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Retail Margin, Trade Discount, & What it Means for the Author
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By Brent Sampson
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DEFINITIONS
Retail margin is basically the difference between your book¡¯swholesale price and your book¡¯s retail price. For example, abook with a cover price of $10 and a wholesale price of $5 has a50% retail margin.
Wholesale price is the cost of your book to a retailer. To usethe same rudimentary example, a book with a cover price of $10and a retail margin of 50% will be sold to a retailer for $5.
Retail price is the same as cover price or selling price. Thisis the cost of the book to the end consumer (the reader). Theretail price is typically printed on the cover of the book andalso ¡°embedded¡± within the barcode on the back. For example, abook 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 priceare interconnected. By having two figures, the third can becalculated.
The fourth definition to be aware of is the trade discount,which is the percentage off the retail price that a wholesaleror distributor pays for your book. Since the retail margin is aportion of the trade discount, the trade discount always exceedsthe 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 distributionyour 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 doretailers.
While your book's trade discount is but a piece of your pie(albeit a big piece), it is the entire cake for distributors andretailers, who together must split the take. The greater thenumber, 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 bookto book. Obviously, the higher the retail margin, the higher thecover price, so authors interested in maintaining the lowestcover price possible will often opt for a lower retail margin.
Conversely, those authors who long for the best distributionpossible will elect a higher trade discount, even though theircover price will increase accordingly (or their profit willdecrease accordingly). Non-fiction or niche-markets are lessaffected by higher retail prices and greater distribution isoften advantageous in finding those markets.
Often, the author will have little to no say in what tradediscount to offer for their books -- its whatever thedistributor mandates.
Trade discounts can be as low as 20% to successfully get listedon Internet retailers like Amazon.com, who manage to make aprofit with such low margins through EDI (electronic datainterface) with distributors like Ingram and on-demandpublishers like iUniverse and Outskirts Press.
By comparison, trade discounts can be as high as 75% - 80% whendealing with a niche wholesaler, or when attempting distributionfor a book that does not have a proven market. In these cases,the distributor may be padding the coffers a bit in anticipationfor a "harder sell" and perhaps, also, in preparation foroffering an increased retail margin to close the deal.
INDUSTRY STANDARDS
Industry standards for retail margins are difficult to definebecause, ultimately, it comes down to negotiation between allparties involved. Publishers have the power to negotiate withdistributors, who have the power to negotiate with retailers,who have the ability to negotiate with the reader, but thetypical trade discount is around 55%, which allows for a typicalretail margin of 40%.
Publishing-on-demand is removing some of the participants inthis little dance, and as a result, the same piece of pie isbeing divided among fewer people, resulting in more money forthe remaining players (especially the author).
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