The setup is quite simple. Publishers set the recommended retail price of a book, and retailers and distributors acquire copies from the publisher at a discount. The author will make a deal with a publisher and enter into a contract.
An advance is a non-returnable loan paid by the publisher in anticipation of, and offset against, royalty earnings. The author is then entitled to royalties from sales of the work, which are first used to pay off any advance. Traditionally the royalty is a percentage of the recommended retail price RRP. Business rates are on top, and are about to increase significantly.
Fixed costs also include capital expenditure. All that has to be paid for from the net receipts of sales of books. Apart from some small share of income from the sale of rights, there is no other way for publishers to pay for these things in order to provide the services that they do. These costs do not change whether we sell one book or one million. All publishers like to think we manage our overheads tautly, but whether we do or not, these are the inescapable costs of running our businesses before we start selling the books we publish.
And then there are the direct costs attached to each book. These are the costs of sales. For publishers to sell their books they must have a sales force, which never comes cheap. It can mean international offices too, in the case of the largest companies.
Profile is part of the Independent Alliance, for which Faber provides some, but not all, of the sales arrangements. This all costs up to Returns are a real cost, because the publisher has paid to print and deliver the books, and when the books come back they are generally pulped.
Distribution warehousing and physically shipping books around the world is one of two costs attached to physical sales only. They do not apply to e-books, of course. Marketing is a tricky one. This holds the key to how "lesser" authors like you and me can make money with books, too: Use your book to create relationships with readers.
Let your book be your ambassador so others get to know, like, and trust you. Your book will open doors and grease the wheels. A good example is my book, Engagement from Scratch! It's available to buy on Amazon, both as an ebook and as a printed book. However, I also give it away on my website in exchange for people's emails. But that's only the tip of the iceberg. Royalties paid on the retail price are fairly simple to calculate, and unless, the retail price of the book changes which does happen , retail royalties are locked in.
This is why the royalties paid on net sales often appear much higher than royalties paid on the retail price. As I stated above, royalties are a percentage of book sales paid to the author. In this scenario, I made sure the ultimate author payout winds up the same, even though this is rarely the case. I used very simple round numbers in these two scenarios, so this evens it out making neither scenario look better than the other, and that was on purpose.
Not only do the retailer discounts change from publisher to publisher, every single store or chain of stores or online retailer will probably receive a different discount on your book depending on a number of factors. Oh yes, and of course, the most maddening of all, the number of books you ultimately sell is a number that is impossible to predict and often frustrating for authors.
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