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By
The Numbers
An author on one of the many online lists I frequent asked why
author royalties are such a small percentage of a book’s retail
(cover) price. This excellent question is the topic of this issue
of Two Cents.
The relative pittance given to authors seems unfair at first,
until one dissects the numbers behind the cover price. Let’s do
that using two examples: a mass-market novel that retails for
$7.95 and a trade paperback POD book that retails for $17.95.
Please note that this explanation has been simplified somewhat,
but the concept and the (approximate) numbers are readily
apparent.
MASS-MARKET BOOK
Let’s begin with the mass-market book. The term “mass market”
applies only to the book’s size, which is roughly 5.25 by 7.25
inches. The $7.95 retail price means that this title was printed
in a large batch of several thousand copies, called a “print
run”. Print runs are typical for larger publishers, though more
and more smaller presses are starting to produce titles in print
runs because of their far lower retail price.
To get to a bookstore, the book probably has to go through a
distributor, who acts as a middleman between the publisher and
the bookstore. This may seem inefficient, but distributors are a
critical part of the sales chain. There are tens of thousands of
bookstores and tens of thousands of presses. Imagine the chaos
that would reign if each bookstore had to place thousands of tiny
orders from thousands of presses. The paperwork of tracking
thousands of invoices and cutting thousands of checks would be
prohibitive even before factoring in such things as accounting,
tracking, quarterly or yearly taxes, etc. This problem would also
exist at presses, who would have to track many thousands of
orders.
By going through a distributor, presses can ship fewer (and
larger) orders. Just as it’s cheaper and easier to buy a gallon
of milk that four quarts, it’s cheaper and easier to ship a few
large orders than many small ones. Bookstores can look through
one catalog and order many titles by filling out one order form
and then paying
one invoice.
As you can see, distributors take away much of the pain of
transferring goods from maker to seller to buyer. But this
service isn’t free: distributors will buy books from publishers
at one price, and sell them to bookstores at a higher price,
which is called the “wholesale” price. The difference equals the
distributor’s gross profit. The bookstore buys books at the
wholesale price and sells them to readers for a higher price,
which is known as either the “retail” or “cover” price.
Why do the distributor and bookstore raise the price? Well, each
has expenses that must be paid. They have both fixed expenses
(expenses that must be paid no matter what) and variable expenses
(expenses paid for each book). Fixed expenses include employee
wages, insurance, rent, power, etc. Variable expenses include the
cost paid to buy the book.
How much does the price change? The actual amount varies, but can
be as high as 55% of the cover price. Using 55% as our markup
figure, that means that $4.38 of each book that sells for $7.95
goes to the bookstore and the distributor. This leaves $3.57 for
the publisher. In other words, the publisher earns $3.57 for each
copy sold to a distributor.
The author’s royalty may be based on cover price, the price that
the publisher charges its distributors, or a made-up “royalty
base” price. Read your contract! For this example, let’s say the
royalty is 12% of the publisher’s price of $3.57, or 43 cents per
copy. This leaves the publisher with $3.14. As a side note, if
the author
has an agent whose fee is 15% of royalties, the agent will be
earning 15% of 43 cents, or 6.5 cents per copy, leaving the
author with 36.5 cents in revenue for each copy sold. But back to
the publisher...
From the $3.14 calculated above, the publisher must pay the cost
of printing the books. Let’s say this comes to $2.00 per copy.
This leaves the publisher with a grand total of $1.14 with which
to pay their editors, artists and other employees, office
expenses, utilities, insurance, sales and advertising, etc. In
other words, the publisher’s net profit (profit after all
expenses are paid) per copy is pretty low- and we haven’t even
discussed any advances paid or other up-front costs incurred to
acquire the book and prepare it for market. Not exactly the road
to riches!
POD BOOK
Print On Demand (POD) technology is favored by small presses who
don’t have thousands of dollars to invest in ordering hundreds or
thousands of copies of each title. The lower initial costs are
made up for by much higher per-copy costs that drive the cover
price way up, often as high as $17.95 per copy or even higher.
Most POD books are printed in trade size, which is 6x9 inches.
From the $17.95, let’s subtract the 55% markup ($9.88), which
leaves $8.07 for the publisher. Now let’s subtract the author
royalty of 20% of the publisher’s price, which is $1.61. The
publisher’s take is now down to $6.46. Many POD presses pay their
editors and cover artists a royalty from each sale instead of a
fixed wage. Let’s say that artist and editor each earn a 7%
royalty, or 57 cents each ($1.14 total). This leaves the
publisher with $5.32. The printing cost can easily reach $5.00
per copy or even higher. You can see what this means: Out of the
cover price of $17.95, the publisher is left with a whopping 32
cents. And we haven’t discussed office expenses, etc. Again, not
the road to riches!
Some people will doubtless point out that few POD books are sold
through distributors. This is true. But markups still exist. If
memory serves, Amazon (a book retailer) requires a 55% markup,
which fits my example perfectly. In fact, I based this entire
example on Amazon. Other online bookstores will require varying
markups.
IN CONCLUSION
While author royalties may seem small, they’re actually not bad
once one factors in all of the costs of producing and selling a
book. Actual numbers may vary. For example, distributors may
require a smaller markup, leaving more money for the publisher.
Bookstores typically require a 40-50% markup, so selling direct
to bookstores, while rare, also boosts the publisher’s bottom
line. Direct sales to readers are the best possible scenario for
the publisher, who gets to pocket the entire cover price, thus
earning a few dollars of pure profit per copy. Each publisher’s
mix is unique and each title has unique costs and profit
opportunities associated with it. This example uses just about
the worst-case scenario to make its point. But while the numbers
may vary, the lesson is clear: Publishing is a damned hard way to
get rich.
As a postscript, I must mount my soapbox and remind everyone that
all books require a time and money investment by their
publishers. A dollar spent on Title A cannot be spent on Title B.
The thin numbers I've shown here illustrate how hard it is to
make it as a publisher, especially as a POD publisher who
probably has little or no startup capital. Publishers have little
room for error and many of them are in the business for the love
of books. I hope this article drives home the importance of
author marketing and promotion in selling books and the perils
facing both authors and publishers should sales be weak.
Expect success. Plan for it. Then go out and make it happen. You
deserve it!
Just my 2 cents' worth!
Anthony Hernandez, creator of: Marketing Your Books: A
Holistic Approach & Getting Published: End To Beginning &
Selling Your Books: A Roadmap For Success endorsed by Jay Conrad
Levinson & Dan Poynter available from
Dawnstar Books
Mr. Hernandez is a guest author for American Book Publishing.
© 2002
Anthony Hernandez *All other trademarks used by permission. All
rights reserved.
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