GenMax has always excelled in each of the markets we have ventured into. Currently, our situation has changed, and we are already seeing this reflected in the stock price. If we don't act fast, the trade publications will be on us in no time. In the past, decisions about print runs have been wildly inconsistent. Sometimes you or others in your job have done very well, and sometimes the decisions have been way off. One thing is for sure: there has been no consistency in how the decision has been made or supported.
Although I have emphasized that ROI is important, our company has multiple goals to be satisfied. Absolutely, we must deliver a return to our shareholders. But, we must do so while simultaneously remaining true to our corporate vision. Every title we select must meet the criteria that it is quality work, true to our ideals. We don't publish titles just because they could be popular and make money. They have to both meet out standards and also provide the minimum required return or more. Be sure your system takes our corporate standards and ideals into account. We publish real literature, not schlock that satisfies a passing fad but has no value. Our reputation depends on remaining true to our mission.
I am so tired of hearing about making money. Short term money is not necessarily money long term, you know. I have seen us turn down some important titles just because they aren't guaranteed money-makers, and I think that is short-sighted. I hope your system is not going to cut off some basic foundation books. These books may be low profit, but they are classics that sell year after year. Fads and popularity may be the way to make money, but what's popular today isn't necessarily a money-maker over the life of the title. Some of our best profits have come from slow-starters that went on to sell consistently year after year. Based on ROI, no finance director would have approved them, but they showed themselves to hang in there and they became the basis for follow-on titles. So don't just look at profit the first year. There are synergies with an entire product line from some of these foundation books, and they impact the profit of other books over their lifetime.
The key elements you must know to calculate the Return on Investment for a print run are the cost per book, the number of books printed, the price we get per book, and the number of books sold. For example, if we get $10 for a book and we printed 5,000 of them, we invested $2 X 5,000 books, or $10,000 to print the book. Once we sell 1,000 of these books, we have made $10 X 1,000 or $10,000. Every book we sell after that contributes to paying for our overhead and marketing expenses, and if anything is left after that, we've made a profit. Generally, we allocate our overhead expenses among all titles, so calculating profit is tricky and based on things outside your control. So focus just on "contribution" instead of profit. Try to maximize the contribution each book makes. Suppose in my example you had decided to print only 2,000 books instead of 5,000. The cost per book for a 2,000 print run is $6 each. So to print 2,000 of them costs $6 X 2,000, or $12,000. In that case, if you sold 1,000 books at $10 each, you would make $10,000. But you spent $12,000 so you would have a net loss to contribution of $2,000. AND you would only have 1,000 books left in inventory to try to make up the loss with. Often, when books don't sell in the first year, we "remainder" them. We sell them at 10% of their original price. In that case, even if we sold 2,000 of the books we would never break even. So you see, it would be cheaper to print 5,000 books than it would be to print 2,000. That's not always the case, though. Each book has different printing costs, based on its page size, number of pages, colors, type of binding, number of pictures, and print run volume. You have to know the numbers and compare them every time. Plus you have to consider what happens if you don't print enough. Let's say you printed 5,000, but the marketing was very effective, and people demanded more than 5,000 in the first 90 days. Well, the bookstores would sell out, and they would try to reorder. A print run takes 8 weeks, so by the time the next print run came through, the customers may have lost interest. Our marketing campaign would be over and all the money would be spent. We would have lost our opportunity to take advantage of a good moneymaker. Taking advantage of the moneymakers is very important, because 1 out of 10 of our books even sells enough to pay out its author's advance. We count on that 1 out of 10 bestseller to make up for losses on 9 out of 10 of our books. So selecting the right number for a first print run means everything to our corporate profit.
We're going to be presenting the Fall selections at the Booksellers' Convention in New York this July. Booksellers don't care about our corporate mission and ideals. Booksellers care about whether or not our books will sell, and whether people will come into their stores asking for them. Any books not sold in 90 days, we have to take back as a return. We credit the bookstore's account for anything they return. Usually it costs too much in shipping to actually take the books back, so we tell them just to tear the covers off and destroy the books in the trash. We have to come up with a strong argument for why every book we present will have an audience, and that audience will walk in the front door of that bookstore looking for that specific book. Be sure you consider the impact of returns when you put this system together. If the book won't sell, there is no reason to print it.
After reviewing the scenario, notes about your role, and input from your colleagues, list at least 5 elements you would consider critical for the Decision Support System and explain your reasoning. What suggestions do you have to measure the intangible elements the corporate President would like to include? How would you encompass the company ideals in the DSS?
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