0.9 Financial analyses  (Page 4/5)

The table below illustrates hypothetical revenue contributions per unit (in dollars and as a percentage) that member and institution types would maketowards covering a society’s costs. In other words, the revenue contribution (that is, unit price less unit variable cost) reveals how much income remains tocover a society’s fixed costs and contribute to a journal’s operating income after the society pays for the cost of providing the journal.

In the example, which uses a COGS of $17.00, 83 cents of each regular member dues dollar is available to cover the journal’sfixed costs and contribute to an operating surplus to help cover the society’s overhead.

Example Revenue Contribution by Subscriber Type

Typically, as in the example, the revenue contribution for student members will be lower than other member types. Thisdiscounted dues strategy makes sense for student members, many of whom become regular members over time.

A society may also have multiple member levels and/or dues levels (for example, dues based on the member’s annual income). Thesociety will need to assess whether such complexity will have a material difference on its analysis.

Fixed costs

Fixed costs are those costs that the society incursregardless of the size of the journal’s subscriber base. They are sometimes referred to as “first copy” costs, as they represent the costs required tocreate the first copy of the journal. A detailed understanding of the society’s costs for these categories will provide a basis for monitoring operatingefficiency over time, as well as for evaluating possible outsourcing arrangements.

Direct costs

Fixed costs can be separated into content creation and publishing support activities. Content creation costs include the costs ofacquiring, certifying, and creating the journal’s content, including editorial office costs, editor stipends, copyediting, proofing, and composition costs.Publishing service costs include direct or allocated staff costs, journal marketing, advertising sales, and management costs. The category also includescopyright fees, print inventory storage, and any other fixed non-editorial costs.

Indirect costs

In addition to the direct fixed and variable costs described above, the society may want to estimate indirect costs, including theaverage amount of staff time directed towards journal publishing activities. This might include salary and benefits for management and administration;accounting and financial management; advertising tracking, offprint provision, administrative support; and subscription fulfillment.

Tracking these staff costs allows the society to manage and improve the operating efficiency of its journal program. It alsoallows the society to identify potential cost savings that might be realized by outsourcing some or all of the publishing functions. In some instances, thesociety would realize cost savings by being able to reduce staff costs; in others, the savings would derive from freeing staff resources to pursue otheractivities, thus lowering the society’s opportunity costs.