Budgeting in Uncertain Times

One of the scariest phrases a magazine publisher will ever utter about a budget is, "I don't know." But more and more publishers are becoming comfortable with those words for 2010. "Budgeting is often more wishful thinking than science," admits Knight Kiplinger, arguably one of the brightest minds in the business and editor-in-chief and president of the Washington, D.C.-based Kiplinger, which publishes The Kiplinger Letter, Kiplinger's Personal Finance and Kiplinger.com, among others. But despite acknowledging budgeting's elusiveness, like most industry luminaries he relies on proven strategies to help predict the unpredictable. Here, Kiplinger and other leading executives share their tips to help you budget for 2010. 1. Rely on historical data to predict subscription revenue.Using his publications as an example, Kiplinger says subscribers can be more reliable than other revenue sources. "Budgeting has never been harder. And the only thing that can be predicted with any reasonable certainty is the subscription sales program for Kiplinger's Personal Finance magazine and the Kiplinger letters. … We can use our own historical data for new order response rates in direct mail and renewal rates for current subscribers. Then we adjust them a little up or down based on our assessment of the economic climate, price sensitivity, etc. "Newsstand sales for our magazine are tougher to predict," Kiplinger says, "because they are very dependent on such variables as the economic mood in a given month, our cover designs and cover lines, our competitors' covers, and the competence of wholesale distributors and retailers." 2. Prepare for advertising sales being the most difficult to foretell.Kiplinger says this is because "they are even more variable by the business conditions of our major advertising accounts, their ad budgets and the public demand for what they are advertising. The last few years, another variable has been severe distress and consolidation in financial services and automotive, two of our major categories." 3. Focus on more predictable revenue from existing customers."Dance with who brought you," says Bruce Brandfon, vice president and publisher of Scientific American. "Your current customers (subscribers and advertisers) continue to be your most predictable revenue sources. If you need to cut back on investment on new business and acquisition, resist cutting back on renewals, and maintain excellent relationships with … current advertisers." 4. "Hug your facts."Jim Roddy, president and general manager of Jameson Publishing in Erie, Pa., says to "hug your facts," even if you don't like the data. "Don't make predictions based on hope. Your reports and forecasts won't be perfect, but they're the best data you have, so you have to act on what they tell you to change." 5. Cut costs judiciously and over time."You're not going to save … money in one big swoop without potentially damaging your product offering," says Roddy. His best practice is to make small cuts over time, keeping the brand in mind. "We've learned that saving some percent on all our purchases over a long period of time will really add up. The key is to establish a culture where [all staff] … is looking to save money for the company and your customers … even in a prosperous economy." 6. Evaluate expenditures carefully.According to Carey Witmer, publisher of Family Circle, the best way to manage costs is to keep the lines of communication open. "Weekly meetings and real-time tracking of expenditures have really worked for us." 7. Diversify and think proactively."For our brand," says Witmer, "it is all about having more channels in play to drive revenue. We've been working to bring new products to market this year so we have more opportunities to drive revenue." Along those lines, she says publishers should continue to take small risks to build the business and "innovate while their competition is focusing on doing business in the same, old way." 8. Custom products can build revenue while covering costs."Look to creating custom opportunities that do not require startup investments, but rather can be built from the ground up based upon the client's goals and budget," says Brandfon. "These can be events, e-newsletters, custom print or digital products that pay their own way in incremental revenues." 9. Review advertiser markets for better forecasts.Not all advertisements are alike, Brandfon says. "Look carefully at your ad categories and what the economic circumstances for their businesses are projected to be. Build your budget forecasts from the perspective of your customers." 10. Evaluate quarterly trends that can better predict where you're headed.Ned S. Borowsky, president of Philadelphia-based North American Publishing Co., says, "Most publishers are budgeting 2010 flat, but placing more of the 2010 revenue in online products and services. However, to spot the trend for your company, go to your accounting order system and see how much new 2008 business was sold in the fourth quarter of 2008. Compare [that to] how much new business you are selling in your fourth quarter of 2009. If the trend is flat, it confirms that you have bottomed out, and you can feel comfortable that 2010 will be at least a flat year. If the trend is up …, you are in a position to hope for a modest increase (say, 2 percent to 4 percent) in 2010." 11. Have a business objective in mind before beginning any cuts.Jerry G. Guttman, president and owner of Lexicon Group, which provides consulting services to the magazine and book industries, says that, with a goal in mind, publishers can know if they've reached where they want to be, instead of arbitrarily cutting to save costs. 12. Don't cut what helps bring in money.Be careful cutting expenses that relate to revenue generation, such as marketing, Guttman says. Most consider cuts as being mainly staff-related. Editorial and manufacturing costs are expense-related, and publishers can negotiate with vendors, use freelancers and substitute stock photos for contract work. But circulation/readership and advertising have both expense and revenue components; trim those budgets with care. He advises increasing them, if at all possible. Cutting the promotion budget is "like cutting your throat. Because that produces revenue." 13. Renegotiate printing contracts and/or shop around."The [printer] can't force you to stay with it," Guttman says. If a printing contract isn't sustainable, he suggests asking for a steep discount, throwing out an example of 15 percent. Or put the project out to bid and see what the market offers. 14. Automate every aspect of circulation/fulfillment you can.For instance, Guttman recommends relegating input responsibilities to the reader. To facilitate that, make online subscription requests mandatory or offer readers discounts for Internet subscriptions. 15. Come up with contingency plans."An uncertain economy calls for contingency planning, and various strategies to cope with each situation," says Ross Hammond, director of finance and administration for Ogden Publications. According to Hammond, Ogden considers the worst-case scenario, a baseline scenario, and a best-case scenario. In general, he says, the finance team is spending more time providing more detail, better metrics and additional variables to factor in the discussion. 16. Include more details.Ogden's operation managers have an expanded role right now, says Hammond, with more time spent on forecasting and scenario planning: "Better collaboration between departments equalizes the varying degrees of conservative and optimistic approaches." Ogden also uses different forecasting methods: a "Top Down" five-year plan (that considers strategic, long-term goals) and a "Bottom Up" one-year plan (which takes more immediate factors into consideration, such as paper pricing fluctuations, or advertising dips or spikes). 17. Place more emphasis on industry trends.Hammond suggests considering the stability of postal costs, paper pricing trends, the health of general advertising markets and newsstand dynamics when forecasting.

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Budgeting in Uncertain Times

Heather Fletcher

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Heather Fletcher