stimulate sales of Title D by offering a price discount? When you finish reviewing your marketing plan, recalculate your marketing budget based upon these revised tactics.
Step Three: Prepare a cash-flow statement
Now it is time to place a dollar figure on your sales forecast and match your expected revenue against your marketing expenses to see if you can afford to do all the tactics you planned. There are many documents required in a complete financial analysis (see side bar), but the focus here is on the revenue and expenses of your business.
Exhibit A is a sample cash-flow statement, which calculates your monthly net income and the possible need for–and the amount and timing of–external financing. It also takes into consideration distributor discounts and the impact of returns on your earnings. The numbers are not meant to be realistic, but to demonstrate how the totals are computed and how you can manipulate your strategy to affect your bottom line profitably.
The earnings for each month represent the aggregate sales you forecast multiplied by the selling price of each book. The beginning cash balance for January represents the cash you start with. The beginning cash balance for every other month is the previous month’s ending balance. Allocate one line for “Loans” in case outside funds are required.
When you determine the revenue for each book, consider the deductions that are assigned to it. For instance, if you are distributing Title A to bookstores through a distributor, you must calculate the discount (perhaps 65%) with payment received 90 – 120 days after the sale. Here, Title A is first sold in January, but payment is not received until April. This example also shows a return rate of ten percent of sales. Furthermore, external funds are required to make up a revenue shortfall in April and May, but the loans are paid back by the end of the year.
There are other considerations to keep in mind. First of all, if you have existing and future titles contributing to your revenue, these might negate the need for a loan. In addition, if you decide to sell your books directly to non-bookstore markets, you could eliminate returns and distribution discounts, adding almost $20,000 to your gross income. Of course, your expenses would increase since you would be doing more promotion.
Resist the temptation to simply increase the sales figures to make up for any shortfall in revenue. Any increase in sales must be rooted in market need and have its cost allocated as an expense. Use this financial statement to reveal the changes in revenue that will occur as you make adjustments in your marketing strategy.
In the left-hand column, list your administrative items and each of the marketing actions you planned in Step One. Then, using the figures in your marketing budget, fill in the estimated monthly cost of each. Once you have your cash-flow document finished, it is time to begin evaluating your strategy again.
Appraise each line item with the thought of eliminating it, reducing it, moving it to a different time period or leaving it as is. Of course, any changes must be reflected in the amount and timing of your revenue. For instance, if you postpone an ad in theRadio-Television Interview Report, to what extent would sales also be delayed? Similarly, you could put off the $2000 for your media tour in February, but what negative impact would that have on your income?
Question every line item. Can you arrange 90-day payment terms with your printer? Could you delay a direct-mail campaign or send out half of the letters one month and half the next? What if you used an existing display instead of buying a new one for this year’s BEA exhibit? What if you printed your brochure in two colors instead of four? What would be the impact on earnings if you performed more frequently on television and radio? Is your contemplated price reduction absolutely required to stimulate sales? What if you delayed production of a sales-promotional item?
This analysis is a circular process requiring much iteration among steps one, two and three. If you need to increase your revenue, go back to your marketing plan to see how this can be done. Then recalculate your sales forecast and the resulting impact on your cash-flow statement.
Do this repeatedly until you have a strategic, coordinated and profitable program in place. This will give you a true reflection of your potential sales and the marketing effort required to generate them. Your cash-flow document will also portray your financial situation accurately. The result is that you will have a synergistic plan with which to guide your actions, evaluate your performance and run your business more profitably