Note: Dale Hanson Bourke was an editor before she went over to the dark side (publishing). In this article, adapted from an EPA workshop, she explains the specialized language of the publishing world in terms even an editor can understand.
by Dale Hanson Bourke
When people ask me if it was worth it to get an MBA, I often say that the most important thing about it was probably getting a basic understanding of financial terms:
Accounts Payable -- what you owe someone else. A lot of times when a publisher is trying to determine what the accounts payable situation is, they will ask you how much you owe writers, or how much you'll have to pay out on art for the next issue. The reason that question is being asked is they're trying to figure out what the accounts payable situation is. So although from an editorial point of view you may still be putting the issue together and not want to be bothered by it, that's a really important thing for you to know at any one time.
Accounts Receivable -- what you expect to come in. For example, advertising billed but not yet received, and subscriptions billed but not yet paid.
Amortize - to value something over a period of time. The publisher may ask you why you're spending so much on a new piece of art. If you can answer that you want to amortize it over the next two years by using it in the monthly column, he will say, "Okay fine, I can divide this by 24." His comfort level will go up immediately.
Asset - something of tangible value owned by a publisher or entity. When you buy computers those are not just expenses, those are assets. It's difficult for an editor to understand sometimes why we can go out and buy new computers but can't spend the money for art or writing. But the value is still there. Your publication is an asset. A lot of times the publication will say that the name an image you have are assets; they have value over time. So that's why if you can make a case that you're building an asset, creating something that will have value, the publisher can see your spending money for something that is longer term.
Bottom line - revenue minus expenses. What's there at the end of the fiscal year? This is important because you need to know whether your company is bottom or top line oriented.
Top-line - sales and revenue. There are some companies that are top line oriented. That means they're concerned more about sales and revenue than the bottom line. This is often the case in private companies, because they don't have the reporting structure [clarify??] of publicly held companies and they need the cash flow of publications. If you're a top line company, a magazine brings in an enormous amount of cash at first. Oftentimes the launching of a new magazine is timed right before the end of the fiscal year so that your year-end balance looks better than it normally would. This can confuse editors.
Capital - what you need to run your business. You need working capital. Most publications are undercapitalized; they started out behind and were never able to catch up. So they're pushing themselves down the road and hoping they can make it up next year. It takes a lot to capitalize a publication. A general magazine cost so much that it's almost impossible to start from scratch and capitalize until the thing can pay for itself. That's probably a 7-10 year operation.
Conversion - The first year you get a subscriber to re-subscribe. When you get a new subscriber, you think it's because you've got a great publication because you're a great editor. The business side thinks it's because they did a special price off sale or a 2-for-1 premium. The fact of the matter is you never really know why somebody comes through the door the first time. But as an editor it's your job to get them to convert. When they convert they show that they really value your publication. That's when they become a bonafide subscriber.
As an editor you are judged on your conversion rate more than you probably know. For magazines the conversion rate is generally 20-40 percent. The more aggressive new promotions you do, like 2 or 3 for the price of one, the more your conversion rate is going to go down. It would not be a bad idea as an editor to ask your publisher what your conversion rate is. As I an editor I used to say, "we have to do this issue as if three-quarters of our subscribers are deciding if they're going to sign up again." And in fact if you're a new publication you may have literally half of your people renewing or converting at one point in time.
Renewal - when someone comes back after a conversion. It used to be that a publication could discount a subscription enough that by the fifth or sixth year they started to make money. They were going to have people renewing, so they could invest more money up front. You can't count on those renewals anymore.
Liability - the other side of the balance sheet from assets. The liability side is all the expenses, all the outgoing money. It's also what you owe on the subscription that people have ordered but that have not been fulfilled. So for example, I may have 100,000 people who are still owed issues of my publication. If I go out of business to day, I have to either pay them back or find a way to fulfill their subscription. When you buy a publication, a lot of time it goes for next to nothing because you have to assume their subscription liability.
Margin - the percentage that you bring in as a profit. In a lot of companies there is a specific amount that you have to deliver. If you're part of a larger company you should know what your margin is supposed to be, because if you don't hit it someone else has to hit a higher one to cover you.
Revenue - money coming in.
Sell-in and Sell-through - Selling in is what you get people to order. You can sell-in 100,000 copies of a book, but if you don't have good sell-though, you get 98,000 copies back. Sell-through is what actually gets sold to the customer. In a newsstand situation you usually have to put out way more than you sell-through. Usually you have to do it for six months. It's a huge risk.