Understanding Your Profit Margin

I recently had the opportunity to help a publisher client to prepare for retirement by transferring the publishing rights back to their authors (known as rights reversion), and helping those new author/publishers to get their print books back into circulation.

In the process of helping create several new publishers virtually simultaneously, I had the opportunity to help several people understand the harsh reality of the basic economics of publishing. I thought it would be useful to share my notes here, with a few links to how this works in one of the simplest cases out there: the print-on-demand service from Amazon’s Kindle Direct Publishing (KDP) platform.

One clarification: while a Kindle is an eBook reader, KDP the platform offers softcover print, hardcover print, and eBook distribution (what they call “publishing”) options. We’re looking at the softcover print option here.

In this case, they were all children’s picture books. With KDP, a color softcover book under 40 pages, the flat cost for printing is $3.65 (https://kdp.amazon.com/en_US/help/topic/G201834340). So that is our starting point.

If the book retails for $10…

Let’s say you want to sell the book for $10. How much do you actually make? The answer to that depends on how you sell the books. And that is where the math can get confusing to new publishers.

Direct Sales: $6.35

If you want to sell books directly (ie. in person, or through your website) you first buy the books from KDP at cost, so you pay $3.65/book, plus shipping. Your profit is then $10.00 – $3.65 = $6.35, less shipping from Amazon. But remember, this is also paying yourself for schlepping books all over the place; and if you’re thinking online orders, don’t forget that this covers your time and expense of shipping to the consumer.

But, so far, so good.

Indirect Sales: $1.35

If you are able to sell directly (i.e. in person) to a book store, keep in mind that a bookstore will typically want a 50% (or so) discount from the listed price if they buy a book from you. Maybe you can negotiate a better rate, but that is typical for any sort of retail sales.

For that $10 book, that means the store pays you $5. So you’re only making $10 – $5 – $3.65 = $1.35, less your shipping and time, per book. But you theoretically have access to more potential buyers than if you sell yourself. (Maybe).

Sales Through Amazon: $2.35

Books sold directly to consumers through Amazon (https://kdp.amazon.com/en_US/help/topic/G201834330), Amazon takes 40% of list, so you’re making a little more than you would with a direct bookstore sale: $10 – $4 – $3.65 = $2.35 (and no shipping or any other charges).

Distribution Through Amazon: $0.35

A black & white photo of book stacked

Let’s say you are hoping that bookstores will hear about your book through your promotional work, and decide to carry your book themselves. This is beginning to look like the regular book “trade,” and that means you are now talking about distribution.

Your profit on books sold to bookstores through Amazon, what KDP calls “expanded distribution,” get a double-whammy because Amazon now takes 60% of the sale price (part of which they keep, ~20–25% as the distributor, part of which the bookstore gets, ~35-40%). So through that sales channel, you are only making $10 – $6 – $3.65 = $0.35.

The bookstore gets less than if they bought it from you, and you get less than if you sold it through any other channel. That is the economics of book distribution, and it is one of the reasons Jeff Bezos starting selling books directly online in the first place.

It may not seem fair—as the publisher, you only keep 35¢ on a $10 sale?! Just imagine if you were paying a royalty to the author and illustrator out of that amount, too! You begin to understand the challenge of profitability as a publisher… And this is why pursuing bookstore sales probably isn’t worth the expense if you are only using KDP to distribute your books.

A Peek At Costs, Too: e.g. the ISBN

Keep in mind that a bookstore is unlikely to buy through Amazon, anyhow, because they make less than buying through other traditional sales channels.

But say they do still want to buy your book. They are more likely to buy a book if you have your own ISBN (as opposed to the free one from KDP).

To buy an ISBN number here in the U.S., you will be dealing with the company Bowker and their monopoly on ISBN sales. A single ISBN number will set you back $125 (https://www.myidentifiers.com/identify-protect-your-book/isbn/buy-isbn).

Ignoring for the moment the other cost of editing and—gasp!—design, in our little example here, just to pay off that ISBN number you’ll have to make a lot of those “expanded distribution” sales—at least 358 in my example for the single $125 ISBN—just to earn back the cost of the ISBN.

Buy in Bulk

Since we’re talking about ISBNs, it is worth mentioning here that Bowker’s price per ISBN drops dramatically the more you purchase: 10 ISBN are $295, or $29.50 each; 100 ISBN are $575, or $5.75 each; and if you get 1,000 ISBN, they are a mere $1.50 each, $1,500. You can quickly see exactly who Bowker caters to.

My recommendation to new self-publishing clients (and small publishers, for that matter) is to buy a block of numbers IF you are planning to publish more books in the future. In addition to the discount, having a contiguous run of numbers helps to show that sales track record as your catalog of titles grows. But a word of caution: ISBNs are not transferable, so any unused numbers will forever be tied to that publisher.

Where does that leave us?

Getting back to our little example, in terms of profit, it is best if you can sell books directly. Second best to sell through Amazon. Third to sell directly to a book store. And worst is to sell to bookstores through Amazon.

But even in the worst case, that 35¢ on a $10 sale is still more than zero, and so might still be worth keeping the “expanded” option available—just make sure consumers know your preferred sales route is direct, or at least via bookstores where you’ve made your own arrangements.

BTW, the POD sales through KDP’s competitor, Ingram (IngramSpark) will work similarly. With IngramSpark you have a little more up-front cost and a little more control of bookstore discounts (and returns). But the advantage of IngramSpark is inclusion in the large Ingram Wholesale catalog, which will also make it easier for bookstores to by your book. More on that in a later post.

The next step “up” from print-on-demand is to print in bulk, and use a traditional distribution sales network to sell your books into “the trade.” This works something like Amazon’s “expanded” distribution, but you are printing the books in advance and paying to warehouse them somewhere. The cost per book can be lower, depending on the number you run and the type of book. But this assumes you’ll be moving those books fairly quickly. More on that in another post. 

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