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How to forecast profit and loss

The profit and loss (P & L) for each work uses sales profiles and sales estimates linked to sales channels to calculate your forecasts. Channels need default information about the costs agreed with distributors, sales agents and authors, by geographical area, for various product types. The fields include the average distribution rate, the sales rep rate, the average royalty rate and the default royalty basis. Storing these defaults is like setting up a template.

Relevance to sales estimates: discounts and currency

Forecast sales estimates require a product, its sales channel, and the forecast quantity. In parallel with the sales and returns profiles, Consonance can use the default discount and default currency on the sales channel to build up a detailed monthly volume and value forecast.

Relevance to costs: royalties, distribution charges, sales commissions

In the forecast column of the work profit and loss, Consonance uses your channel defaults to calculate the forecast costs of royalties, distribution, and sales commission.

Forecasting

Sales are assigned to a channel, which are themselves assigned to a masterchannel. A masterchannel might be called ‘eBooks’, and it might have multiple channels assigned to it, named ‘Direct eBook sales’ (sales through your own website, if that’s something that you do), ‘Vearsa’ (sales through Vearsa), and ‘Amazon Kindle’ (…).

The royalties payable on any ebook sale might always be the same – 25%, for example. The costs associated with each sale are different, though, because Amazon and Vearsa might take a different commission, and your own website maybe does not, for example.

So, each sales channel can have its own forecasting configuration, with respect to the following:

  • Discount (e.g. 45%)
  • Percentage of sales that are subject to commission (e.g. 30%)
  • Sales commission on those sales (e.g. 10%)
  • Distribution charges (e.g. 12%)
  • Pristine returns rate (e.g. 15%)
  • Restocking fee (e.g. GBP 0.80)
  • Average royalty rate (e.g. 15%)
  • Whether the royalties are usually based on net or list price

Therefore when someone forecasts sales of 1,000 books with a list price of GBP 9.99 through a particular sales channel, the forecast is as follows.

  • Gross revenue: 1,000 x 9.99 x (1 - 45%) = GBP 5494.50
  • Net sale revenue: (1 - 15%) x 5494.5 = GBP 4670.33
  • Of those the commissionable sales: 30% * 4670.33 = GBP 1401.10
  • The sales commission would be: 10% * GBP 1401.10 = GBP 140.11
  • The distribution charges: 12% * 4670.33 = GBP 560.44

Actuals

When you specify actual royalty rates for a contract, do so for the following:

  • Any sale of a particular product (for example, an eBook), or
  • Any sale within a particular masterchannel (for example, ‘Export sales’), or
  • Any sale within a particular channel (‘Direct export sales’).

Print product sales are more complex, and depend on the sales channel. You may need separate channels/masterchannels for the following.

  • UK trade sales through your distributor (e.g. royalties 10% with discount escalator at 50%)
  • Export sales through distributor (e.g. 7.5%)
  • Export sales on consignment (same royalty as export sales, different forecast costs)
  • Special sales / special editions (e.g. 7.5%)
  • Direct sales through the website

Add profit and loss defaults to a channel

Go to Settings > Configuration > Profit and loss defaults ⤴ to add profit and loss defaults.

Whenever you see the P&L page for a work, an empty estimate record is created for you to fill in. You see those empty estimates when you click on the plus button next to sales estimates and you are given a grid of all your sales channels, and all your products. You don’t delete these system-generated sales channels if you have set up these estimates, even if they are zero. If you do want to tidy up your sales channels by deleting them, get around this by going to the list of all your estimates. Go to Estimates ⤴. Delete all the zero-value estimates there. Once you’ve done that, go back to the sales channel page and delete the one you don’t want.

Edit a sales channel’s profit and loss defaults

Edit many aspects of a sales channel directly from its list page. Go to Settings > Sales channels and fill in the fields to replace data.

How does Consonance handle changes to sales channels?

If you change the discount percentage on a channel, then the following happens on the existing P&Ls in the system.

  • Existing sales estimates will not change. When you add a sales estimate quantity, the system uses the channel discount to calculate the money amount. This is not recalculated each time the P&L is accessed. If you were to amend the channel discount, and then amend the sales estimate quantity, then the new channel discount will be used to calculate a new money amount.
  • Forecast variable costs that are calculated on the fly, however, will change. Changing the Distribution, Sales commission, Royalties rate, Returns numbers on a channel will change the forecast column on every historical P&L. The budget column will not change.

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