Price of Books and Discounts

Disclaimer: All of the information below is based on my personal experience and that of my friends.  Your mileage may and will vary.

Price

Question:

And on the earlier post you mentioned how much you make on a average book. Do you know the general breakdown of costs? like how much goes to the publisher, the bookstore, etc. And using a coupon or buying the book for cheaper doesn’t take away money from the authors does it?

Answer:

The answer to this question is a little more complicated.  Before I answer, let’s talk about costs.

Author’s cost

The author incurs cost

• in man-hours spent writing the novel,
• postage required to send it out,
• utility bills and computer costs,
• office supplies,
• and once the book is published, in promotional expenses.  Book contests, taking adds in online and print publications, convention appearances – all of that takes money
• agent fees, which are 15% for domestic sales and 20% for foreign sales.

Publisher’s cost

The publisher pays advance to the author.  Advance functions like a retainer.  The publisher pays the author a set sum against future money the books will earn, so the author doesn’t take the manuscript some place else.  For some authors that amount is $5,000, for others, $500,000.  This advance is a risk for the publisher, because the author gets to keep it even if the book flops.

The publisher also has production expenses:

• they must pay salary to the editor, editorial assistant, copyeditor, managing editor (the person who oversees the production), design editor, cover artist, cover designer and so on.
• They must pay for the book to be bound and printed.
• They have to ship the book and market it.
• And if the book doesn’t sell, the stores actually return unsold copies or claim them as loss, and the publisher eats that cost as well.  (They pass it on to the author somewhat but they shoulder the bulk of it.)

Distributor cost:

There are so many stores, the publisher doesn’t have the capacity to work with every single one individually, so they pass that burden on to distributors.  For example, Ingram is a distributor.  It takes orders from individual stores or store chains and processes them.

Distributors incur costs in:

• salaries of their employees,
• shipping the books
• storing the books
• printing of catalogs

Retailer cost:

The retailer incurs cost in

• storing the books,
• paying salaries to their employees,
• shipping of the book to customers,
• promoting the book

As you can see, the publisher shoulders the greatest cost.  Now the break-down of the price will make more sense.  Please remember that these are approximate numbers for a mass market paperback.

Price of the book: $7.99

Author’s cut: about 8% or $0.639

Publisher’s cut: about 40% or $3.196

Distributor’s cut: about 10% or $0.799

Retailer’s cut: about 40% or $3.196

As you can see, it’s not a 100% all together.  That’s because these are ballpark costs for a mythical book.  In reality, this model is different for each title.

A Big Name Author (BNA) might get 15% in royalties or more, and the publisher and distributor might jump back and forth on their profits by 5-10%.

It must be pointed out that the publisher’s expenses are about 25-30% of the total book price and sometimes higher, so really the publisher only makes 10-15% on each title.  (Again, approximate numbers.)  Also, the printing costs for the publisher typically account for only 10% of the total book cost.  (This will be important later for the ebooks questions.)

Who Eats the Discount?

If the book is discounted in the store, that discount does not affect the author.  We still get our 8%.  This discount is eaten either by the retailer, or, more frequently, by the publisher.  That’s why the numbers are individual for each title.  For example, printing books by BNA X  is like printing money: they are a guaranteed sale.  Even if the publisher’s profit margin falls to only $1 on her titles, she will likely sell 500,000 books in the first year and that’s $500,000 to the publisher.

By contrast, Author Y may only sell 20,000 books in the first year (and this is considered a good solid performance).  Even if the publisher makes $3 of profit (I’m being unreasonably generous here for the sake of example) on each sale, that’s only $60,000.

Because we’re talking thousands of units sold here, even a small  change makes a difference.

MAGIC BITES was originally priced at $6.99.  Our contract specified a 6% royalty.  That’s $0.419 per book.  Let’s say we sold 50,000 units.  If our royalty was the industry standard 8%, or $0.559 per book, we would get $27, 960 in royalties.  But at the $0.419, we would only make $20, 950.

Is the publisher the bad guy in this?  No.  Book publishing is not an exact science.  Suppose the publisher puts out a debut by Writer Z at the advance of $5,000 to the author.  It becomes a run away bestseller.  Everybody makes money.   The publisher shells out $250,000 for the second book and it dies like a dying thing in the middle of the desert selling a fraction of what was expected.  The publisher is in a hole by $200,000 and that deficit destroys all of the profits from the first book.

The publisher takes the greatest risk and of course, they want to grab every chance possible to minimize that risk,  negotiating for lower royalty percentage or advance.  That’s why you should have an agent.  (More on that later.)

The thing to remember: nobody makes enormous amount of profits in this business.  Most publishing houses have a ridiculously low profit margin.

What about Ebooks?

That will be a new post.