Understanding Print-on-Demand: Follow the Money

Soon there will be another meeting of the indie publishing group I attend nearby. The first hour will be for Q & A. At least one-third of the attendees will be new to the meeting.

One of the first questions will be about print-on-demand—digital printing used as a way to distribute books by filling every order as a custom order, but at a price that allows a profit.

For some reason, this topic simultaneously fascinates and perplexes many people. Usually I suggest watching a video showing the Espresso Book Machine producing a book like a sci-fi vending machine.

But that only covers the printing, and that’s not what’s confusing. One way to understand this is to follow a transaction through the system and see how the different players interact. Yes, we’re going to follow the money.

Setting Up the Backstory

Let’s meet the players:

• Publisher—That’s you. Maybe the author, too. Let’s say you’ve got your book ready to self-publish. You have an ISBN, you’ve created a publishing company, your cover’s designed and your text block is in PDF and ready to upload.
• PoD Supplier—That’s a digital book printer who’s hooked into the book distribution system. There may not be that many of them. Most of the companies advertising their services as “self-publishing companies” are themselves using one of the PoD suppliers and perhaps adding editorial or prepress services like book and cover design. No, the best example to use is Lightning Source (LSI), a division of Ingram Book Company.
• Retailer—That’s any retailer with an account at Ingram. How about Amazon.com? But it could be any retailer, online or offline.
• Book Buyer—Contrary to expectations, digital life hasn’t killed off book reading, and the number of books published and sold gets larger every year. These book buyers are the reason print on demand exists.

Setting Up For Print-on-Demand

As publisher, you’ve selected LSI as your PoD supplier. You upload your book files to their server. LSI prints out a copy of the book on the same equipment they will later use to print your books when they are ordered. They send you this proof so you can approve the book for release.

You’ll notice, by the way, on the last page of the book is a barcode and a place of manufacture. The one I’m looking at is from Breinigsville, Pennsylvania. The bar code helps their automatic equipment match the cover and interior correctly.

You log into your account and approve the book for sale. When you set up your account at LSI, you were asked to set a Discount for the book trade. You only get to specify one discount percent for all orders to retailers, at any quantity. Let’s say for the sake of discussion that when you filled out that particular screen you set your discount at 20%, the lowest allowed by LSI.

Throughout this discussion, you have to remember that a PoD supplier, like PoD itself, is a hybrid group of functions. LSI will be both your book printer and your book distributor, through Ingram.

When you release the book it gets added to the electronic data feed that Ingram puts out to notify its thousands of customers about new titles added to their catalog. Along with the listing goes the data you entered about the book when you were filling out screens at the LSI website.

Retailers like Amazon pick up the feed from Ingram and add these books to their databases, using ISBN as the unique identifier for each book and each edition. They will generate a webpage for your book on their website and use the data from LSI to fill the page. Your book is now available for sale. It’s got a big “buy” button just like every other book on Amazon.

The Money Starts to Flow

Your book has a retail price of $10. You have set your wholesale discount to 20%. The last piece of information you need to follow the money is the amount that LSI will charge you for their services. Let’s say your book is 200 pages, 6″ x 9″. It will cost $3.50 for each copy at LSI, for printing and fulfilling the orders.

Our book buyer, meanwhile, has been browsing Amazon looking for information on your topic, and sees your book. It’s just what he was looking for, so he adds it to his cart and places his order. He’s pleased to see that he’s also going to get a discount, because your $10.00 book is selling for $9.00. He’s happy.

Amazon receives the order and identifies the supplier for the book as LSI. The order, along with thousands of others just like it, is transmitted to the computers over at LSI. Your files are downloaded to the printing equipment and a few minutes later a copy of your book is ready to ship.

But what about the buyer’s $9.00? Amazon is free to sell your book for any price it likes. It has discounted it 10%, so that from every sale it will make a profit of 10%. Why?

Every copy of your book ordered from LSI will cost the buyer $8.00. You set your price at $10.00 and your discount to retailers at 20%, so LSI will demand $8.00 ($10.00 – $2.00) per copy for filling any orders.

Now Amazon, if they wanted to, could sell your book for $10.00, or for $21.95, or for $4.99. For each copy sold, they still have to pay LSI $8.00. If they collect $9.00 for the book and pay LSI $8.00, their profit is the $1.00 left over.

LSI only prints books that are already ordered and paid for, so you never have to worry about the money flow once you’re set up. All the money will be flowing toward you, automatically.

So when Amazon orders the book for the book buyer, they also transmit $8.00. LSI prints the book and ships it. The shipping costs are covered by Amazon, who also handles any customer complaints or returns. They earn their money, in my opinion, since I don’t want to do any of those things.

LSI deducts the cost of their service, $3.50, from the $8.00. What’s left is $4.50 profit for you, the publisher. This money is deposited to your account at LSI and, once a month, is paid out to you. You will also receive a printout showing how many copies of each book has been sold.

Adding It Up

Let’s see who ended up with what:

• The buyer spent $9.00 and ended up with a copy of the book he wanted.
• The retailer ended up with $1.00 profit.
• The PoD supplier ended up with $3.50.
• The publisher ended up with $4.50 in profit in completely passive income, 45% of the retail price.

Digitial book printing together with print-on-demand book distribution has transformed self-publishing. There are now people getting books into print for very little money, working online book review and publicity sources, getting attention in social media, and selling thousands of books at profits that obliterate what authors used to get as royalties from traditional publishers. It’s an exciting time.

Having read this far, you too, can now explain how print on demand works. All you had to do was follow the money.

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