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First let's provide definitions for the 4 terms covered in this article:

Retail margin is the difference between your book's wholesale price and your book's retail price. For example, a book with a cover price of $10 and a wholesale price of $5 has a 50% retail margin. This is the profit enjoyed by the retailer.

Wholesale price is the cost of your book to a retailer. To use the same rudimentary example, a book with a cover price of $10 and a retail margin of 50% will be sold to a retailer for $5 wholesale price.

Retail price is the same as cover price or selling price or list price. This is the cost of the book to the end consumer (the reader). The retail price is typically printed on the cover of the book and also *embedded* within the barcode on the back. For example, a book with a wholesale price of $5 and a retail margin of 50% will have a retail price of $10.

Trade discount is the percentage off the retail price that a wholesaler (not a retailer) pays for your book. Since the retail margin is always a portion of the trade discount, the trade discount always exceeds the retail margin. Distributors typically expect between 50% - 70% in order to provide an acceptable margin to the retailer. A book with a retail price of $10 and a retail margin of 50% might have a trade discount of 60%, and therefore the wholesale price is $5 and the trade discounted price is $4.

Confused yet? Don't be. Understanding book math is what separates successful authors from unsuccessful ones. As you can see, retail margin, wholesale price, the trade discount, and retail price are interconnected.

MAKING DISTRIBUTION WORK FOR YOU

The higher your trade discount, the greater your level of distribution. Think about it - distributors want to make money, too.

While your book's trade discount is but a piece of your pie (albeit a big piece), it is the entire cake for distributors and retailers, who together must split the take. The greater the trade discount, the larger their piece of the pie, and the greater incentive they have to distribute your book, sell your book, and market your book, etc.

The proper trade discount depends upon the author's goals, and can vary from author to author just as readily as from book to book. Typically, the higher the retail margin, the higher the cover price, so authors interested in maintaining the lowest cover price possible will often opt for a lower retail margin. This may be okay, and even preferred, if the book's largest market is through on-line sales.

Conversely, those authors who long for the best distribution possible will elect a higher trade discount, even though their cover price will increase accordingly (or their profit will decrease accordingly). Non-fiction or niche-markets are less affected by higher retail prices. Additionally, greater distribution is often advantageous in finding those niche markets. Suffice it to say, a non-fiction book can almost always sustain a higher trade discount than a fiction book.

Trade discounts can be as low as 20% to successfully get listed on Internet retailers like Amazon.com, who manage to make a profit with such low margins through EDI (electronic data interface) with distributors like Ingram and on-demand publishers like Outskirts Press.

By comparison, trade discounts can be as high as 75% - 80% when dealing with a niche wholesaler, or when attempting distribution for a book that does not have a proven market. In these cases, the distributor may be padding the coffers a bit in anticipation for a "harder sell" and perhaps, also, in preparation for offering an increased retail margin to close the deal.

INDUSTRY STANDARDS

Industry standards for retail margins are difficult to define because, ultimately, it comes down to negotiation between all parties involved. Publishers have the power to negotiate with distributors, who have the power to negotiate with retailers, who have the ability to negotiate with the reader, but the typical trade discount is around 55%, which allows for a typical retail margin of 40%.

Publishing-on-demand is removing some of the participants in this little dance, and as a result, the same piece of pie is being divided among fewer people, resulting in more money for the remaining players (especially the author). This is particularly true if the author is going after online sales exclusively, which allows the author to set a much lower trade discount with little to no repercussions when publishing via a flexible on-demand publisher such as Outskirts Press, who lets authors set their own pricing. Now you have the flexibility to do it and the knowledge to do it right.

by Brent Sampson

Brent Sampson is the President & CEO of Outskirts Press at http://www.outskirtspress.com, where the future of publishing is here, today. He is the award-winning author of "Publishing Gems: Insider Information for the Self-Publishing Writer" and "Self-Publishing Simplified" which is available on Amazon for an unbelievably low $5.95 or for free in e-book form at http://outskirtspress.com/publishing.