“My cover designer wants to know my list price for the bar code. Where the heck do I get that price from?”
Before we begin, there’s a cast of characters for you to meet.
Author/Publisher: that’s you.
Printer/Distributor: companies like CreateSpace, IngramSpark and many others.
Retailer: bookstore and libraries.
Reader: the end consumer of your books.
The List Price
LIST PRICE = FIXED COST + ROYALTY
This is the price the reader will pay to get her hands on one copy of your beautiful print book. It’s usually added to the barcode on the back cover. Above is the barcode from Above Scandal by my alter ego Joan Leacott. The list price is $17.95 US. The price is coded into the shorter set of bars. Because I’m Canadian, I include a price in Canadian dollars.
The Retailer sometimes gets a portion of the LIST PRICE. Two of the characters always get a portion of the LIST PRICE.
These companies charge the Publisher to, well, print and distribute her books. Their fees have two elements; printing cost and surcharge. The printing cost is based on binding, the colour of the paper used for the interior, and the trim size. The surcharge is also know as printer compensation (profit), per page charge, service fee, sales channel fee etc. Added together they are the FIXED COST of the book.
Your piece of the list price pie is your ROYALTY aka your income for all those uncounted hours of writing. Royalty is not profit. Your profit is calculated after deducting the fees for editors, formatters, cover artists, publicity, advertising etc.
ROYALTY = LIST PRICE – FIXED COST
Let’s run some scenarios to see how royalty is calculated with a list price of $20, a fixed cost of $10, and a shipping cost of $5.
A Reader Buys A Book Online
When a reader browses an online retailer and orders your book, she pays the retail price and also pays to have the book shipped to her.
READER PAYS = LIST PRICE + SHIPPING.
With the numbers, it looks like:
READER PAYS = $20 + $5 = $25.
The author earns:
ROYALTY = LIST PRICE – FIXED COST = $20 – $10 = $10
An Author Sells a Book
Authors buy copies of their books to take festivals and fairs in order to sign them and sell them to adoring fans. What’s the royalty in this scenario?
Step #1: AUTHOR PAYS = FIXED COST + SHIPPING = $10 + $5 = $15
Step #2: READER PAYS $20.
ROYALTY = Step #2 – Step #1 = $20 – $15 = $5
The author could put the book on sale for the event, but that would reduce the royalty, but you might get more sales….
A Bookstore Buys a Book to Sell
This is what really determines the list price of a book because this is the lowest royalty amount.
A bookstore has to pay its bills, so it needs to make a profit on the sale of your book. A bookstore doesn’t buy a book at list price. It pays a DISCOUNTED PRICE of 55% off list price. Flipped around that’s 45% of list price.
BOOKSTORE PAYS = DISCOUNTED PRICE + SHIPPING = ($20 x 45%) + $5 = $14
The reader pays $20. The bookstore makes a profit of $6 to cover the bills.
What does the author make?
ROYALTY = DISCOUNTED PRICE – FIXED COST = $9 – $10 = -$1 YIPES! A LOSS! WHO PAYS!?
Fortunately, this scenario wouldn’t happen because the Distributors won’t allow it. But it does illustrate my point.
BTW, libraries pay the same amount as bookstores. As there’s no profit for them, they look to cut expenses.
Working Back to List Price
So how do you get from a bookstore sale back to a list price that will get you a royalty?
The cost of shipping is paid by the person who places the order; reader, author, bookstore or library, never the printer/distributor.
In which currency are you paying your fixed costs? Don’t forget to take exchange rates into account. Check out what PayPal can do for you.
You may have noticed how the royalty fluctuates depending on the scenario. As the Author/Publisher, you set the price and get the royalty. How do you decide what that number is? The standard royalty rate from a New York publishing house is 4% to 6% of list price, with Big Name Authors negotiating higher rates.
For self-publishers, it’s much easier to use a dollar amount instead of a percentage. I’ll take a royalty of $2 per book.
Start with: FIXED COST + ROYALTY = $10 + $2 = $12
To factor out the discount, divide by 45%: $12 ÷ .45 = $26.67
Round it up (never down) and there you have it. Your new list price is $26.95 which earns you $2.13 royalty for each book sold by a bookstore. Which is an 8% royalty rate; not bad.
After you’ve played the various scenarios offered on the websites, go back to the formula for An Author Sells a Book. Will you earn a royalty when YOU have to pay for shipping? Will you still earn a royalty if you tempt the reader with a sale?
The Real Numbers
The examples above are all nice easy-to-follow numbers. The exact fixed costs and expected royalties can be calculated on the printer/distributor websites. This post explains the jargon.
These sites start with list price and likely have more contributing factors than my simple example. So, their results will vary from mine. To find the starting point for your list price, go to the retail sites and look for books comparable to yours in subject matter, genre, page count etc. Then run the numbers in the various scenarios and tweak your starting point.
At CreateSpace, click on the Royalties tab to calculate royalties. You may have to play with the numbers to get a royalty across all channels. Click on the Buying Copies tab to order for book signings etc and get the shipping cost.
At IngramSpark, use the Publisher Compensation Calculator to calculate royalties when a bookstore is involved. Use the Print and Ship Calculator to order for book signings etc and get the shipping cost.
Don’t forget to adjust for currency conversions!
You may also have the option of using a local printer; your favourite search engine will help you locate them. At first glance, they look more expensive, but you’re supporting the local economy, and you do save the shipping fees.
It’s a Business!
The fixed costs and shipping are non-negotiable. The ONLY way to reduce the list price is to reduce your royalty. Your writing is a business. You pay for everyone else’s profit before you get paid, including all the freelancers and services that support you. Don’t undercut yourself.