Printing Profitability Paradigms

I recently posted an article about how concerned readers can best support their favorite authors. The short answer was that buying from Amazon typically generates the most profit, that buying from anyone other than Amazon, especially independent bookstores, helps the industry as a whole, but that rating, reviewing, and talking about your favorite books is the single best thing you can do to show an author some love.

In response to that article, several people have expressed surprise that Amazon is usually the most profitable, at least for print books. It seems that many people are under the impression that Amazon is just pillaging authors and that non-Amazon buying channels are better even if they aren’t as convenient for the reader. While Amazon does have many, many faults when it comes to its relationship with its authors and publishers, their profit model is not one of them. In fact, it is the better profits, as well as market share, that keeps authors bound to them in spite of their other flaws.

In this article I’m going to give you a peak behind the curtain and compare the profitability of the two primary printing and distribution models out there: Traditional (non-Amazon) and Print on Demand (Amazon). This will be of interest to curious readers as well as new authors who are wondering how this all works. (I won’t go into eBooks here. The digital format virtually eliminates production costs, so the list price you see is nearly all profit, split between the author and the platform according to contract rates that are generally pretty straightforward. Except Kindle Unlimited. How that compensation is calculated is a bigger mystery than the backside of a black hole.)

Trigger warning: Money talk ahead

The Traditional Print and Distribution System

The traditional system of printing and distributing books goes back practically to Gutenberg. The difference today is that the book files are digital rather than paper galleys and printing plates, but the overall system is the same. Before a book can reach the consumer, it is first printed and bound, stored, and then distributed to bookstores as orders come in. Harkening back to the time when books were printed with plates rather than inkjets, it only made sense to print books in large runs and store them against anticipated demand rather than constantly changing plates to print a few of any one book at a time. The bookstores buy the books at a discounted wholesale price and then sell it to the customer at whatever profit margin they want, up to the list price (i.e. they can put it on sale for less than list price at their discretion). 

Traditional publishers have relationships with various printers and distribution warehouses. Some of them will be outsourced, some they might own themselves. Self-published authors can contract with independent printers to have small runs done. They then store and sell the books themselves but this won’t get those books into any mainstream bookstores. Most self-published authors who want to get into non-Amazon stores will set their book up with IngramSpark. IngramSpark is the self-publishing wing of the printing and distribution giant that is Ingram. Ingram handles a lot of the printing and distribution for traditional publishers and is the main database of books that non-Amazon bookstores, from chain to indie to libraries, order from. If your book isn’t in Ingram’s catalog, it’s next to impossible to get it in a bookstore. (For this article, I’ll refer to IngramSpark as Ingram just for ease of typing).

Before going further, I should note that while traditional publishers still have their books printed in large runs and store them in warehouses from which they are distributed to stores, the self-publishing side of Ingram has taken advantage of digital marvels and does print these books in small, nearly on-demand batches. For a low demand book they may have zero to five books sitting on a warehouse rack. If a book is in high demand from bookstores, they may print and store more to meet continued demand quicker. However, their pricing is still tied to the traditional model because they distribute to bookstores which still work on the wholesale paradigm.

Breaking down the profits

Let’s get into a real world example. This is based on actual costs at the time of writing, but numbers have been rounded for ease of discussion.  For our purposes, we will assume a 300 page paperback fiction book, 6”x9” trim size, printed black on cream 50lb paper, with a gloss cover. According to Ingram’s online calculator, this book would cost $5.50 to print per copy. Presumably Ingram’s profit is built into this production cost. Assuming the list price for the book set by the author is $15 (a mainstream paperback price these days), the profit for the author and the bookstore comes out of the remaining $9.50.

As I mentioned a moment ago, the profit for the bookstore comes from buying at wholesale and selling it for up to list price. The standard wholesale deduction is 55% off of list price. If you offer a smaller wholesale discount, many stores will decline to carry your book because it reduces their profit margin. With a 55% discount, the bookstore purchases the Book from Ingram for $6.75 and can sell it for as much as $15 making as much as $8.25 per copy. 

As for the author, they get the other 45% of the list price, less the printing cost. That leaves $1.25 in profit per book for the self-published author. The author earns this profit, small as it is, when the book is ordered from the printer/distributor. They do not have to wait for the bookstore that ordered it to sell it.

You may note the huge discrepancy between the author’s take and the bookstore’s. Keep in mind the bookstore has to pay for overhead and, hopefully, living wages for their employees. Another thing to note here is that traditionally published authors have slightly different deals. Although the wholesale discount still applies, the printing costs for a large run are cheaper, resulting in more profit margin per book. However, that profit margin is then split between the publishing house, the agent, and the author. Again, a typical profit for the author is about $1-2 per book.

Returns

Another important thing to consider in the traditional printing/distribution system is returns. If demand for a book doesn’t reach anticipated levels, already printed but unsold books can sit on bookstore shelves and in the warehouses. All of these unsold books can be returned for a refund. (Like the wholesale discount, bookstores will decline to carry books that are not marked as returnable). Guess whose pocket that refund comes out of? Yes. The author’s. If fifty books are purchased by a scattering of bookstores, the author will have earned a whopping $62.50 in profit. But if only half of those sell and the other half are returned, the author will be charged back the wholesale price (not just the printing cost), $6.75 per book in this example. That comes to $169 for 25 returns. Instead of making money, the author ended up losing $106.  

In case you are wondering what happens to those returned books, the author can choose to have them shipped to themself for a charge ($3 per book). This may seem like a silly thing to request, but it’s similar to the costs of ordering author copies from the publisher which include print cost and shipping. Otherwise, the books are shipped back to the printer and pulped for recycling or the cover is torn off and sent back to the publisher as proof that the bookstore disposed of the book. (If you’ve ever seen coverless books at a garage sale, now you know why).

Print on Demand- the Amazon method

The key thing that sets Amazon’s distribution apart from the traditional is- you guessed it- printing on demand. Because the books aren’t made until you order them, they are not only hotter and fresher, but there are virtually no returns. I say virtually because Amazon’s policy does allow returns of purchased books: 30 days for print books and 7 days for eBooks. Unfortunately, there was a terrible social media trend not too long ago encouraging readers to get books for “free” by reading them quickly and returning them within the appropriate window. Not only is this cheating on its face, but it’s downright mean when you consider that Amazon, like Ingram, charges the authors for returns. In their case it’s the print cost and a return fee.

Amazon, behemoth that it is, has its own printing and distribution facilities, so their printing costs are different from Ingram’s. Using the same Book as above, the printing cost with Amazon would be $4.50, a dollar cheaper per book than Ingram. This is possible not because they print cheaper (they often contract out to Ingram), but because they don’t take their profit out of the printing cost. The other key feature of Amazon’s model is selling directly to the customer. They don’t need to buy the books wholesale and resell, so there is no discount. Amazon’s compensation to authors is calculated entirely off of the list price set by the author, based on a royalty rate (currently 60%).

Breaking down the profits

Now, you might think that the royalty formula works like this: $15.00 book, less $4.50 in print costs, leaves $10.50 in profit to be split between Amazon and author 40/60, resulting in $6.30 going to the author. You would be very wrong.

Amazon’s royalty calculation actually does the 40/60 split first, with the print cost coming out of the author’s portion. Thus, 60% of a $15.00 book is $9. The print cost of $4.50 is taken out of that, leaving the author $4.50 in profit per book. Not as good as the ideal calculation but a hell of a lot better than the traditional model. (If Amazon runs a sale on the book, the author still gets their full cut.) Since there are virtually no returns, the author gets to keep all of this money. If an author sold 50 books under the Ingram model, they would earn $63, and get to keep it if there were no returns. Under Amazon’s model, the author would earn $225 on that same 50 books with little fear of charge back. 

Consequently, it is no surprise that authors overwhelmingly choose to list their books with Amazon, some exclusively, even though Amazon can be a bit of a tyrant to its authors. They have a number of rules- fair- but can be erratic in how they are applied. For example, there is a rule that your book on Amazon can not be readily available for free elsewhere on the internet. A reasonable stipulation. However, several authors have had their books removed by Amazon because pirates have stolen and posted their books for free on pirate sites. In one case, a small excerpt that was included in a legit book review was enough to trigger a book’s removal. That author, with the help of a fan uprising, got it reinstated but at huge cost, emotionally and financially in terms of lost sales. 

In Conclusion

The other drawback to Amazon’s better payouts which keep authors locked in, is the near monopoly on the publishing industry. The more power they consolidate, the more limiting they can be to the authors on their platform. Also, many people still like to browse for books in a physical store, and many people try to make a living owning/working at said stores, but Amazon’s dominance threatens both. If it’s not profitable, or even a loss, to risk the traditional method, fewer good books find their way into those stores. Authors either have to accept smaller profits (by a lot) or raise their list prices for the traditional system (which I did). Unless the traditional store then puts the Book on sale, the reader has to be okay with paying more.

It’s an unfortunate conundrum, but one that leaves the purchaser free to shop wherever they prefer; there is an benefit for the author on the one side and for the industry as a whole on the other.