Basic Math and What I Know About Business

Finals are over, grading is done, and now I have some time to generate a few blog posts.

Over the next couple of weeks, I hope to generate a few posts (maybe 3) concerning the cost of instructional materials. I have written about this issue before (If you interested use the search box, I have actually written about this a lot.), but I have a little different purpose in mind this time. I intend to announce a little project I have been working on for about a year and these posts will be my way of leading up to the announcement.

Again, like the folks on television who talk about television or parent communications companies, I will begin with a disclosure. My wife and I write textbooks. This should be taken into account in reviewing the comments that follow. Some may now interpret what follows as biased and self serving. I would like to think what follows is informed.

Here comes the math part. If you must, you are allowed to use a calculator. Absolutely no computers.

Some basic math. Our book sells for approximately $85-90. Actually, this is what I call the adult price. The adult price is what college students tell their parents they paid for the book. The statement is kind of true. What they forget and hope dad does not realize is that they resold the book for half value and spent the difference on whatever. Books are expensive. Okay, so $90/2=$45.

The authors of a book make 14% (at least the authors of our book make 14%). This is 14% of the wholesale price under ideal conditions. If the book is sold in Canada or as part of some special promotion the % can be much lower. Of course the authors and the publisher only make this on the first sale. Books tend to be bought and resold several times (contrary to what one might assume from those using the adult price). Here is another number you might want to consider. When the bookstore gives a student $45 in beer money in return for our book (BTW – don’t get me started on the price of beer – you can’t buy a round for the cost of a used book these days), the Barnes and Noble clerk takes the used book to the back of the store where the textbooks are sold and labels the used book as worth $68. Net profit for moving book from front of store to rear of store and then accepting payment for said book – $68-45=$23. Payment to author for original sale of book 65 (I am guessing here – optimistically) x .14= $9.10. Payment to to author on $23 to Barnes and Noble restock and buyback effort – $0. Please keep some of these numbers in mind when I generate the next post and summarize the analysis provided by the NY Times reporter.

The Business Part

Again, a disclosure. I have never taken a business course, not even economics. Note – I am also not charging you for this information.

There is the perception that publishing companies and the talent they hire (me) are making large profits. I write for Houghton-Mifflin. Houghton-Mifflin was one of the last independents in the publishing industry (not sure what this means but that is what they told me). The company has been struggling for some years. A few years ago HMCO was purchased by Vivendi (kind of like a French Time-Warner). Vivendi began to have financial difficulties and sold off some of the less profitable parts of the business (books) to a holding company. Rumors now indicate that HMCO has finally found a new home. Cengage has purchased HMCO and Thompson and possibly other companies. Passing small businesses around from one large company to another large company is not what happens when the money comes easily. The market for college “education” books is a challenge. One of the problems in writing for education classes is that education courses are small and not taken by droves of students from other disciplines. Companies cannot afford to develop many products for a small market. The money is in large classes and companies are reducing offerings in areas where there is little money.

All this means is that business is business. Barnes and Noble feels it has a right to make a profit. The local representative of Nebraska books, Barnes and Nobe online, Amazon, and even the student groups who feel they should buy and resell books assume they should make a profit. I am guessing the used book store will offer students a better rate than Barnes and Noble to lure students to the other side of campus if they can do this and still make a profit. Barnes and Noble likely would prefer this not happen and will do what it can to keep students purchasing books at the same place they buy their lattes (again why is no one concerned about the cost of coffee). I am guessing Allyn and Bacon will sell their Intro Psych book at a lower price than Houghton-Mifflin if it would help sell more books and still make a reasonable profit. This is what those of us who analyze the business world call “competition” and the idea in a flat world or the round one we have lived on for so many years is what keeps prices in check.

Lots of things seem to cost more money these days. I am not certain how much the cost of our book has increased in the past 12 years, but there are certainly folks alarmed by whatever this increase has been. It is hard to know when you are being ripped off and when things just cost more. I wonder what the proportional increase in gas or bread has been in the last 9 months.

I made the mistake of reading some of the customer reviews of our book when I researched the book’s price on Amazon. There were only a few reviews – I don’t think students write reviews and most instructors don’t buy their copies from Amazon. The gist of the reviews was that ours is a pretty solid book. One critical comment stated that while a good book the content was dated. This person needs to read the recent article from the NY Times on book prices. The Times writer claimed textbook companies put out frequent editions in order to battle the used book sellers and unnecessarily inflate prices. The Times writer also claimed that book companies and authors create worthless adjunct resources to inflate the cost of the book. Now if the person writing the review would have bothered to evaluate the HMCO site (and our own book related web site) the reviewer might have found much more current information. It seems very difficult to please everyone.

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