Strategically Speaking: How Will E-books Impact Your Bottom Line?

To be clear, the timing of e-books' impact on a particular business will vary based on the sector of publishing being considered—but the end result, whether it be in a year, five years, 10 years, etc., will likely be the same, regardless of the market. So, where might we expect to feel both the gains and the pains?

Revenues

Revenue is another word for sales and, in the book publishers' dictionary, there are three major components:

1. Gross Sales. Revenue per unit will likely decline as market pressure and dramatically lower production and operating costs—due to the elimination of the obvious costs associated with the print text, such as paper, printing, binding and components, as well as the value of unsold inventory (also known as obsolescence costs)—put pressure on publishers to reduce suggested retail prices to reflect the lower cost of doing business. Speculation is that the impact on suggested retail prices will likely vary by product type, with the academic and professional business having the strongest prospects for maintaining current price levels, or at least mitigating the pressure to discount.

2. Returns. Returns, as we have come to know them, will come to an end—with the exception of customer returns because of bad e-book files. E-books mean there is no inventory for the intermediaries between the publisher and the consumer to return. Not a bad thing, because all of the costs currently incurred on both sides of the returns process—picking, packing, shipping, restocking, reconciling and the associated toll in damaged goods—go away.

3. Net Sales. Net sales (defined as gross sales minus returns) will likely decrease as reductions in selling price exceed the gains from eliminating returns.

Cost of Goods Sold

Cost of goods sold is defined as the direct costs associated with the production of goods sold by a company. There are four major components to cost of goods sold: