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From Chip MacGregor.com
What you want to do is to find a handful of titles (normally about three to seven) that are similar to your proposed book.
In your proposal, you want to list the title, author, publisher, and release date. You need to give some indication of what the sales were (that will take a bit of research). You want to explain very briefly how that book is similar to your own. And, in many cases, you want to offer a short explanation of how your proposed book is different.
Some traps to avoid:
Don't pick a book that has sold more than 250,000 copies. Ifyou've writing a juvie book and compare it to Harry Potter, you're going to look stupid ("Rowling sold a bazillion copies, so I can too!"). Anything that has sold that many copies isn't a competitor, it's a conqueror. Ignore it and use something else.
Don't pick a book that has sold twelve copies. That suggests to the editor that "nobody cares about this topic." Hey, the writing of books is endless. If there has never been a successful book on the United States Parrot Importation Act, there's probably a reason.
Don't ignore the obvious successes. If you're doing a military historical novel on the Battle of Gettysburg, it would be pretty dumb to leave off Michael Shaara's Killer Angels. That sends the message to the editor that you don't really know your field.
Don't make snarky comments about each book. I often see that, and it's annoying to have some unpublished wannabe send me something that says, "THIS book was successful, but it's not nearly as good as mine" and "THIS book sold 100,000 copies, but the author made mistakes in his chronology." A comparative analysis section isn't a review of everything on the market -- it's simply a vehicle for helping the editor know how to position your particular title.
Don't guess if you use one of the publisher's own books. In other words, if you're going to send something to Little, Brown, and you want to use Elizabeth Kostova's The Historian as a comparable title, make sure you have all your facts correct. Because you'll look like a bonehead if you state the book came out in 2oo2, the author's name was "Kosovo," and sales were about 50,000. (All of those facts are wrong.)
Do use a publisher's own titles. If you have a Jane Austen-like novel that you're trying to sell to Harvest House, by all means reference their Debra White Smith titles. (She wrote modern updates of the Austen novels, and they did well for Harvest House.) It will immediately help them understand the audience for your project.
Again, the goal here is to help a publisher get a frame of reference for your book. It's a way of stating, "My book is similar to these five titles, that have all seen success in the marketplace. There is clearly interest in this type of book, and your house has done well with this genre in the past." You're basically making the editor's job easy for him or her. It won't be the deciding factor in whether or not they publish your book (for that I suggest you come up with a good story and some great writing), but it helps move your proposal along. One less reason for them to say no.