When you are a self-publishing author, making sense (and cents) out of convoluted terms like “trade discount” can make all the difference between being a struggling writer and a profitable one. Today we’re going to discuss the term “trade discount” in depth and learn how understanding it can help to improve your bottom line as an author.
To understand “trade discount” one must first understand what the word ‘trade’ refers to. In this case, “the publishing trade” consists of wholesalers, distributors, and retailers, all of whom practice the trade of helping you distribute and sell your book. The “trade discount” in its simplest terms is simply how those “trades” make money. The higher the trade discount, the more money those wholesalers, distributors, and retailers make. It’s not surprising, therefore, that they all prefer higher trade discounts to lower ones, especially since they have to split it amongst themselves. In other words, the higher your trade discount, the more motivated they’re going to be to sell your book, because doing so is more profitable to them. This usually presents itself in the form of greater distribution, greater retail availability, and perhaps even greater “findability” on retail sites. The lower the trade discount, the less distribution opportunities for your book.
Trade discounts can range from a now almost-unheard of 20%, which results in basically NO distribution, to an equally painful 60-70% (for places like Costco and Wal-Mart). Why “painful” you ask? Well, because the trade discount has a direct effect on either your retail price or your royalties (or, usually, both). You see, in order for a book to have a higher trade discount, it either must have a higher retail price, or a lower author royalty (or, again, usually both). Since many authors are price-sensitive about the book’s cover price, as are most retailers for that matter, balancing a book’s retail price with its trade discount becomes something of a compromise.
Let’s take a look at an example. A book with a retail price of $20 and a 50% trade discount means wholesalers, distributors and retailers are going to receive $10 to split amongst themselves. Now $10 remains. To make the math easy, let’s say the print-on-demand book has a production cost of $5. That leaves $5 remaining. Some publishing companies take a percentage of this remaining amount for themselves, up to 80% in extreme cases, before paying the rest to the author in royalties. Outskirts Press is among a select few who don’t take any of this remainder and instead pay 100% of this remaining amount to the author. To summarize: A $20 retail price, $10 for the “trade”, $5 to produce the book, and $5 for the author’s royalties (100% net profit of the book). By way of comparison, the same $20 book with a 40% trade discount means the “trade” receives $8. The book still costs $5 to produce. And now the author receives $7 instead of $5. Two extra dollars for every book sold. This is why it is important to choose a self-publisher, such as Outskirts Press, that gives you control over your book’s trade discount.
Here are the most common trade discounts offered by the few full-service self-publishing companies that give you any control over the matter (few do; we recommend finding one that does):
40%: Generally allows retailers enough profit to stock and re-order your book, although sometimes with “delayed” availability. This plan is recommended for an author who wants to achieve some online availability while maintaining a good profit margin. This discount is also better suited for speakers and other professionals who are planning on selling the majority of their books through methods other than bookstores and websites, like for instance, through “back-of-room” sales, or through their businesses to clients directly.
50%: Full online availability with consistent stocking and reordering queues, plus the ability to pursue offline sales for stocking within retail stores.
55%: The highest trade discount offered through print-on-demand distribution, resulting in maximum distribution potential for your book.
This can be a challenging subject to understand. Overall, we recommend that you select a publisher that allows you the flexibility to choose your own trade discount. To learn more, schedule a no obligation consultation with one of our knowledgeable Publishing Consultants here.