What Editors Should Know About Numbers

By Jack Limpert

I was always good at math and when I drifted into journalism I still liked to play with numbers. At publications where I worked, it always was a surprise that most journalists couldn’t do basic algebra. Let’s say a magazine has a 55-45 ad-edit ratio. We have 113 pages of ads sold for the June issue. How many editorial pages do we get?

The publisher I worked with for many years also was good at math and we understood each other on numbers. The economics of magazines—and pretty much for newspapers, too—work something like this: Let’s say we have 100,000 subscribers and each month we have 30,000 newsstand buyers for a total circulation of 130,000. The money paid by those subscribers and newsstand buyers bring in about $4 million a year in magazine revenue. How much does it cost to bring in that $4 million? We always figured circulation expenses–salaries for the circulation department, dealing with the newsstand distributors, sending out renewal notices, etc.—would cost $2 million a year minimum.

If the circulation costs could be kept that low—at $2 million—there was a $2 million profit on the circ side and as long as there were a decent number of ad pages—maybe 80 a month, bringing in about $10 million a year—the magazine was healthy and stable and could hire good people and keep them.

What hurts is having to spend lots of money to search for new subscribers to keep your circulation at that 130,000 level. That’s the level advertisers have come to expect and if it drops it’s a bad sign. What’s the key to staying at that 130,000 number? The subscriber renewal rate. If I could ask a magazine’s publisher one question, it would be: What’s your renewal rate?

Let’s say the subscriber renewal rate is 85 percent. That means 15,000 out of your 100,000 subscribers don’t renew each year–people move, go through life changes, etc.—so 85 percent seemed about as high a renewal rate as we could get.

How do we find 15,000 new subscribers? Some of those 30,000 newsstand buyers will take one of those annoying blow-in cards and subscribe. Let’s say the blow-in cards bring in 1,000 new subscribers each month. That means we only have to find 3,000 more new subscribers–maybe we can sell more Christmas gift subs and send out one small direct mail solicitation to get the other 3,000 subs. It shouldn’t cost that much. So readers are paying us $4 million a year and it only costs us $2 million a year to keep the circulation side of the magazine humming along. A happy state of affairs.

Let’s say the magazine’s readers don’t think the magazine is all that great and only 65 percent of the 100,000 subscribers renew. Now we have to find 35,000 new subscribers to keep circulation up. Weaker editorial also may mean fewer newsstand sales and fewer blow-in cards sent in by newsstand buyers. Even if newsstand sales don’t go down, we still have to find 35,000 new subscribers.

That means sending out lots more direct mail solicitations–and you’ll have to offer cheaper introductory rates to hook new subscribers. How much direct mail do we have to send out? Magazines get a return of two or three percent on most direct mail. Send out 100,000 sub packages and let’s be optimistic and say we get 3,000 new subscribers.

Where do we send all those sub offers? We’ll likely buy different mailing lists: American Express card holders, people who subscribe to the New Yorker or Vanity Fair, any list of people who seem to have money and an inclination to read magazines. Let’s say eight times we send out 100,000 subscriber solicitations. Let’s say those 800,000 mailings bring in 24,000 new subscribers (a 3 percent return)—add to that the hoped-for 12,000 blow-in cards from newsstand buyers and the magazine’s circulation is at 131,000 (the 65,000 subscribers who renewed, the the 24,000 new subscribers from the direct mail solicitations, the 12,000 new subscribers from the newsstand blow-in cards, and the 30,000 newsstand buyers),

But those eight mailings of 100,000 subscription offers cost a lot of money. You have to buy the mailing lists, create a package that will attract new subscribers, and do the mailing. Those 24,000 new subscribers are almost certainly paying a lower introductory rate. That $2 million profit you had from circulation revenues now may be closer to zero. But if your ad pages hold up, you’re probably still making money.

Let’s say the subscriber renewal rate drops to 50 percent. The numbers then are too brutal to lay out. You have to find 50,000 new subscribers to keep circulation at 130,000. If your renewal rate is that low, chances are your newsstand sales aren’t going to be that good. Advertisers see the circulation numbers and the message is pretty clear that this is a magazine in trouble. Editors will come and go pretty fast.
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That was the 20th century journalism equation.  A publication was successful if it had repeat business—loyal subscribers who felt they got their money’s worth from reading the publication. Almost all publications also needed advertising—if the ads reached the right kind of readers, the ads brought in business and the advertisers kept coming back. Firing on all those cylinders with all that  repeat business, an editor could afford to pay well for editorial and design people who did the kind of journalism that made a difference.

A lot changed around 2003 when the move of print readers to a digital world of broadband and portability began to accelerate. How has the  digital revolution changed the mathematics of journalism?  I’ll take that on in the coming weeks. If you want to weigh in, send what you think to [email protected]
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P.S. Another part of the circulation equation that an editor may deal with: The conversion rate is the number of people who take out an introductory priced subscription and then renew the subscription at the normal sub rate. For example: The subscriber may pay $12 a year for a new subscription but then be asked to pay $18 a year to renew for another year. The conversion rate often is quite low—maybe 15 or 20 percent—making it hard for a publication to keep its circulation above its rate base. What’s a rate base? The number of readers it promises to deliver to advertisers. If a publication doesn’t deliver the number of readers promised by its rate base, it has to offer refunds to advertisers.

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