4 Solutions to the Book Discount System

by Joel Friedlander on April 13, 2011 · 13 comments

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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.

  • book discount schedules

    Typical Discount Schedule - Click to enlarge

  • 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.

Photo by Ran Yaniv Hartstein

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    { 13 comments… read them below or add one }

    paul robinson October 25, 2011 at 8:36 am

    I have written a book based on twenty years of research on a medical issue associated with thyroid disease. There are people on thyroid forums all over the world waiting for this book and it should sell steadily for the next 5-10 years. It has been extensively reviewed and edited over the past nine months and I’m about to make it available using Lightening Source as the printer.

    However, I have one large issue which I am struggling to find anyone who has any information on.

    Because the book is around 300 pages in a Crown format it has a high production cost (around $10 in the USA). If I set the list price of the book at the top end of a competitive price range, given the other books in that market, then I won’t make much royalty when the book is sold through Amazon. If I set the price at a level which gives me a decent royalty then it will be too expensive for the consumers. My ideal situation is to price the book high enough that I make some money from each sale and have Amazon sweep in and discount the price so that it is sold at a more reasonable price.

    However, I have no idea what the strategy is that Amazon use for discounting or whether it is likely for a book that might only sell 5000 copies a year in the USA. I’m retired and could do with making some extra money but that’s obviously not why I wrote the book in the first place. Having said that I don’t just want to give it away.
    Any thoughts or advice ?
    My very best regards,
    Paul

    Reply

    Buckley October 12, 2011 at 2:32 pm

    Joel: First time poster and thanks for the great info.

    I’ve printed a hardcover, full cover children’s comic/graphic novel. I want to have Diamond Comics distribute (the only game in town for comic book stores) and am preparing a submission package now, but I want to drive people to buy directly through my site as well (I have this ready to go from a coding standpoint). I also have the book in several local independent bookstores.

    My question is: will my discount schedule (by FTC law?) necessarily be the same for all these channels? I assume so since they are all resellers.

    Thanks in advance.
    Michael J. Buckley
    Toil and Toil Books
    Kansas City

    Reply

    Joel Friedlander October 12, 2011 at 3:30 pm

    Hi Michael,

    Your discount schedule does not have to be uniform because you are dealing with different layers of the distribution system. You can one discount for wholesalers, another for retailers. Within each group they have to be the same.

    Discount schedules can also vary depending on the number of books ordered, and the terms on which they are ordered. For instance, some publishers will give a bigger discount for books that are sold as non-returnable.

    Bear in mind that, if you are considered for distribution by Diamond, they are likely to offer you terms which may or may not be in line with what you are anticipating, and most distributors are not anxious to establish accounts for single-book presses. Make sure you indicate your publishing plans, which should be for a full line of products, when you pitch them.

    Reply

    Buckley October 12, 2011 at 5:15 pm

    Good to know! Thanks for the advice.

    Reply

    Derek Murphy August 23, 2011 at 10:35 pm

    Thanks Joel – I’m wondering if you could write/share some info on specific distributors. I’m finding bookstores are only comfortable dealing directly with ingram and with amazon’s distribution I can’t manually set the discount low enough to make them happy – so I’m checking out lightning source… losing 65% to have someone market the book and get it in bookstores sounds fine to me (I lose that much already selling on amazon through createspace – but bookstores won’t touch it because it’s only got a 20% discount on ingram).

    Reply

    Joel Friedlander August 24, 2011 at 4:13 pm

    Derek, I’m not clear on what you’re doing. Is the book with CS, LS, or both?

    Reply

    Derek Murphy August 24, 2011 at 4:57 pm

    It’s on CS expanded distribution as a POD paperback, selling fine on amazon but listed with only a %25 discount on Ingram – to make it even feasible to be picked up by bookstores I need to get that down to %55. My temporary solution is to let the Hardcover version (different ISBN) be printed with LS with %55 discount. CS offers a hardcover printing solution (for a $199 setup fee) but won’t put your books on amazon (you need to order them, then send them to the warehouse), so LS seems like a better answer to my hardcover distribution anyway because they’ll be able to list the book directly on amazon. (Lulu will print the hardcover but charges $25 per copy – LS will do is for $14 per copy after set up fees).

    Anyway thanks for your post and reply – I think this solution will work well for awhile.

    Reply

    Anne Hill April 24, 2011 at 6:25 pm

    Don’t forget the other fees charged by distributors: often there is a yearly fee for stocking your title, unless you spend money on display advertising in their catalog—which is usually expensive and not all that effective in driving sales.

    Reply

    Dave Moore April 13, 2011 at 12:55 pm

    Hi Joel,

    It is a certainty I will be subscribing to your update offer. Thanks. I think there is a way to sell on Amazon and do the fulfillment for those sales. There is an annual fee. I think it is like $99. I’ve published through Lightning Source and put a hefty discount on my book only to find out booksellers are offering my book as “used” on Amazon. Kinda wacky. I’m sure there is some marketing ploy there. I could be doing the very same thing. Until I’m selling hundreds of books a week I won’t mind doing the fulfillment. Thank you for the article on discounting. It was very informative. And so you know I found you by way of Sue Collier we’re Facebook friends.

    All the best,
    Dave Moore
    “Thinkers and Sinkers”

    Reply

    Joel Friedlander April 13, 2011 at 1:04 pm

    Thanks, Dave. The so-called “used” books show up instantly on Amazon, so it’s likely they are not used books at all, just Marketplace vendors trolling to see if anyone is buying. Also note the often ridiculously high prices for “used” books when the new ones are selling right next to them.

    Reply

    Irene Vernardis April 13, 2011 at 12:05 pm

    Very interesting article. It’s a complex process and decision.

    Thank you for posting it :)

    Reply

    Joel Friedlander April 13, 2011 at 1:01 pm

    My pleasure Irene. Education is the most powerful tool in the self-publisher’s arsenal.

    Reply

    Michael N. Marcus April 13, 2011 at 12:36 am

    Book discounts are certainly complex and confusing, and newbies to self-publishing get further confused between the discounts offered TO booksellers, and the discounts offered BY booksellers to readers.

    Additionally, some self-publishers are concerned about loss of income when booksellers sell their books for less than the cover price. There is no cause for alarm — and there may be a reason to celebrate.

    When Amazon discounts a book, it’s probably because the book is selling well and the Amazon computer thinks it will sell even better at a lower price. After one week, the price of my first Kindle book was reduced from $4.99 to $3.89 on Amazon. I still make the same money per book, and should sell more copies because of the lower price.

    Michael N. Marcus
    http://www.BookMakingBlog.blogspot.com
    http://www.Self-Pub.info
    — Create Better Books, with the Silver Sands Publishing Series: http://www.silversandsbooks.com/booksaboutpublishing.html
    — “Stories I’d Tell My Children (but maybe not until they’re adults),” http://www.amazon.com/dp/0981661750

    Reply

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