“What are my customers like?”

Big companies always seem to have exactly the right answer when they’re asked this. “We’re very big with the 18-24 male segment, though we can skew as high as 34,” a marketing rep might say. “We’ve seen a lot of growth in the East Coast market, and we’re noticing a particularly large amount of interest with men who have at least 1-2 years of college under their belt. An emerging secondary market comes from young professionals who like to read, but who don’t have the time to get into full-blown novels.”

Huh? How did they find all this information, and how do they know it’s accurate? Are they polling all their customers somehow, or do they have some secret source of demographic information that the rest of us don’t know about?

I used to wonder about that too, but then I took a class on marketing research. Now, since I was old enough to start filling our product registration cards and to say “no” to people trying to get me to take a poll in the mall, I’ve been aware of the field of marketing research. And, like most folks, I’ve even been resentful of it, at times, because it seems like a practice that only big companies with too much money can afford to engage in.

I won’t say my class turned me around on this viewpoint entirely; marketing research is extremely expensive, and it really is something that most small companies can’t afford to do on a regular basis. But the class piqued my interest enough that I’ve joined the Master in Marketing Research (MMR) program at SIU-Edwardsville starting this fall, and I know enough about the field now that I can dispel some of the myths… and tell you how even a small company can use basic marketing research tools to describe his or her customers.

First of all, let’s start with what marketing research is: it’s a subset of marketing that’s geared towards qualitative and/or quantitative analysis of marketing problems. Quantitative analysis means that the field is working with numbers; this is where all those statistical techniques come in, such as calculating average incomes, correlating a customer’s age with his or her brand loyalty, and using regression analysis to create a mathematical model that helps a business create an ideal pricing package. This is also the majority of what a marketing research firm will do — creating surveys, measuring results, and making really snazzy bar graph charts to explain the firm’s analysis.

Qualitative analysis deals with the less firm details, such as the findings of a focus group, the reports from “man-on-the-street” interviews, and so forth. The idea of qualitative analysis is to open up communication with customers and to try to find out what they think about products. It’s a little trickier, since the results have to be interpreted and filtered by someone with experience and skill. Unlike qualitative analysis, which generates statistical figures, quantitative analysis generates a bevy of opinions which may or may not be useful to a company.

Unfortunately, when a lot of small publishers engage in marketing research, they tend to use quantitative data rather than qualitative, and they don’t sample their customers properly to get the correct results. I’ve seen comic book publishers attend conventions, poll a few dozen of the fans who approach their booth, and then attempt to use that information to learn more about their customers. Such a sampling technique (“convenience sampling”) will yield extremely inaccurate results, and the subsequent analysis can really mislead a publisher. After all, the fans who attend conventions tend to be the hardcore fans who spend a lot more money on comic books than the average fans. They’re also generally a lot more savvy than regular readers might be, and there might be a larger number of local readers than usual. They might want things that regular fans don’t, like variant covers and special edition issues. They might also be more inclined to buy ancillary merchandise (posters, t-shirts, coffee mugs) than regular fans.

What’s worse, the publishers often don’t talk to the fans in a systematic fashion. Often, they are more concerned with hearing opinions than they are in collecting data. The problem with this is that there is an element of human bias associated with such a technique. A publisher is less likely to hear the bad, and more likely to hear the good. Fans are also less likely to complain than they are to gush. A publisher can walk away from the experience feeling very good about fan support, only to discover later that sales are tanking in retail due to a lack of readers.

I use this example because I want you to understand that when you seek out any marketing information about your customers, you have to be careful. There are lots of ways to determine the demographic information about your audience. But many of them, even the really expensive methods, are prone to bias if you don’t take the time to do them right. If you cut corners and sample the opinions of people who are convenient to talk to rather than using proper, scientific statistical methods, you’re going to get results that don’t reflect reality.

Now, let’s briefly touch on what demographics are. I think that most people know that demographic information includes the basics — age, gender, income level, educational level, occupation, place of residence, number of children, and so forth. But what I don’t think a lot of people understand is why this information is important, or how it can help you. Simply put, the more you know about your customers, the better you’ll be able to describe your market segment — the people you’re targeting with your products.

For publishing, I’d suggest that age, gender, income, education, geography and household size are probably the most important details. It might also be helpful to know how many books a month a customer purchases or how many magazines he or she subscribes to, but I’ve found that that sort of information often isn’t very reliable and doesn’t tell me very much. It sounds good on a report, but it usually doesn’t really mean anything. Some marketing researchers like to have that sort of information so that they can look for correlation — “Females tend to buy more books per month than males.” But correlation isn’t causation, and just because two items appear to trend in the same direction doesn’t mean that they truly go together.

Once you’ve decided what you need to know about your customers, the next step is to gather information. There are, of course, many reasons why you might need this information, and they will likely affect the amount of time and money you’re willing to spend, so I’m going to list them in order of least to most expensive, with the added assumption that they’ll provide the least accurate to the most accurate information:

1. Use a competitor’s demographic information. I’ll probably take heat from others in the marketing research field for suggesting this, since it’s questionably ethical and it’s going to give you some fairly unreliable information. But if you just need the info because you’re throwing together a business plan and you don’t have the time or the money to do market research, using the information your competitors list in their media kits, press releases, and market reports is probably your most practical option. Just keep in mind that the information isn’t going to be very useful to you for the purposes of segmenting, targeting and positioning; it’s just going to give you a general idea of what your customers are like.

Where to look: Check our competitors’ websites and see if they have media or press kits you can access. You might also try some Google searching, or making use of an academic library to search periodicals for more specific information. If they’re publicly traded, check their investor reports, which often have segment information.

2. Use Census Bureau information. You can find a lot of good, general information about general segments on the US Census Bureau website. All you need to do is go to “People & Households” and search the findings by narrowing down the demographic data you’d like to isolate. This really only comes in handy if you’ve already narrowed yourself down to a segment (such as males, age 18-24) and you’re looking for general statistics. You’re probably not going to find a lot of specific use, but again, it’ll give you an idea of the national (and regional) averages for income, household size, and so forth. And hey, some demographic information is better than none, right?

Where to look: The Census Bureau website. I particularly like the FactFinder tool because it’s easy to use and it can give you some detailed data very quickly.

3. Use free market research information. There are companies out there, like Claritas, that have made powerful information available via the web. One of my favorite sites uses their PRIZM system to deliver information on segments by zip code. Visit the site and type in your own zip code. You might be surprised what you learn about your neighbors. You can also explore the segments and use them to narrow down your target demographics.

Where to look: You might start with the Market Research Portal. I tried one site I found via Google, free-research.com, but didn’t find any information of significant value. KnowThis.com has a Media & Publications section. You can find plenty more via search engines. (If you happen to know of or find any that are worth posting, please put them in the comments below.)

4. Talk to the Small Business Association. Most college campuses have a Small Business Development Center (SBDC). I’m currently working with the guys at the one in Edwardsville to secure financing for Army Ant, and I’ve had a great experience. Since SBDCs are not-for-profit and community-service-oriented, they often can help you get access to information you wouldn’t be able to easily find on your own, and often for free. As a bonus, they’ll also help you spruce up your business plan and point out things you might have missed in your planning and/or your financials. Plus, their services are free.

Where to look: You can vist the SBA website, or check your local state-run school for an SBDC. Request an appointment with a counselor and tell them what you need specifically. They’ll often be able to easily point you in the right direction.

5. Poll your customer base. You’re going to need an understanding of statistics to do this, and you’re going to need, at the least, a spreadsheet utility like Microsoft Office Excel 2007. I’d really recommend a more powerful statistics-oriented program like SPSS 16.0, but that learning how to use the program properly may require more time than you’re willing to put in.

Polling requires planning, so you’ll want to first figure out what your population is (I’d start with something like “every customer who buys a copy of one of my books between Janurary, 2009 and March, 2009″) and figure out a way to sample that group appropriately. It’s going to be hard to find a system that’s not a convenience sample, since you’re probably going to have to solicit a response (“Win a free signed copy by visiting this web address and completing a survey!”), and even those little insert cards magazines like to use rarely get a high response rate. You can learn more about different methods of sampling here. Whatever you work out, you’re going to need at least 30 people to achieve a normal distribution. Depending upon the variability, you’ll need more people to generate correct results. A good rule of the thumb is to shoot for around 200 respondents for a 95% confidence interval and 500 respondents for a 99% confidence interval. Since you’re just gathering demographic information and not trying to, say, figure out who will be the next president, your margin of error is less important than it might be in a newsworthy poll, so don’t worry if your sample isn’t going to give you perfect information. Statistically speaking, that’s going to be impossible, and getting anywhere close is going to be extremely cost-prohibitive.

What to do with the information: Once you collect your demographic information, put it in a spreadsheet and run some simple descriptive analysis (mean, mode, median, standard deviation, and so forth) to generate your demographic statistics.

6. Order market research reports. Why do the research when someone else has probably already done it for you? You can buy some amazingly specialized market research reports that will tell you everything you want to know about an industry. But these are generally quite expensive (often in the $1,000-5,000 range) and may give you more information than you need. Still, they’re generally cheaper and easier than doing the research yourself.

Where to look: Just Google “market research reports.” You’ll find lots of sites. I’d stick with those that allow you to preview reports, like MarketResearch.com.

7. Hire a marketing research firm or consultant. This is your most expensive option, and it’s likely going to cost you in the thousands to tens of thousands unless you’re seeking very basic information. Depending on your goals, this may or may not be your best option. I’d suggest that it’s something you will only want to do as a small publisher if you’ve exhausted all other options.

Where to look: It’s best to either go with a firm that’s local (check the yellow pages) or one that operates in your industry. Here’s a Greenbook directory of several firms that specialize in media. Sadly, I don’t know of any specific firms to recommend, since I’ve never dealt with any.I will take this moment, however, to plug myself as a marketing research consultant. I can only offer limited services while I’m in grad school (I just don’t have the time or energy to take on a large number of clients or run large research projects), but if you just need someone to help you track down demographic information and other basic information about your customers, you might want to contact me. My rates are very reasonable, and you know that I know your industry.

I hope that this article has been helpful to you. When I was writing my business plan, I was enormously frustrated at the lack of information out there about tracking down demographics — it seems like every site I ran into was trying to sell me services I didn’t want (or make me register for a site I’d never use again) just to get to some basic “how-to” info. As always, I wish I’d had someone to guide me through the process, and that’s exactly why I decided to post this piece.

If you’d like to add more resources or ideas, please feel free to make a comment below. I’d love to hear some fresh new sources, so don’t be shy!The more we share information, the better we’ll all do at running our businesses. And that’s good news, because when industries thrive, business owners have a lot less to worry about. That frees them up to focus on the main reason they’re in business anyhow: their products and their customers.

-SJJ

Sadly, this happens a lot in the business world. Managers find themselves in the unenviable role of having to appease stock owners, and they focus on the mantra of, “maximize profits, minimize costs.” This has led to a lot of bad decision-making, and it’s also led to a lot of good companies taking a plunge once they reach a point of maturity where they can no longer sustain rapid growth.

What I find most interesting, however, are companies that are able to look at old industries and find new ways to compete in them. I’m going to give three examples today of companies that have done a great job of thriving in mature markets by redefinig the way they do business. I’m also going to discuss some of the ways that an enterprising young publisher might redefine the publishing industry.

But let’s start with an example from another industry first: Build-A-Bear Workshop.

I doubt I need to explain to anyone that the stuffed animal market is extremely saturated; they’re a common gift item, especially for families with newborns, and they’re popular toys for children under the age of 10. Teddy bears are probably the most prevalent stuffed animal, and they range in quality from the well-made Gund and Vermont Teddy Bear brands to the inexpensive private-label bears one can find in a toy store or gift shop. There are also collectible bears, like the Ty Beanie Babies, and there are the specialty bears that one might find in a zoo gift shop. Bears are mass produced using a “push” model of distribution — there’s little motivation to get the end customer involved in the process.

And yet these bears are often quite personal items to their owners, generally because they’re given as gifts, or purchased in memory of a special day, or owned and loved since childhood. My wife has a bear named “Franklin” she got from a Hallmark store a few years back that she often clutches while she sleeps. He’s more than just a stuffed toy; he’s a personal item, a signifier of security to her.

That’s why Build-A-Bear Workshop is such a neat idea. Founder Maxine Clark opened the first store in the St. Louis Galleria in 1997 with a vision of making the process of buying a bear a personal experience. (There’s some controversy involving the fact that she probably stole the idea from a previously existing chain, but we’ll ignore that for now.) She reasoned that the bears couldn’t be that difficult to make on site, and that it would be easy to do. Customers simply had to choose a skin, add stuffing and a “heart,” and stitch their bears up. The store would announce that the bear was “born,” and the customer could walk away with a brand new bear, complete with a cardboard house, and a fun memory that gave them a personal connection to the item. Customers could even come back to purchase clothes and accessories for their bears, and to make additional animals.

What’s interesting about this process is that Build-A-Bear is focused not on the product, but the customer experience. It wouldn’t take much for Build-A-Bear to stitch up the bears and sell them as completed items, but if they did, they’d just be another bear store. It’s the personal connection that makes the product special to the buyer, and it’s the personal attention that sales associates give that make people want to come back for future purchases. Maxine Clark looked at a mature industry, thought outside the box, and figured out a way to develop a major retail chain by simply changing the design process.

The second company I’ll cite is a company that arose out of a desire to create a new kind of ice cream. When they launched their product in 1988, they touted it as the “ice cream of the future.” 20 years later, the future is here, and the successful company goes by the name Dippin’ Dots.

I became interested in this company just a few weeks ago when I picked up some part-time work at Busch Stadium in St. Louis and found myself working at a Dippin’ Dots stand. I’d had the product before, but never thought much of it; it seemed fairly overpriced, to me, and I’m not much of a fan of ice cream since my stomach seems to have issues with large amounts of lactose. And yet every time I visit a mall, a theme park, a stadium, or airport, I see Dippin’ Dots. People really seem to enjoy the novelty of the product (especially since it isn’t sold in stores), and I must admit that it’s a very unique way to present an age-old product.

Dippin’ Dots were invented by a man named Cut Jones in the late 80s, who used a flash-freezing process involving liquid nitrogen to create little dots of ice cream that were capable of delivering a high-quality taste with a unique tingling sensation on the tongue as they melted in a person’s mouth. The dots weren’t something that could be sold in grocery stores, since they needed to be stored at -20°F or below. But they were something that could be sold as a novelty item at malls, theme parks and other high-traffic areas. The company used a franchise strategy to rapidly expand, and even today, Dippin’ Dots are a popular item to splurge on.

What interests me about the product is that it seems, to me, to be of a fairly ordinary quality that is inferior to frozen custard, superpremium brands (Haagen-Dazs, Edy’s, Ben & Jerry’s), or even soft-serve restaurants like Dairy Queen. The portions also seem to be on the small side, while the prices are very high. If I wanted ice cream, Dippin’ Dots would not be one of my top choices. And yet the brand has significant power in the minds of consumers, and though the beads of ice cream are somewhat of a novelty item, they are quite popular. In fact, the company’s website claims that Dippin’ Dots stands outsell other ice cream stands by 2:1. That’s amazing.

Once again, here’s a product that is successful not because it’s brand new, but because it’s well marketed. Let Dippin’ Dots melt, and you’ll have ordinary ice cream. But give that ice cream a fresh look, a clever name, and a tagline that promises that this is the “Ice Cream of the Future” and you’ve got a brand new way of serving an established product.

The third company I’ll cite as an example is a store I’ve never actually stepped foot inside: Club Libby Lu.

I don’t have any children, but I frequently do writing programs (and have been a part of an after-school science program) with grade school children. And over the last few years, I’ve noticed that all of the young girls are talking about Libby Lu. It’s their favorite store in the mall by far. Some of them even have birthday parties there. Having walked by the store in the mall, my impression had always been that it was a “Claire’s” for tween girls, with Hannah Montana music blaring and posters of Miley Cyrus in a wig and two pounds of makeup hanging in the windows. But hearing so many young girls talk about this chain, I did some research, and I was surprised to see how hard this company is working to earn these girls’ money.

Once again, good marketing is the centerpiece of this chain. Mary Drolet opened her first store in 2000 in Schaumburg, IL, naming it after her childhood imaginary friend. The store was designed to provide the sorts of things that tween girls might want, like ear-piercings, makeovers and costume jewelry. Later on, the chain added on a “pooch palace” where girls could create their own stuffed designer dogs. The chain smartly signed Hannah Montana as a spokesperson and has been very successful since being bought by Saks, Inc in 2003. In just 8 years, it’s produced close to 100 stores.

What’s interesting about Libby Lu is that it is unapologetic about how silly it is. Parents likely roll their eyes when they see their 10-year-old daughters walk out of the store with a bunch of silly makeup, hair extensions, and costume jewelry on. It’s far too tacky to make the girls look like makeup-savvy teenagers, but it makes them feel older and more sophisticated all the same. The retailer works hard to help these tween girls enjoy being girls, and it offers them a lot in the way of products to pick up — products that could be available at any other store, but which are uniquely positioned here. Selling cosmetics, posters, and junk jewelry is an old part of the business of retail; selling them this way is a brand new concept.

Now that I’ve covered these three examples, I’m sure that you’ve noticed in all three cases that it was not products, but marketing, that made these companies successful. In the case of Build-a-Bear and Club Libby Lu, the emphasis was on building a one-to-one relationship with customers; in the case of Dippin’ Dots, the emphasis was on creating a unique experience for customers to have as they tried the “Ice Cream of the Future.” In all three cases, the focus was not on selling a product; it was on the end user.

And that leads to the question that I’m sure most people will ask. “That’s all good and well for retailing,” they might say. “But what good does it do for people who are involved in producing the products, like publishers?”

It’s a very interesting question, because publishing itself is nearing a crossroads, a time when there may be a divergence between traditional books, print-on-demand books, and electronic books. We haven’t reached that position yet; POD and eBooks are still in their infancy, and both are still ineffective at serving the needs of individual consumers. But five or ten years down the road, when POD techniques can produce high-quality reprints of backlist titles, and when eBooks finally have a format and reader that looks and feels like a real book, the traditional business of publishing is going to be disrupted by emerging companies who can take advantage of the new ways of doing things and carve themselves a niche. The companies who succeed the most will be those who can develop smart relationships with customers.

In the eyes of today’s trade publishers, customers don’t care about the content; they care about the product. That’s why trade publishers don’t spend a lot of time searching for high-quality material. Instead, they search for material suitable for a mass market — writing by people like Nora Roberts, Janet Evanovich, Dean Koontz, Danielle Steele, Stephen King, Sue Grafton and John Grisham. It’s not that these writers are especially skilled; it’s that they’re able to consistently deliver the kinds of books that appeal to large numbers of readers. Anyone who’s been in the publishing industry for any amount of time knows that the bestseller lists are fixed and phony, but it’s hard to deny that the bestseller lists do turn some writers into household names.

The idea of the mass market, however, is not the future of publishing. There will always be a place for mass market writing, of course… consumers are not very skilled at thinking for themselves, and unless they are familiar with the book industry and the literary sector, they rely on reference criteria such as bestseller lists to help them make decisions. But as we move away from the bestseller racks and move into an era where traditional publishing strategies just aren’t cost effective anymore, it’s going to take some savvy and forward-thinking publishers to grab ahold of the customers who are ready to navigate the waters of POD and eBooks… but who need new reference criteria to guide them through.

I’ll offer three suggestions as to how a publisher might do this:

1) Build stronger marketing relationships with end users. Ask most trade publishers who their customers are, and they’ll resort to market research findings to tell you. That’s because, generally speaking, they don’t know who reads their books; they just know sales figures and demographics. Smaller publishers are generally a little bit more in touch, because they can’t afford not to be. The companies who are most successful in the future are going to be the ones who know their customers, who listen to them, and who keep detailed information on as many of them as possible to guide direct sales.

2) Think up new ways to present old products. Audiobooks used to be cumbersome box sets of multiple CDs; now, more and more are being offered on small, self-contained digital devices. Flash memory is getting cheaper all the time. An enterprising publisher might try to offer “enhanced” books that are available on flash drives, allowing readers to take eBooks to any USB-capable computer and resume reading where they left off. The software on these drives could link up to a web-based account that stored preferences and other information. The upshot of this is that publishers would know EXACTLY how, when, and where their books were being read. This information could prove invaluable!

3) Focus less on retail and more on direct sales. This is a tough boat to rock, since publishers need retailers to get their books to the public. Some customers won’t buy online, and will always check for a book through their favorite retailer first. But publishers can take advantage of the web to offer their entire backlist, and they can also offer frontlist books at slightly higher prices than retail by selling signed (and perhaps even personalized!) copies. Direct sales are far more profitable than retail sales, and can lead to stronger relationships with customers, as well as provide basic demographic information that can be used for market research. It’s never a bad idea to know where your customers are coming from, or how they’re using your product (as a gift, personal copy, or textbook).

I have other ideas, but it’s probably wise to keep them to myself. After all, I hope to be one of the publishers at the forefront of the changes the next decade will pose. But feel free to post your own ideas below… I’d love to hear them!

-SJJ

If my experiences in the industry reflect the population as a whole, I’d guess that hundreds of thousands of people have. And many of them have actually attempted to do it, whether they’ve created an amateur book to print at Kinko’s or gone through the process of putting together a professional-quality series. Every time I go to conventions, I’m struck by how many new faces I see… and how many people I don’t see again because they’ve quietly exited the industry.

I’ve devoted quite a bit of this blog to talking about the creative side of comics through my Comic Book Writer’s Guide. But I’ve noticed that there’s a real lack of advice out there pertaining to the business side of comics. That’s partially due to the fact that most of the companies who do succeed are tight-lipped about their best practices for fear of helping out future competitors. I get that. But it’s mostly due to the fact that most comic book publishers aren’t run like businesses at all; they’re run like hobbies. Thus, there’s a lot of bad advice out there from people who really don’t know what they’re talking about.

In my 6 years in the industry, I’ve been exposed to some of the worst practices, and I’ve learned quite a bit about how not to run a comic book company. And so today, I’m going to offer a quick survey of the business side of the comic book industry… and some tips on how emerging publishers can actually survive amidst all the problems they’re going to face.

First of all, let’s be clear on one thing: a business makes money. I feel silly pointing that out, but every time I speak to would-be publishers, I’m shocked at how often that fact is forgotten. People get into comics because they want to create, darn it, and because the barrier to entry is low. A full-color, 22-page comic book on newsprint can be created for around $5,000-7,000 and printed for around 60-75 cents a copy, provided the quantity’s high enough. If the book’s priced at $3.50, the publisher can break even at around 2,500 copies if selling directly to consumers, and at around 9,000 copies if selling through the retail channel. In terms of risk and reward, the risk is pretty low, and the reward is reached fairly quickly.

You may have noticed the disparity between direct sales and retail sales. According to my calculations, one book sold directly to a customer is worth three and a half books sold through the retail channel. That’s because the standard distributor discount for comics is currently around 55-57%. This means that publishers sell their books to their distributor (almost always Diamond Distributors, Inc.) for 43-45% of cover price… but this isn’t the end of the story. A book that would sell for $3.50 in a consumer sale sells to Diamond for $1.50. Once the publisher factors in variable printing costs, the company will see around 75 cents per book, as opposed to $2.75 per book sold directly to consumers. In other words, once variable costs are factored in and before fixed costs are assigned, a book sold through the retail channel only nets the publisher 22-27% of cover price, as opposed to the 79% the publisher would see through consumer sales.

Is your head spinning with all these numbers? Take a breath. The good news is that you’ve just been exposed to an ugly truth about the comic book industry — though the barrier to entry is low, the system is set up to make it difficult for new entrants to gain a lot of traction. This isn’t an intentional design, of course; both distributors and retailers need new product in order to satisfy customer demands, and there’s always room for a hot new product. But what this design does reflect is the fact that a would-be publisher can’t bank on a single book’s sales in order to be successful; the publisher needs to have a plan in place that can take advantage of multiple methods of distribution.

So, let’s get the big question out of the way now — How many copies of a comic book can a publisher expect to sell through comic book stores? On average, the number’s around 2,500 if you rank below the top 300, 4,500 if you can crack the top 300, and 8,500 if you can crack the top 200. (You can find sales figures here, though I’ll warn you that they’re based on guesswork and aren’t 100% accurate. They also don’t include re-orders.) It’s rare for an independent publisher to break into the top 200; those slots are chiefly dominated by Marvel and DC and by licensed books. It’s almost unheard of for an indy publisher to break into the top 100. But getting a book into the top 300 isn’t too hard, provided it’s supported with an adequate promotional campaign.

So, assuming a publisher’s got a book in the top 300, the expected sales should be around 4,500 copies, all of which are non-returnable. That’s good, but it’s still only half of what the company needs to sell in order to break even. The difference needs to be made up by other distribution channels. The most profitable channel, direct-to-consumer sales, can cause problems; retailers don’t like competing with publishers for sales. So, it’s often best for a publisher to wait a month or two after the product ships before engaging in direct sales. But notice that I don’t say it’s necessary — while a few retailers will get annoyed if you offer your books for sale while they’re currently available in stores, most won’t have a problem with it unless you’re undercutting them. After all, they don’t have to tack on shipping and handling fees that effectively double the cost of the book; you will if you’re selling via a website. They also don’t have to sit at a crowded booth and try to sell a narrow line of products to indifferent passer-bys; you will if you’re selling via a convention booth.

But there are other channels as well. One of the most popular right now is to repackage 4-6 issues into a “graphic novel collection” and offer comics through mainstream bookstores. This is a great way to make some extra money off already-produced material, and it allows comic book publishers to get their products in a store that won’t generally deal with individual issues of comics. The downside, however, is that bookstore product is returnable, and around 30% of books sold to bookstores will come back. Some publishers work around this by under-shipping orders. Unfortunately, under-shipping limits sales, and can impact re-orders. Also, based on the information I’ve seen, most graphic novels sell 10,000 copies or less; only a handful get re-ordered in large numbers. Since the cost of printing at the 10,000 copy point is roughly $6 for a color paperback and $9 for a color hardback, publishers have to be careful not to over-estimate how many copies they can sell; it’s much harder to eat the cost of unsold graphic novel collections than the monthly magazines.

“What about going straight to the graphic novel phase?” you might ask. My advice: don’t do it. Produce graphic novels in monthly comic book segments, and use the sale of the individual issues to help defray your production costs. That will allow you to realize profits from the graphic novel. Avoiding the individual issues will lower your printing bills, but drastically decrease your revenues and exposure.

There is an exception to this rule, of course, and that’s the manga market. Manga books are printed in pocket format in black and white, and often are close to 200 pages long. They cost about $2 to print, and they’re well-liked by bookstores. Unfortunately, it’s extremely difficult for titles not produced in Japan to catch on, because manga readers are selective and savvy. Tokyopop, Viz Media, Del Rey Manga and others have tried to introduce American-made titles, with mixed results. Generally, only licensed books (such as the Avril Lavigne based manga) have done well. Papercutz bucked the trend with its Nancy Drew manga, but it’s more likely due to the license than the format.

Speaking of licensing, most of the independent publishers out there are making licensed books their business. I dealt with this a lot when I was working with Dabel Brothers, and I’ve noticed that most of the other mid-range publishers, like IDW, Devil’s Due, Dynamite and Dark Horse, focus on producing books based on popular licensing. It’s a smart strategy, because consumers like to buy what’s familiar, and licenses with a following can translate into big sales. But licenses cost money and often introduce restrictions, so they’re not a surefire solution. Also, some licenses are just duds; I’ve seen a “Mr. T” comic floating around from publisher to publisher for quite some time, and I suspect it’s because the license lacks selling power. The insanely popular “World of WarCraft” license should have been a surefire success for Tokyopop, but the way it was handled by the creative team turned many fans of the MMORPG against the comic book. (Let’s hope they fare better with the “StarCraft” license, since my good friend Jesse Elliot is working on it.)

So with low expected sales, an increased reliance on licensing, and high variable costs… can an indy publisher make money in the comic book industry?

The short answer is no. The comic book industry is not built for small publishers, and it’s extremely hard to get in and stick around. The industry has chewed up and spat out hundreds, and maybe even thousands, of would-be publishers. The best most indy publishers can hope for is to break even; most accumulate so much overhead that even that task is difficult.

But the long answer is yes, provided it’s followed with ellipsis that wraps around the Earth seven or eight times. There are ways to make money in comics. It has been done, and it can be done again. But it requires adhering to most, if not all, of the following strategy:

1. Have enough cash reserves to be able to withstand losses during the first year.
2. Have enough cash reserves to be able to fully produce books 4-6 months ahead of release.
3. Have enough cash reserves to pursue one or more lucrative licenses.
4. Have enough cash reserves to be able to fund appropriate printing levels instead of banking it all on large runs, even if smaller, more manageable runs translate into higher costs overall.
5. Have enough cash reserves to properly promote and position a book.
6. Have enough cash reserves to advertise in Diamond’s Previews.
7. Have enough cash reserves to attend conventions and trade shows.
8. Have enough cash reserves to have a retail incentive program.
9. Have enough cash reserves to quickly run a second printing.
10. Have enough cash reserves to have an adequate support staff.

Clearly, there’s a theme here. In order to succeed, you have to have a large reserve of capital. Based on what I’ve seen, it takes most indy publishers around $15,000-20,000 to fully produce and print a single issue of a comic book. In order to make that book succeed, the publisher should have double that amount of cash available and on hand for every issue the company plans to produce during the first year. Having the correct amount of cash available will put a publisher in a much better position to stay in the game. And believe it or not, it’s because most publishers plan to have too little money on hand that they fail.

I hope that this article has been helpful. I apologize for painting such a bleak picture of the comic book industry, but the truth of the matter is that things are bleak right now. It’s not impossible for a new company to break in… but it’s very hard to stay in the game. I suspect that this will continue to be a trend, and the best way to break in as years go by will be to bypass the industry entirely… and focus on making comics available in new places, to new people, with a new philosophy of what comics should be.

-SJJ

For those who haven’t been following my story, I founded Army Ant Publishing earlier this month, and I’ve spent most of the summer researching the publishing industry and writing my business plan. As a business school student, I understood that a well-crafted business plan is the first step towards gaining investor confidence, and so I went all out, putting together a 55-page business plan that laid out my entire strategy for the next five years.

I won’t get into the details of my business model here, but suffice it to say that my advisor, Jo Ann, said she was impressed with the plan, and thrilled that I’d taken the time to plan out even the minute details. She gave me some tips on better organizing the plan, which I thought I’d include here for those struggling with their own plans…

Here is the structure she suggested:

1) A title page: I’m including my logo, too, just for good measure.

2) Table of contents: Jo Ann also reminded me to add page numbers to my plan, which I neglected to do.

3) Executive Summary: A one page summary of the business plan with about three to four paragraphs. The bottom of the page can include the Mission Statement and/or the Vision statement. A company values statement is probably not necessary for a startup plan.

4) History/Concept: For a startup business like mine, this should be a brief description of the business, including little details like the proposed location, the business’s name and the proposed services. This section doesn’t need to be too long; just a paragraph to a half a page.

5) Industry: The plan can get a little more descriptive here, discussing the industry in broad terms and defining quantitative data like how much the industry is making per year and what the customer base looks like. In my case, I have to include data on the publishing industry and the comic book industry, since both are relevant to my product lines.

6) The Business: The outline Jo Ann gave me recommends breaking this into four sections: Overview, Product/Service Description, Employees and Management. In the Product Description section, she encouraged me to list technical information about my initial books as well as general information about each line.

7) The Market: This is my favorite part, and it makes up the bulk of my plan. Again, the outline recommended four segments: Target Market, Marketing Strategy, Competition, and Competitive Advantage. The first three segments should be pretty detailed, but that fourth segment only needs to be a few paragraphs at most.

Fiscal: This is my least favorite part, because this is the section of the plan where I have to explain what I’m going to do with the money I’m seeking. I’d prefer a blank check, thanks; I don’t want to be so accountable! Unfortunately, lenders want to make sure I can repay my debts. Jo Ann reminded me to remember to include loan repayments in my calculations; after all, banks don’t wait until you’re making money to get those loan payments started!

9) Projections: Following the Fiscal plan, the Projections need to show how the company plans to manage its cash flows over the next 36 months. The first 24 months are supposed to be broken down individually, while the final 12 can be lumped into an annual column. She gave me a paper chart to help set this up, but she also sent me an Excel spreadsheet, which I posted here if you’d like to use it:

Cashflow Projections Sheet (Excel Spreadsheet)

10) Appendix: Finally, close the plan with supportive materials, as well as management resumes for the company managers involved. I ended my original plan with a “future outlook” section, but apparently, lenders would rather have facts than glowing speculation. Ah well.

Reorganizing the plan will take me a few hours this weekend, but it’s worth the effort if we can be heading “to the banks” in the next couple of weeks, as Jo Ann suggested. I can’t wait; having some extra funding will help me get this company revved up and ready to go!