I’m finding in talking to new self-publishers that many people don’t quite get how the discounting works in different parts of the book distribution system. This is vital to understand because it affects whether your publishing company will make a profit or not, whether it will be a viable business enterprise. Besides, you want to know how much you make for each book you sell, don’t you? Sure, and why not. So let’s step through it together.
As a publisher, you are a retail product manufacturer. You are supplying a unique product to the market and it’s up to you to set the terms on which you’ll sell your product.
Depending on how your book is produced, you may have more or less flexibility in how you deal with the rest of the chain of distribution. Here are some scenarios:
- You ignore it completely
You do this by not selling your book wholesale. In other words, you, as the manufacturer, sell direct to the end user. For example, John T. Reed who I’ve written about before, only sells his line of books from his website. He has no need for a discount schedule because he is outside the chain of distribution. This method has some advantages, too. You capture 100% of the sales price, since you don’t have to share it within wholesalers, distributors, jobbers, or retailers. You also can capture the names of everyone who buys a book, which can build an asset that’s very valuable when it comes time to offer other books or services to the same market. The disadvantage is that you have to do all the work yourself, or pay for fulfillment through a fulfillment service. Also, some people may be reluctant to buy from a self-publisher’s website, trusting big companies like Amazon to protect them and offer services like bundled shipping or free shipping, returns, and other amenities. In addition, you will have to do all the marketing for your book, and any interruption you have in your website hosting will cause a financial loss from lost sales.
- You use a print on demand supplier
Most print on demand suppliers restrict the size of your discount, demand minimum discounts, or don’t allow you any say at all in discounts. Other suppliers, like Lightning Source, allow you to set your own discount within limits, but offer just that one discount to every retailer or jobber who buys your book from Ingram, whom Lightning Source supplies. So if you set your discount to 20%—the minimum allowed—bookstores won’t buy the book because they need a minimum 40% discount. But if you set your discount at 40% to appeal to the bookstores, and then end up selling most of your books on Amazon or BN.com, you will have given up 20% and gotten nothing in return. (If you need a review on how to trace the flow of money through the print on demand system, see this link: Understanding Print on Demand: Follow the Money.)
- You print offset
If your book has to be printed offset (and examples might include color books printed overseas, odd-sized books, and books that can’t be produced by print on demand methods) you will have to be your own distributor, unless you sign with a distributor (see the next option). That means that you’ll have to come up with a discount schedule that applies to retailers, maybe a separate one for libraries, and other terms for special sales or direct sales. In addition, some retailers will demand steep discounts, up to 55% off your retail price, and you’ll have to agree to take returns of unsold merchandise. In addition you’ll be responsible for shipping books to retailers, effectively reducing your profit margin even farther. And, as it should be clear by now, you will spend a lot more of your time handling all the details of wholesale selling, including paperwork, invoicing, tracking payments, packing and shipping books, and all the other minutia of doing your own fulfillment and distribution.
- You sign with a distributor
In this scenario your book is of wide enough interest and large enough potential or proven sales that you can get a distributor to take over supplying your book to retailers. Distributors will put your book in their catalog, their sales reps may help promote the book to booksellers, and they will deal with the bookstore bookkeeping, returns, shipping, warehousing and may even offer fulfillment services for single copy sales. The downside to having a distributor is what you have to give up: usually 65% or more of the cover price. Let’s say your book costs $10. You will receive $3.50 for each book sold after giving up 65%. If the book cost you $2.00 to produce, your gross profit is 15%. This is not significantly better than the royalty offered by most trade publishers, and it’s taking you a lot of work and risk to earn it. The only way this option makes sense to me is if you genuinely have a book that you think you can promote nationally, and for which you realistically can expect to have sales of 5,000 or more copies per year. Distribution also becomes a more viable option when you start to have more books in your line. If you have 5 books, you might find distribution an advantage, because if any one of them sells well it will help the others get a foot in the door.
When you plan your publishing project, think about the eventual buyers you plan to market to. Where do they buy their books? Knowing this can help you make smart decisions about how you approach dealing with retailers and, consequently, how you choose to discount your books.