Espresso Book Profits

Espresso Book MachineThe most popular post on this blog is the interview with Dane Neller, CEO of On Demand Books.  This is the company that manufactures and sells the Espresso Book Machine (EBM).  The EBM basically prints and binds books at the point of purchase.  There is clearly much excitement about the possibilities the Espresso Book Machine offers.  Production at the point of purchase means the potential elimination of inventory, at least for books that sell a modest number of copies. 

I decided to have some fun and see what the financial impact of an all EBM sales and distribution strategy would look like with regard to a title profit and loss statement.  I started with a pro forma title P&L produced by Peter Stahl.  Then I factored in the impacts on the statement of print at the point of purchase:

 title P&L statement

Smaller discount from suggested retail price.  Why?  Because the wholesale and / or distributor are elmiinated from the equation.  I figured 35% because reailers would have some additional manufacturing cost.

No returns.  This might be a little brash.  I figure if a customer actually has a book printed where they shop – even it is a bookstore – they are not going to return the book.  Other types of retail outlets don’t generally let customers return books anyway.

Higher unit cost.  The EBM advertises that it costs about a penny per page in production costs.  Using that, I get a higher unit cost than that used by Stahl in his sample statement.

Higher author royalty.  Since the net revenues are higher (with lower discounts and no returns), authors get a bigger dollar payout for their work. 

The result?  Gross profit margins that are about 8 percedntage points higher and net profits that are about 350 percent higher!  This goes to show that the world of production at the point of purchase can significantly change the publishing world from one of marginal profits to significant earnings.   Without the dual tyrannies of inventory and returns, the publishing industry could actually be fun again. 

Of course, the onus is still on finding titles that have an audience to begin with.   But improved analytics should help with that end of the equation. 

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