What Readers Should Know About the Book Industry, Part 1

The Amazon/Hachette brou-ha-ha continues apace and it occurred to me that I’m not sure readers know why this matters. To get to that, I thought I’d do a few little posts on things about the book industry that I find helpful to know from a reader/consumer standpoint.

First up, a pro-tip just so as you read things in your head you’re pronouncing them right – Hachette is pronounced in the French way, where ch makes a sh sound. So it doesn’t sound like something you use to chop up wood. (If you’re like me, this is good to know. Or maybe, unlike me, you figured that out on your own, in which case, hey, gold star for you!

The first thing I think everyone would benefit from understanding is how publishers and retailers interact such that they both make money. (Because at the end of the day, both need to be making money for readers to keep getting books and authors to be able to afford to keep writing books.)

When a publisher puts out a book, the typical model is that they do a certain size print run. These books are boxed and warehoused and shipped to retailers as ordered. Bookstores (brick and mortar as well as online) require a discount off the retail price of the book (makes sense – they want to make a profit, too). This is usually 60%. So, if the retail price is $10, bookstores pay only $4 to the publisher for each copy of the book. The difference is profit that goes to the bookstore, and it’s what allows bookstores to put books on sale and still make money. This is also a major factor in determining the retail price for books. Publishers have to do everything they can to ensure that they set the price at a high enough point that 40% will cover their costs (including royalties paid out to the author) and allow them to make enough profit to continue making more books.

In addition to the discount, retailers operate on net 90 terms. This means that they don’t actually have to pay for the books they order until 90 days after they receive the invoice. A typical print novel is considered to have a shelf-life of 90 days. Meaning that whatever copies don’t sell in the first 90 days after it’s released are deemed unlikely to sell. In terms of the bookstore, this means they will frequently return whatever didn’t sell back to the publisher, deduct that cost from their invoice, and only pay for the actual copies they sold at the end of the 90 day period. So ordering books has very little risk to the bookstore.

This method of operation has two risks for the publisher. One, they’re not seeing any earnings (or very few) for those 90 days. Two, they have to do something with returned books. Generally speaking, returned books can’t be resold. So they have to be destroyed. Which means that they’re a loss for the publisher. So publishers have to do some creative guessing to determine how many copies to print–working to balance what they will successfully be able to sell (minimize returns) without having too many excess, unsold copies.

What does this mean for the reader? To me, the key takeaway for readers in all this is the fine balancing act of pricing. Everyone wants to make money on the books sold – and everyone should be able to make money on them. But it’s not simple to find exactly the right price point that will produce adequate profit for all parties while still setting a price consumers are willing to pay.