Yesterday I told you how book royalties work, so today I want to go further and explain a little more about the finances of publishing, this time from the publisher’s perspective.

One of the things that’s hard to remember is that the publisher makes a significant financial investment in each writer, with no guarantee that the book will sell. It’s one of the reasons publishers have to make such careful decisions. There’s so much competition out there, and each book costs a substantial amount of cash before your book ever hits the shelves and makes a dime.

But what does that mean? How much will a typical publisher spend on your book before they’ve sold a single copy?

Here’s a hypothetical overview. Keep in mind this is simply an example and the numbers vary WIDELY from book to book, and from publisher to publisher. This is to illustrate that even if a publisher doesn’t offer you a large advance (or any advance at all), they’re still spending a lot of money on your book, which they may or may not recoup.

Trade Paper:Editorial: $6,000Packaging (cover design & production): $4,000Typeset & Interior layouts: $2000Printing & binding: $13,000Marketing: $8,000Warehousing: $4,000Sales: $6,000Author royalty (a typical advance is calculated in this model): $15,000

TOTAL: $58,000

If the cover price is $14.99, and the net price (the amount the publisher actually receives for each book) is $6.75, then the breakeven point for the publisher to recoup their cost is around 8,600 copies sold. (Again, highly simplified for illustration purposes.) Any fewer than that—the publisher is losing money on your book.

Hardcover:Editorial: $8,000Packaging (cover design & production): $5,000Typeset & Interior layouts: $3,000Printing & binding: $18,000Marketing: $15,000Warehousing: $6,000Sales: $10,000Author royalty (a typical advance is calculated in this model): $25,000

TOTAL: $90,000

If the cover price is $25.00 and the net price is $11.25, then the breakeven point is around 8,000 copies.

Keep in mind that publishers couldn’t stay in business if all they ever did was break even. In fact, they break even on some books, and they lose money on others. You wonder why they’re always looking for a big NYT bestseller? Well, they’ve got to pay their bills somehow. Many publishers count on the success of a few big products to pay for all the others that don’t sell as well. To put it more personally (for those of you who complain that publishing is so commercial and everything’s about money, yada yada yada…) if you’re a first-time author, it’s possible those bestsellers are paying for YOUR book to be published, because it’s possible the publisher will lose money on your book.

Can you guarantee your book will sell enough copies to pay for itself? Are you committed to participating in marketing so that your book has a better chance of selling? Maybe this makes it easier to understand why it’s so crucial for publishers to choose books they think consumers will actually buy, and choose authors who will help sell.

→ These numbers, though they are hypothetical, apply to “mid list” books or those that have not received ginormous advances nor are expected to hit #1 on the bestseller list. The finances are quite different for books that receive larger advances. The marketing budget skyrockets, and more will be spent on all other aspects as well—editorial, design, printing, etc. So the breakeven point is a much higher number of copies.

→ The formula varies widely based on many factors. One of them is the initial print run, which will be determined by the pre-sales, i.e. the number of books ordered by retail outlets (or other entities) prior to printing. The initial print run for a book from a first-time author will typically fall in the 5,000 to 15,000 range, but could vary from that.

→ The royalty needs to be calculated, regardless of whether there’s an advance, because it will be part of the publisher’s cost. Obviously the royalty paid out is dependent on number of copies sold, so it can’t accurately be calculated ahead of time. For purposes of this hypothetical model, I chose a reasonable figure.

→ Production costs are MUCH higher for four-color illustrated books or any kind of special packaging.

So let’s put this in Shark Tank terms. When you’re pitching a publisher, you’re asking them to invest $50,000 to $90,000 in YOU and your product. Are you giving them something that will make them confident it’s a good investment?