Profit (in the) Margins

I have an important question for you. Why have you chosen to become an author? Most of us are writers because writing and sharing the stories, ideas, and emotions inside of us is in our nature. It’s who we are . . . but that isn’t what I want to talk to you about today.

For many of us, we want to not only share our thoughts with the world, but make a living doing it. A lofty ambition, but we writers are dreamers, schemers and magic weavers; dreaming big is part of the package, and the drive to hit the big time is very real in our hearts.

There are relatively few superstars who rise to the top of this profession—those writers who have the talent, drive, and good fortune to make the right connections at the right times, and are launched into the stratosphere of the writing world. It is wonderful that there are folks like Rowling, King, Riordan, Koontz, and Patterson for us to not only enjoy, but to learn from and aspire to follow.

For the rest of us, we can still chase our dreams—but we have to do so at a little slower pace. With the changing landscape of the publishing world, it can be a daunting journey. Never fear, we’re here to help you navigate this confusing and rewarding industry.

To Go Indie, or Not

Some authors choose to navigate the waters of the publishing world themselves. With the availability of reasonable P.O.D. (Print-On-Demand) services, the rise of the eBook, and Amazon’s Kindle resources, self-publishing has become much easier. This has resulted in a huge increase in the number of self-published books, which is a bit of a two-edged sword—the sheer volume has ensured that a whole new cross-section of authors will have a chance to be read and enjoyed, but the flooded marketplace has become difficult to stand out in.

The process of self-publishing carries its own set of risks and rewards. As an indie novelist myself (**), I enjoyed a very successful launch of my first book back in 2014, during the building wave of KDP and Kindle Unlimited titles on Amazon. My story hit number one in its sub-genre category during a special campaign, has sold thousands of copies since I published it, and has been read by thousands more through the exclusive Kindle Select program. I didn’t retire off the money it made, but it DID keep the wolf from the door for the better part of a year, and I learned a lot about the business of selling digital books on my own.

I also discovered some potential hazards of doing it all yourself, especially once I learned how royalty accounts work at the vendors who supply bookstores with P.O.D. books, both perfect bound (paperback) and cloth bound (hardback) editions. The lessons I learned along the way were part of the driving force behind my decision to join Mandy and Emma in creating RhetAskew Publishing.

(**) an all new RhetAskew Director’s Cut edition of my first novel [The Sleeping Giant], will be coming to fine book sellers worldwide, soon. Visit us at rhetaskewpublishing.com for all the latest Askew News. (**)

A New Business Model

One alternative to indie publishing—the one we love to help authors explore, here at RhetAskew—is the new face of traditional publishing in the digital age. This route allows authors to see their work come to fruition without having to pay for editing, design, production, or marketing tools. Instead, they share a percentage of the future royalties with a publisher, who provides these services and tools at no charge, beyond that potential slice of the net profits.

I emphasize the word potential. When a small publisher decides to sign an author, there is no guarantee that they will ever see any profits whatsoever, and their investment may be significant. Before a book even comes to market, there are usually hundreds of work-hours invested in editing, design, producing, and marketing multiple media editions. This is a chance small publishers take every time they sign a new author and/or project.

The Risk of Wholesaling Printed Books

Digital publishing has become mostly risk-free. People don’t usually return digital copies, and with membership programs like Kindle Select, the royalties from page-reads can be lucrative for titles that are enrolled (if people find and read them).

The printed book industry—especially where retail stores are concerned—is a whole different animal, whether you are an indie author or you sign with a traditional publisher. Authors dream of having their books carried by retail stores, since many believe that is the path to fame and fortune.

The monetary truth is that retail stores make you very little money when they buy your books wholesale . . . and selling large numbers of wholesale books to a retailer carries some risk if those books don’t sell.

The Truth About Those Dreaded Returns

Book retailers possess a unique ability in the retail world. Due partly to the shelf-life of books, and partly to the flood of available titles, a return policy was established long ago in the book industry, and still exists today.

Retail stores can return unsold books to the distributor, for a FULL REFUND of their wholesale price. This return can result in your royalty account balance becoming negative quite quickly, as returns are deducted from the gross balance before net royalties are calculated. This is true no matter how you proceed, either as an indie, or partnered with a publisher.

Wait . . . What? A negative royalty account?

<Sadly, yes.>

How Could This Happen?

Let’s take a closer look.

You have written a great novel, and when you do the research, you see that you can print your own wholesale copies for $5.00. You choose to sell your book for $15.00. Yes! This means that you could potentially make $10.00 per copy! Score!

<ahem>

You forgot about the retail discount.

If your book retails for $15.00, your local Barnes and Noble (or even the corner bistro bookstore) will be buying your book wholesale for $6.75.

Read that again. It is less than half the retail price.

The wholesale discount on printed books is between 30% and 60% off the retail price, with the industry standard set at 55%. Retailers expect this discount, and this allows them to make enough from selling books to pay for that brick and mortar building, hire employees and keep the lights on, all while earning a small profit.

<The good news is retailers pay for their own shipping.>

So your royalty account ledger for a single book looks like this:

1 Book Printing Cost:(5.00)
1 Book Sales [55% discount]:6.75
Shipping Expense:0.00
Total NET profit:1.75

Okay, so not quite the $10.00 you expected, but hey, the POD vendor still owes you $1.75!

<Cool!>

Now, let’s say you make an impression on a store owner, and they decide to host a signing for you, and they even order a case of your books for you to sign and sell. Books come in differing case quantities, but for ease, let’s say there are 10 books in the case. Once they place that order, your account at the vendor looks like this:

10 Book Printing Cost:(50.00)
10 Book Sales [55% discount]:67.50
Shipping Expense:0.00
Total NET profit:17.50

<Great!>

A Sad Truth

But wait… your brother-in-law sank his boat the day before your signing, and you had to drive 4 hours to rescue him and your annoying nephew, and then you blew a tire on the way home. The bottom line is you didn’t make it to your signing—sometimes life just gets in the way.

Luckily the wonderful owner of the store decided to display your books anyway, and…

<Hey! 7 of those 10 books were purchased that month by your fans!>

Sadly, the store didn’t have room to hold onto those last three copies, so at the end of the month, they RETURN THEM!

<gasp!>

This has a direct impact on your royalty account:

10 Book Printing Cost:(50.00)
10 Book Sales [55% discount]:67.50
Shipping Expense:0.00
3 Book Returns:(20.25)
Total NET profit:(2.75)

BAM! A negative royalty account.

<But, wait! You sold 7 books!>

No… a bookstore ordered 10 books wholesale, and THEY sold 7 of them. The other 3 were returned.

Books aren’t printed or distributed for free, so the vendor expense is still part of your gross royalty account with them—whether you are an indie or a traditional publisher, this wholesale return has left your royalty balance in the red.

Unsold print books have always carried this risk. Traditional large publishing houses normally hold a percentage of author royalties as a reserve against returns. In the P.O.D. age, this reserve is done as a time delay from the vendor for both indie authors, and publishers alike. This is why vendors make you wait for your royalties, up to 6 months after the sales quarter ends.

Differing vendors have different time frames for releasing royalty payments, and they don’t usually bill accounts that have negative royalty balances, but they WILL hold all future royalties until that balance becomes positive again.

For a publisher, this deficit is part of the company’s aggregate royalties, so these returns affect the bottom line of ALL the publisher’s titles.

<But what happens to those 3 books?>

That is up to you, if you are an indie. You can have them shipped back to you, which will add shipping expenses to the return amount, and make your royalty deficit even larger at the vendor; it also means you will have to store and sell these copies yourself, and does nothing about that negative royalty balance. The other option is to have the retailer destroy them, in which case only the front covers are returned to the vendor (who destroys them after verifying their origin) and your account isn’t charged any extra return shipping fees.

Again, as an indie author, the choice is yours to make—but most publishers won’t add to a negative account balance by piling on shipping, storage, and reselling costs; instead they have these unsold books destroyed.

What’s the Answer?

So how can you avoid this problem? There are a few ways:

  • You can make your print books NON-RETURNABLE. This is actually the default for KDP’s P.O.D. service (which used to be CreateSpace). The problem is, bookstores don’t order books they can’t return. Period. If they did, they would end up with shelves of aging titles, and would lose their investment on them. This is why most retail book stores refuse to stock Amazon KDP paperbacks. If retailers don’t order your books, you don’t have to worry about retail returns, but you also won’t have to worry about retail royalties, or becoming a print book best-seller.
0 Book Printing Cost:(0.00)
0 Book Sales [55% discount]:0.00
Shipping Expense:0.00
Total NET profit:0.00
  • Sell your own printed books. This is the option that makes the most sense, financially. If you order your own books wholesale from your vendor (or through your publisher’s wholesale plans) you can sell them for whatever you want, including using retail discounts as incentives, and still make money, without having to worry about returns. Most book stores will make arrangements for you to sell your own copies during signings, for a very small percentage of the sale.
10 Book Printing Cost:(50.00)
10 Book Sales [full price]:150.00
Shipping Expense:(10.00)
Total NET profit:90.00
  • Focus your print copy sales efforts on your own (or your publisher’s) online storefront. This has become a very respectable and potentially profitable method of distribution. There are no stocking or storage concerns—orders are filled individually by the POD vendor—and since there is only a small hosting/processing fee and no returned books, your royalty balances will reflect this.
10 Book Printing Cost:(50.00)
10 Book Sales [10% fee]:135.00
Shipping [paid by customer]:0.00
Total NET profit:85.00

Even if you have a royalty split agreement, this is the most lucrative method of selling print copies without having overhead, initial expenses, or risking returns.

Is It Worth It?

At the end of the day, you CAN make a decent living as a writer, but there are business challenges along the way that you have to face. Part of that may mean setting aside the unrealistic expectations you have of being an instant multi-million copy bestseller, and researching the ups and downs of wholesaling versus retailing your print books, either on your own or through a publisher.

Without having capital to invest in large offset print runs and warehouse storage like the big publishing houses, wholesale transactions on print editions—paperback and/or hardback—in this new P.O.D. age, carry risks. Something to keep in mind before you have a bookstore order 100 copies of your book.

Another thing to remember is that with the growth of ebook and audiobook markets, there are more avenues than ever for getting your story out there, and for making money doing it, whether you tackle the business yourself or sign on with a publisher.

Retail book sellers are a wonderful way to become popular, but making money requires thinking outside the box, and being careful about those wholesale markets.

2 thoughts on “The Business of Selling Books

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.