Real-world business case: Buying books
August 19th, 2005My mom recently had a business question for me regarding the number of her books, Surprised by Prayer, she should purchase from her publisher at wholesale prices. The current printing has been discontinued and a bargain version of the book is expected to be printed in about a year or so. Mom’s plan is to sell the books at speaking engagements she does in the southeast and she estimated that she could sell around 100 books a year at these engagements.
The most interesting thing about this whole situation is this is the first case I’ve been able to apply some of the things I’ve learned at business school to a real world situation to come up with a solution I felt confident in. During my internship I ran into a lot of gray areas and I know this is how things usually are in the world of business. Often the numbers you need to make a decision aren’t available or they’re not as definitive as one would hope. But in this situation, my mom provided me with all the numbers I needed to use to come up with the solution.
I calculated the net present value of the investment in the books based on different proposed retail sales prices (discounted from the cover price) using various discount rates to take into account differing levels of risk for the project. It was also important to consider the time horizon for the book sales; 30 years of speaking engagement sounded a bit daunting but 10 years sounded doable, especially since she enjoys it so much. With all the data, I plugged in the price the publisher was offering and provided my recommendation.
As a part of my recommendation, I suggested attempting to negotiate the wholesale price of the books since the publisher didn’t seem interested into holding on to them. My mom was a bit uncomfortable with the prospect of negotiating so she asked if that was the best price they could offer; the publisher came back with a price 36% lower! When you’re talking thousands of books, that’s quite a large savings.
In the end, one of the most important factors was the sentimental value of the books. Once the books have been sold, they’re all gone, never to be found in new condition again. From a business perspective, it made sense to buy all the books, and this fit perfectly with our desire to maximize the number of books to keep for the family for future generations. Too bad few business problems are this easy to solve!
