Retail
Margin, Trade Discount, and What it Means for the Author
DEFINITIONS
Retail margin is basically the difference between your
book’s wholesale price and your book’s retail
price. For example, a book with a cover price of $10
and a wholesale price of $5 has a 50% retail margin.
Wholesale price is the cost of your book to a retailer.
To use the same rudimentary example, a book with a cover
price of $10 and a retail margin of 50% will be sold
to a retailer for $5.
Retail price is the same as cover price or selling
price. This is the cost of the book to the end consumer
(the reader). The retail price is typically printed
on the cover of the book and also “embedded”
within the barcode on the back. For example, a book
with a wholesale price of $5 and a retail margin of
50% will have a retail price of $10.
As you can see, retail margin, wholesale price, and
retail price are interconnected. By having two figures,
the third can be calculated.
The fourth definition to be aware of is the trade discount,
which is the percentage off the retail price that a
wholesaler or distributor pays for your book. Since
the retail margin is a portion of the trade discount,
the trade discount always exceeds the retail margin.
Distributors typically expect between 50% - 70% in order
to provide an acceptable margin to the retailer.
MAKING DISTRIBUTION WORK FOR YOU
It should come as no surprise that the amount of distribution
your book enjoys rests largely upon its trade discount.
Generally, the higher the discount, the greater the
distribution.
Think about it - distributors want to make money, too.
So do retailers.
While your book's trade discount is but a piece of
your pie (albeit a big piece), it is the entire cake
for distributors and retailers, who together must split
the take. The greater the number, the greater incentive
they have to distribute your book, sell your book, and
market your book, etc.
The proper trade discount depends upon each author's
intentions, and can vary from author to author just
as readily as from book to book. Obviously, the higher
the retail margin, the higher the cover price, so authors
interested in maintaining the lowest cover price possible
will often opt for a lower retail margin.
Conversely, those authors who long for the best distribution
possible will elect a higher trade discount, even though
their cover price will increase accordingly (or their
profit will decrease accordingly). Non-fiction or niche-markets
are less affected by higher retail prices and greater
distribution is often advantageous in finding those
markets.
Often, the author will have little to no say in what
trade discount to offer for their books -- its whatever
the distributor mandates.
Trade discounts can be as low as 20% to successfully
get listed on Internet retailers like Amazon.com, who
manage to make a profit with such low margins through
EDI (electronic data interface) with distributors like
Ingram and on-demand publishers like iUniverse and Outskirts
Press.
By comparison, trade discounts can be as high as 75%
- 80% when dealing with a niche wholesaler, or when
attempting distribution for a book that does not have
a proven market. In these cases, the distributor may
be padding the coffers a bit in anticipation for a "harder
sell" and perhaps, also, in preparation for offering
an increased retail margin to close the deal.
INDUSTRY STANDARDS
Industry standards for retail margins are difficult
to define because, ultimately, it comes down to negotiation
between all parties involved. Publishers have the power
to negotiate with distributors, who have the power to
negotiate with retailers, who have the ability to negotiate
with the reader, but the typical trade discount is around
55%, which allows for a typical retail margin of 40%.
Publishing-on-demand is removing some of the participants
in this little dance, and as a result, the same piece
of pie is being divided among fewer people, resulting
in more money for the remaining players (especially
the author).
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