Monday, August 3, 2009

Anatomy of a Book Sale

Continuing my responses to your questions, today we'll look at how a book sale is broken down. First, I'll quote from an article by Peter Olson, which I've linked to before:

If we assume that the average retail price of a print book is $10, then the average wholesale price is $5 (the $5 difference represents the retailers’ costs for store rent and personnel, including a profit of, at most, only 50 cents for the retailer); the costs of paper, printing and binding are roughly $1, the author’s royalties (15 percent of retail price) $1.50, internal publishers’ costs (including marketing, sales, warehousing, inventory management and distribution) of approximately $2, on average, leaving a publisher’s margin of 50 cents.


So, on a $10.00 book (retail price), the bookseller (e.g. B&N) makes $0.50, the publisher makes $0.50, and you and your agent make $1.50 (my understanding being that you retain $1.27 and your agent keeps $0.23). More detailed information on advances and royalties can be found in Moonrat's post on the subject.

Now it's worth noting that most author/publisher contracts don't specify a single royalty rate, but rather a full schedule of them, which varies depending on different circumstances of sale. This is almost always the case if the publisher is calculating your royalties based on wholesale price (i.e. the discounted price at which they sell the books to the book stores, generally around 50% of the retail price) rather than the full retail price. A full explanation can be found in Stephen Nelson's article on how author royalties are calculated.

If I recall correctly, the original question had to do with whether and how bookseller discounting could affect author royalty rate. The short answer is, if your contract indicates your royalties will largely be based on the retail price of your book, then discounting by the bookseller can impact your royalty statements; if, on the other hand, your contract indicates your royalties will be calculated based on the wholesale price of your book, then your royalties will vary depending on how many copies of your book are sold through to book stores by the publisher. Stephen's article (above) does an excellent job of explaining this, but the idea is that if a given account buys more copies of your book, they can expect a steeper discount; a steeper discount alters the wholesale price, thus altering any number that is a fixed percentage of that price (like your royalties).

So, if your percentage is taken off the retail price, Borders, B&N, &c largely determine the size of the check you receive (after your agent's commission and taxes). If your percentage is taken off the wholesale price, your publisher's sales department and those notorious account buyers determine the size of the check (based on how many copies are sold from publisher to account, including initials and reorders).

If you're curious to see how agents view the royalty system, Ethan Ellenberg (of the Ethan Ellenberg agency) has written his own article on the subject, which I highly encourage you to read.

9 comments:

  1. Wow. There are only so many pieces of the pie to go around. Makes me think that self-publishing to the Kindle might be the way to go after all, but then there's the whole publicity thing. Ugh.
    I guess we can't have our cake and eat it too.

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  2. I'm a financial naif, but am I correct in thinking that:

    The bookseller makes $.50 AFTER paying for salaries and benefits, rent, and all other expenses.

    The publisher makes $.50 AFTER paying for salaries and benefits, rent, and all other expenses.

    The author makes $1.50 BEFORE paying for salary and benefits, rent, and all other expenses.

    So comparing those numbers and discovering that the author 'makes' three times as much confuses gross and net, right?

    My -gross- income per book in this example is $1.50. But the bookstore and publisher's -net- income is fifty cents. Is that correct?

    JR

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  3. JR

    I'm a bit confused as to how you've taken this post as an implication that there is some disparity between what authors make and what the publisher makes. It seems to me a straightforward breakdown of costs and earning in regard to the major parties in the process.

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  4. Oh, I don't think Eric's point was the disparity (although it does in fact, of course, exist), but I also don't think it's as straightforward as you say, at least to the more innumerate among us.

    I read it and thought, "Wow, with a ten dollar sale, the bookstore makes fifty cents, the publisher makes fifty cents, and the author makes a buck and a quarter. So we authors do far better per sale than bookstores and publishers."

    That surprised me--but is comparing apple and oranges, if I understand correctly.

    And I'm a bit confused myself--which explains my use of question marks. For one thing, the first quote talks about the publishers 'margin', which for all I know is something else entirely.

    But it looks to me like when a book sells for $10, the bookstore grosses $5, the publisher grosses $3.50, and the author (and agent, if any) gross $1.50. However, again, I'm not certain if I'm reading that right.

    JR

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  5. You're reading it right, JR. It's always bothered me a bit when presented that way as well. I kept thinking: 'well, who took the rest of the remaining $7.50?!?' Obviously, the publishers and book store did and paid their costs with it.

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  6. Now I understand why independent booksellers have gone out of business, unable to compete with the deep discounting that goes on in other venues.

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  7. Hi Anon et. al.--

    You are, of course, correct, and I apologize for not specifying the difference between gross and net margin in the above breakdown. It certainly wasn't my intention to mislead.

    While you're correct that the publisher & bookseller earn net profits of $0.50 per book in the example and the author earns a gross of $1.25, economies of scale are such that you, as an author, probably still get a more-or-less fair shake. While the author certainly has his or her own debts to pay, thereby earning a net profit per book that is below the quoted $1.25, they generally aren't analogous to the book store or publisher's costs (see caveat below).

    Caveat: this is the case if you don't earn out your advance or earn way beyond it; if you fall in the doldrums (i.e. earned out your $10,000 advance but only sold a few hundred copies beyond that), you will likely make less per book than the bookseller and publisher when all your personal expenses are taken into account.

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  8. Oh, no, no! I didn't think you were intending to mislead at all, Eric. I absolutely love this blog, and have learned more (comps! who knew?) about publishing here than at any other single blog. It's really a tremendous resource; thanks.

    I just thought that you understand numbers, but we writers often don't, so wanted to drag the conversation down to the kindergarten level, for the sake of clarity. Otherwise I'll spend the next five years telling fellow writers that we don't -really- make three times as much profit from every sale as the publisher.

    Sorry if I hijacked the conversation. I just dream of a day when I'm making $35,000 in salary as a novelist, with health care and a few weeks' paid vacation, and only take a dime per book sold as profit. For me--and the vast majority of novelists--that's a fantasy deal. For many non-writers working in publishing, that's the reality. They are paid first, and regularly, with benefits; we are paid last (overlooking advances), and irregularly, and without. Though of course our upside is higher, too.

    JR

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  9. GREAT SUMMARY AND LINKS - THANKS - I HOPE ONE DAY I'LL HAVE CAUSE TO REFER TO IT AGAIN.

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