It’s essential for self-publishers to come to grips with the way that discounts are handled in retail publishing. If you plan to publish a book that will be sold within the retail book distribution system you’ll need to understand how discounts work. Even if you plan to sell your books through online retailers, you’ll still need to set a discount.
But before we get into discounts themselves, let’s back up a moment.
The Purpose of Discounts
It would be impractical for manufacturers of products to be the only source for the average person to buy those products. So we have a multi-tiered manufacturing and distribution system. Manufacturers set the price they think the product should sell for, then offer it at a discount to retailers willing to sell to their own universe of buyers.
Manufacturers can make these arrangements with hundreds or thousands of retailers, trading the discount to acquire a means for their customers to easily buy their products.
But even this isn’t efficient enough. Manufacturers don’t want to deal with thousands of retailers, so they rely on distributors to cater to the retailers. This inserts another tier into the system. Distributors aggregate the needs of wholesalers, adding another layer. Wholesalers cater to networks of retailers on geographic or demographic lines, making it easier for the manufacturer to extend their reach.
Of course, this is business, so every tier in this distribution cake has to make a profit. And all those profits are subtracted from the retail price, the actual price the customer will pay at the register or in their shopping cart.
Ms. Self Publisher, You Are the Manufacturer
Back to books. In this equation you, as the self-publisher, are the manufacturer. You set the retail price of the book, and you have to accommodate all the levels of distribution that you’ll need. The total discounts from all levels that you might have to give up can go as high as 70% of the retail price. Your $10 paperback may yield you only $3 in gross profit, at the extreme.
Let’s start at the end of the chain. The normal discount that retailers require is 40% of the list price, or a 40% discount. This is the minimum, and it can go higher. These books also need to be returnable. This is a quaint carryover from an earlier era in publishing which, in effect, makes most bookstores into consignment shops. The bookstore pays the wholesaler $6 for the book it will sell to a customer in their store for $10.
There are many wholesalers, although Ingram and Baker & Taylor are the largest. There are many other regional or specialty wholesalers as well. For the wholesaler to be able to give the retailer the 40% discount he needs, the wholesaler has to receive a higher discount, often 55%.
Wholesalers are simply aggregators. They make no effort to market the books they carry, they simply make them available for purchase. The wholesaler pays the distributor $4.50 for the book it will sell to the retailer for $6. Its margin is 15%.
The distributor has a relationship with its publishers that’s fundamentally different. Distributors, with many publishers to represent, can afford to promote a catalog of books and to sell directly through sales reps to the stores that will be establishing the market for the book.
Distributors usually demand an exclusive contract with their publishers and, as a publisher you will have to give up 65-70% of the retail price to get the benefits of full distribution.
In other words, the distributor will be paying you $3.00-$3.50 for the book it will sell to wholesalers for $4.50. Their margin is 10-15%.
How Will You Decide on Your Discount?
As if that wasn’t complicated enough, since you’re the publisher you’re going to be asked to set your discounts, sometimes a confusing array of discounts. But you’re still not ready to address this question.
I’ve often talked about being clear on your publishing and book marketing strategy before embarking on a publication. There are so many decisions that are influenced by the course you set for your book publishing project.
More and more self-publishers are printing digitally and using print-on-demand distribution. Part of the problem we have with discounts is the tension between this new model of bookselling and the traditional model I’ve outlined above. They are clearly inconsistent, yet every publisher is forced to establish a discount schedule for the entire industry.
But you don’t have to worry about that, you’ve probably only got the one book. What should you do?
When you go to set up your book’s distribution, whether through a distribution “package” from an author-services company, or directly with a print-on-demand supplier like Lightning Source, you’ll face these facts:
- If you set your discount at less than 55% you probably won’t sell any books to bookstores
- If you mark your books as “unreturnable” you probably won’t sell any books to bookstores
- If you set your discount to 55% (you optimist!) and sell 99% of your books through Amazon and BN.com and other online retailers, you are giving up a large part of your discount for nothing
- Before you set your discount to 55% sit down and write out your plan for creating demand for your book at the bookstore end of the chain. How do you plan to do that?
- If you set your discount to the lowest allowable by your particular publishing scenario, no bookstores will buy your books, but you will make the most out of every online sale you possibly can.
Years ago, when I had a small publishing company I had a distributor, sold through the big wholesalers and did business with lots of book stores. Let me tell you, it’s a lot of time and overhead for a solo entrepreneur or even a small publisher.
I think that’s why more people have decided that it’s a lot more profitable to spend your time marketing your book and driving sales to online locations, not bookstores who will just return the unsold copies anyway.
On Amazon, you will receive $8 for your $10 book if you set a 20% discount. Certainly more books are still sold in bookstores and discount stores than are sold online. But realistically, for the vast majority of self-publishers, it’s the online sales that will either make you profitable or not. (If you’re interested in selling on Amazon, don’t hesitate to get a copy of Aaron Shepard’s Aiming at Amazon, which goes into this subject in detail. (Affiliate link.))
Obviously there are publishers who don’t fit this mold. If you publish lavish color coffee-table books, you need a different business model. If you have a specialty market that you sell directly to, you won’t need this model. If you have your own large direct mail or email list, you probably don’t need this distribution model.
But it makes sense for a lot of general nonfiction publishers. When you realize how easy it is now to get into print, and you realize that print-on-demand has neutralized a good deal of the risk of publishing new books, you want to make use of this new way of selling books even if it means forgoing the bookstores.
But It Doesn’t Stop There
There are other wrinkles that have been introduced to the neat fabric of the distribution picture described above. The proliferation of author-services companies like Lulu and CreateSpace and smaller players has introduced different models into the picture. There are all kinds of “deals” and “packages” that seem to change monthly, with different distribution options at various costs.
As the retail bookselling business continues to suffer from the wrenching forces of technological change and severe economic pressure, we can be pretty sure the old models of distribution will begin to change. How long that will take is anyone’s guess. In the meantime, we’ll continue to deal with the distribution system we have, knowing it may be on its last legs.
Takeaway: The traditional model of publishing dictates the amount of discount a publisher must give, but these models may be on their last legs.