Building a Better Budget, Part 3: Forecasting Expenses

July 2010
by Marion Gropen

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Building a Better Budget, Part 3: Forecasting Expenses

by Marion Gropen

When you’ve learned how to get more from the process of budgeting and how to estimate the sales of future titles—see parts 1 and 2 of this series in the May and June issues—the next steps are relatively easy.

They involve estimating your expenses, including expenses for cost of goods sold, distribution, marketing, and other operating activities.

Cost of Goods Sold

Your cost of goods sold (COGS) should be divided into three pieces: royalties, PPB (paper, printing, and binding), and plant costs. Be careful. Plant costs are defined differently in our business than in every other industry. We’ll get to that difference below.

Royalties. You know what royalties are. Because they’re defined by contract, it’s conceptually simple to project the royalties earned as a function of the sales of each title.

Computations for royalty expenses can be a little more complicated. If you have a few titles, you can just multiply the dollar sales figure for each title (at list or at net cash) by the royalty rate that applies. If you have hundre…IBPA Members – Click here to view the full article (login required).

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