Today I was working on a P&L for a new book, to determine whether to accept it or not. Did you know that we have to do that for every book that makes it through the first read? If the P&L doesn't come out right, I can't accept a title even if I LOVE it.
Here's a brief description of how the P&L works:
First I have to estimate production costs, which include editing, typesetting, design, custom artwork, printing, galleys, marketing covers, promos (business cards, bookmarks, postcards, posters, etc.), advertising and a launch party or book signing tour.
Then I guess how many books I can sell and how fast I can sell them. I come up with an initial print run amount minus comp copies used for marketing. I take that number and times it by the wholesale price of the book. From that amount, I subtract the author's royalty and/or advance and the production costs to get my profit.
I figure profit based on selling all the books, 80% of the books and 60% of the books. Then I look at the 60% number and determine if I can survive if that's all I sell.
Theoretically, if I publish a book a month, and I can sell 60% of the print run in a year, and that number will cover one month of my company's overhead, plus a little, then I can take the risk and publish the book.
Larger companies that are publishing 10+ books a month can handle a little more risk; their faster sellers will offset the slower sellers. Smaller companies that publish less than a book a month cannot afford as much risk. They have to be fairly certain that every book they publish is going to sell, and sell enough to cover several months of overhead--unless they're independently wealthy and publishing is a hobby and not their personal bread and butter.
So if you get a rejection that says something along the lines of "We LOVED your book, but...," chances are it didn't make it past the P&L analysis.