Why selling isn’t cheap

The other day I finally sent off a budget calculation to help one of our authors apply for funding. There were several things in the funding agency’s Excel spreadsheet that confused and irritated me. But what really got up my nose was being asked to state what the likely warehousing and distribution costs were and then finding out that the spreadsheet’s ‘Total Expenditure’ figure ignored these costs.

Perhaps the omission was an error, perhaps not. Whatever, I plead guilty. I changed the formula in their spreadsheet to include the missing costs. And I told them I’d done it, so I won’t be surprised to get a snooty response any day now.

This experience got me thinking about what it costs us to sell our books and how most people haven’t a clue just how much this is. They probably don’t care, either, and nor may you. However, if you are an author earning royalties on sales of your book, then it does matter. And if you are a reader keen to continue getting access to high-quality, peer-reviewed research results, then it matters that academic publishers can afford to produce them. In short, go figure.

So let’s take a wee tour of the economics of warehousing and distribution.

Warehousing? Distribution?

Of course, I’m assuming you know what I mean by warehousing and distribution. Here’s a quick explanation for those who don’t.

Occasionally, someone turns up at NIAS Press and asks to buy a book. We try to oblige but frankly the hassle of processing such sales through the university accounts isn’t worth it. More to the point, we don’t have a lot of space at the Press and certainly not enough to store all of the books that we print. And can you imagine the added cost of posting all of these sales copies round the world? Danish postal rates are not cheap, I assure you.

No, 99% or more of our sales are handled by external agents and in one way or another they want to get paid.

For our European sales, we have a warehouse just south of Oxford (actually there are two warehouses, each the size of a football field, and we don’t own them; a company specializing in warehousing does). Our books fill a tiny corner of all of this space; the books of many other publishers, some of them big, well-known academic presses, fill the rest of the space.

The warehouse stores our books and holds all sorts of inventory details on its system. If an order comes in for a book that isn’t available, its staff will record this order. But if a copy is in stock, it will be picked, packed and sent to the customer, who will be invoiced at the same time. (Let’s not get into details about which customers pay up front and who only has to pay after 30 or more days.)

The warehouse does much more than this, too, but what it doesn’t do is market and promote our books. This is done by the Press itself.

Outside of Europe, we use distributors. Not only do they have their own warehouses (handling the storage and sales described above) but also they market and promote our books in their territory.

Fees and commissions

For all of their good work, our warehouse and distributors are paid. Just how they are paid is a bit complicated but the main thing is that we pay a percentage on each sale. Just how much is none of your business (however, you’ll get an indication of the all-up cost down below).

For our distributors outside of Europe, there is one (large) commission on every sale, and that’s about it. This covers all of the many costs incurred by the distributor all the way from warehousing through to payments to the sales reps who go round visiting all of the bookshops.

Our warehouse charges a far smaller commission because it isn’t paying for sales reps let alone all of the other ways in which a book is marketed and promoted (catalogues, advance information sheets, flyers, adverts and bibliographic registration to name a few – more about this another day). But in addition there is one or another processing fee on each sale plus various other administration fees calculated monthly and (let’s not forget them) charges for storage.

And that’s not all.

Bookseller discounts

Obviously, the bookshops don’t buy their books at the price they sell them to you. They get a discount. Typically, in Europe this is about 25% for a normal bookshop and 30–35% for major customers. Then there is Amazon who usually won’t accept less than a 40% discount – and publishers give them this. Who can afford to be invisible on Amazon?

In North America, the discounts are a little higher, in some parts of Asia higher again. And if you want your book in an airport bookstore, the discount demanded is usually higher than 50% (not least because the rents charged these bookstores at a place like Heathrow are astronomical).

These are typical discount rates for academic books. Those for ‘trade’ books (sold to the general public) are much higher, often more than 50%. At times the discounts get suicidally high.

Sending back the pizzas

On top of these discounts is the cost of returns.

Think for a moment about your local supermarket. On its shelves and in its fridges and freezers are thousands of products with a limited sell-by date. Stocking such a supermarket requires the flair and instincts of a gambler. You need enough but not too much stock. And every few days, if you are round the back entrance at the right time, you might see the result of all those failed gambles: big rubbish bins being wheeled out to the garbage truck. Amongst all the stuff being thrown out will be loads of old frozen pizzas.

Imagine instead if your supermarket could send all those pizzas back to the pizza factory and be credited their value against any new pizzas ordered. Your supermarket might be pleased with such a scheme but I doubt the factory would be, especially if even those pizzas whose boxes have been knocked about a bit (and frankly are not saleable as a result) also qualify for a full credit.

This is the bizarre situation experienced by all publishers. Booksellers have a right to return stock within a certain period for a full credit. And they do so, typically a few days before they must pay for these books.

The rate of return for trade books is horrendous, from memory it being about 50% in the United States where the situation is worst but not a whole lot better elsewhere. This is not because bookshops are greedy or ripping off their publishers but is due to the pressures of competition and the difficulty for most booksellers to make a profit. Essentially, then, if a trade title doesn’t take off and sell lots of copies within six weeks, chances are that most copies will be returned to the publisher.

Many small publishers have gone bust as a consequence. Their initial print run has sold out, sales look brilliant, a second bigger printing is ordered and – just as this is delivered – thousands of returns come flooding in. Crunch!

Thankfully, return rates for academic titles are much lower (the main culprit again the US booksellers). Nonetheless, several times a year I see our US monthly sales figures hammered by credits for returns. It hurts, and it costs.

Reality check

Let’s work all of this through with an example. Here, the book published is a $30 paperback.

750 copies printed in China at $5 per copy $3,750
Shipping to 3 warehouses $1,600
Total printing/shipping costs $5,350

500 copies sold (75 free copies, 175 unsold) $15,000
Average bookseller discount 33% $5,000
50 copies returned (including discount) $1,000
Distributor’s commission 50% $4,500
Net receipts (residual income to publisher) $4,500
Author royalty (5% of net receipts) $225

Loss (prior to inclusion of editing, etc.) $1,075

Note: A huge amount of expenditure prior to printing is not included in this equation. Peer-review, editing, typesetting and marketing are just the big-ticket items.

The bottom line

What does this mean? Several things, actually.

  1. It costs to sell a book, quite a bit actually. At worst (as in the example above), it costs more to sell a book than is earned on the sale. Too many sales like this, of course, and a publisher will be toast unless income can be earned in other ways, too.
  2. The profit margin on books is pathetic. Until a few weeks ago, I’d have said that publishers would make more money investing in the share market. Maybe not now, but I hope you get my point. In short, publishing is a mug’s game (though one that many mugs like me willingly devote their lives to).
  3. It is also a mug’s game for authors, or at least for those expecting to earn not just fame but also fortune. Receiving a royalty of $225 on $15,000 of sales (as in the above example) looks utterly unfair but it is the going rate. Normally, author royalties are paid on net receipts (the publisher’s residual income) not on the retail price. Here, the going rate for academic presses is only 5–10% and often a royalty is only payable after (say) 500 copies have been sold.
  4. Everyone bitches about prices with certain commercial academic publishers like Routledge and Brill attracting particular criticism. But it is also clear that publishing a $30 paperback and selling only hundreds of copies is a suicidal strategy unless income can be earned elsewhere than sales.

Which brings me back to the funding agency. Their support is vital if the book we have in mind is to be feasible. So maybe I shouldn’t be p*ssing them off by altering the formula in their spreadsheet.

But what really irked me with the people at this research council was not so much that they failed to account for warehousing and distribution costs in their expenditure analysis; rather it was that they were oblivious to the realities of academic publishing today and indeed commented that our book looked quite profitable and seemed hardly in need of a grant.

Time to give them a reality check perhaps, if I dare.

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One Response to Why selling isn’t cheap

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