Adsense

Short Discount vs Trade Discount

Small publishers, academic presses and self publishers often get the majority of their sales outside of traditional bookstore channels. It's not some bias on the part of bookstores or chains that leads them to stock their shelves primarily with titles from the large trade publishers, it's a whole combination of factors that smaller publishers frequently choose to ignore. New titles from large trade publishers are a sensible risk for a bookstore to take, since these publishers have proven commercial titles, marketing, offer the trade discount and accept returns. They aren't trying to prove something with their lists, they are trying to make a profit, as are most bookstore buyers. Some small publishers do their best to imitate the the large trades, especially when it comes to the trade discount and accepting returns, but self publishers and academic presses who aren't counting on bestsellers often look at the discount math from a different perspective.

When publishers talk about the "trade discount", they mean the standard discount off the cover price at which the publisher sells books to resellers. It would be better to call this the wholesale discount, because bookstores call the "trade discount" the percentage off the cover price they buy books at. When the buyer is a bookstore or chain purchasing direct from the publisher, the wholesale discount and the trade discount may meet at the same percentage:-) Normally the wholesale discount is between 50% and 57%, 55% is probably the most quoted number by small publishers since it was the standard Ingram figure for years. Specialty distributors may demand a discount between 60% and 70%, in return for pushing the book (maybe) and financially failing (frequently). The wholesale discount does not lock-in how much the bookstores buying through distribution will pay for the book, you can generally assume that somewhere between 10% to 30% of the cover price will remain with the distributor or wholesaler. If a middleman anywhere between the publisher and the individual book buyer doesn't feel they are earning enough profit by handling the book, they may resticker the book to a higher price than the original cover price, or charge a sourcing fee.

Publishers who conclude that their books will never be stocked in brick-and-mortar bookstores and look to Amazon, direct sales and special sales for their earnings, are better off selling at a short discount if they can. In some cases, publishers will fool around with assigning titles a higher cover price than they really want to sell it for and count on Amazon to discount the book when it's sold to them at 55% off the cover. This discounting to target retail pricing is neither automatic nor a cure-all, since buyers who try to special order the title through bookstores will almost certainly be quoted the cover price. Publishers who use Lightning Source for on-demand printing and access to distribution can choose any number between a very short discount 20% and the wholesale discount of 55%. The discount chosen affects both the price at which the title will be sold to brick-and-mortar bookstores and the price to Amazon, BN.com, and other e-tailers and middlemen.

Currently, a publisher who sells primarily through Amazon can more than double their profit by assigning the short discount of 20% rather than the default 55% as long as the cover price is set sufficiently higher than the on-demand printing cost. I don't have any titles at 20% myself, I just don't see the extra $0.75 per book it would earn me over a 25% discount being worth skating that close to the hole in the ice. I also doubt if the one title of mine getting stocked in a number of Barnes&Noble stores, thanks to demand and the fact I accept returns, would survive on the shelves if I went to the ultimate short discount. The trade-off between setting different discounts is one that publishers who don't get the majority of their sales through bookstores shelf presence should carefully consider. If your marketing allows you to steer customers to the retail outlet you choose, that gives you even more flexibility in determining the ultimate discount and cover price.

6 comments:

John Derrick said...

The risk is that if too many publishers go too low on short discounts, Amazon may one day decide that it isn't worth carrying those books -- even in a "virtual" way involving drop-shipping from Ingram. Maybe they'd be reluctant to drop books entirely. Being comprehensive is part of their business model. But I can certainly see them giving less prominence to titles on which they make hardly anything -- or dropping such titles from special deals on shipping, etc. John.

Morris Rosenthal said...

John,

Strangely enough, I agree. But the problem is that Amazon sort of drives publishers and authors into playing chicken with the system. It's one of the reasons I didn't change the discount in my case study from 35% to the 25% I currently use, I think 35% is less risky for starters and leaves the door a bit more open to bookstores. Many publishers who sell through LS at a 55% wholesale discount spend a lot of time getting aggravated about all the new copies in Markeplace underselling Amazon because it looks bad, even though they make the same money.

But on the other hand, I don't think it would be ethical for me to try to keep secrets about the way things work, even if I don't push to the extremes myself. A simple example, when it comes to Amazon, are Listmania Lists and So You'd Like To guides. They sell books, in some proportion to the number of views they generate, and I know authors who have generated hundreds of thousands of views by posting hundreds of lists. I've posted a grand total of three lists myself, one of them just this year out of curiosity to see how it would draw, and I've never done a So You'd Like To guide.

But it amounts to a combination of pride and stupidity on my part. I know that they work, and I know authors who have literally made a living off of them. At some point, if enough authors and publishers create hundreds of lists, maybe Amazon will take some action to re-balance the system, but I've been waiting for five years. Maybe it's time I did some So You'd Like To's myself.

I suppose if I wasn't earning a living and had bills to pay, I'd have to swallow my pride and try more aggressive Amazon marketing. For the time being, Amazon seems to be encouraging authors and publishers to develop Amazon centric business models, and by abstaining from list multiplication and opt-in reviews, I'm ignoring a big part of that.

Morris

Robert Burton Robinson said...

When you are publishing non-fiction, you can get away with a higher cover price, I think. But I'm in the process of publishing my mystery books via Lightning Source (I know what you're thinking - good luck with that fiction, Buddy), and I feel that I must keep the price as low as I can (and still make a decent profit). My books are mostly in the 260+ pages range, and I have set a cover price of $9.95. And I'm going with a 25% discount.

I know Amazon will not discount my books to their customers, but that's okay. I just don't think I have any chance to sell them if I have to price them higher. But I certainly hope they don't decide to refuse books at the short discount.

Seems like more and more POD books are being published, so with a move like that, they might be shooting themselves in the foot.

And, by the way, do you think Amazon miscalculated when they shut out Lightning Source eBooks?

Morris Rosenthal said...

Robert,

I agree with you on the fiction pricing with no caveats. It's hard enough to start with, best not to turn-off any potential buyers with higher than average prices. If you start to sell and get store interest, you can always look into an offset run and do a different discount for quantity orders.

I don't think Amazon worries much about keeping the LS POD business, it's something they have, but one assumes they would rather convert those authors and publishers to Booksurge.

When Amazon shut out LS ebooks, they messed up my bottom line calculations to the tune of $500 per month. I don't think it affected their bottom line by even a hundredth of a percent, they never sold many ebooks. They probably planned to integrate their MobiPocket acquisition soon after, but it just hasn't happened yet. If they ever get their hardware reader launched (or did I miss it?) they may be more motivated to push Mobipocket on the Amazon platform. I signed up last year, but never got around to uploading my ebooks.

Morris

Robert Burton Robinson said...

Doesn't Amazon get at least some of the PODs directly from Lightning Source? And if so, what kind of a discount are they getting when they don't go through Ingram?

By the way, I bought your POD Book Publishing book a couple of weeks ago. Very good, very helpful. Thanks. And thanks for recommending Aaron Shepard's Aiming at Amazon. Again, very helpful.

Keep up the good work!

Morris Rosenthal said...

Robert,

Yes, Amazon seems to be pulling practically all of their orders for my books through Ingram, it seems to vary to some extent with the publisher, how long they've been in the system, who knows what else.

Nobody outside of Amazon, LS and Ingram knows for sure what their discount split arrangements are.

Thanks for the kind words about both books:-)

morris