The other day, I was in Barnes and Noble when I overheard a college student in the literature aisle say, "I'm not paying twenty bucks for this!" followed by the slap of an 80-page poetry collection being forcefully returned to the top of the shelves.
I'm sure we've all been feeling a bit of sticker shock at the bookstore, particularly if you are old enough to remember when pulp novels actually did cost just a dime.
So, why have new books gotten so damn expensive? Don't publishers realize they could sell a lot more paperbacks at $4 a pop than they can at $7 a pop?
The simple answer is, yes, they do, but the reality isn't simple. A book's pricing is based largely on how much it's costing the publisher to get into the readers' hands, and there's a lot that goes into that.
The basic formula goes like this:
author advance + design + printing + distribution + profit = price
At this point, you may be shaking your fist at the authors and muttering about how greedy they are. And I'm here to tell you that the author advance is often one of the smallest pieces of the book pricing pie. The advances offered by publishers to writers can vary hugely, as can the royalty percentages. But since I know what several mass market publishers generally pay and know their print runs, let's look at a theoretical mass market paperback publisher called Bighouse.
Most Bighouse paperbacks have a cover price of $6.99. An average Bighouse author may be offered an advance against royalties of $2500 and his or her book will have a print run of about 30,000. The publisher will hope that the book will actually sell about 25,000, and the rest of the copies will be stripped and returned1. At 25,000 copies sold, Bighouse will have made back all their money from the advance, and they probably won't owe the author any more money (clauses stipulating the publisher's right to keep reserves against returns is a diabolical bit of contract evil that I'll address someday in another article).
So, regardless of the royalty percentage dictated in the author's contract (which will probably be around 7.5%), simple math tells us that in this case, about ten cents of every book sold goes toward paying the author's advance.
Ten cents. Whoa. That's not very much, is it? So that means that Bighouse is making a huge profit on every book, right?
Not exactly. There's the cost of editing the book, laying it out, proofreading the final copy, printing galleys, and paying for cover art and cover design, but since they're a big publisher and have full-time staff, this will cost them less per book than it would a small press publisher. I don't have hard numbers for this, but let's assume that it's about $2500 depending on how speedy the staff is. Either way, that's still not a big slice of the book pie.
Now comes printing time, and paper's much more expensive than it used to be. I've heard from a fairly reliable source that your average 350-page paperback costs about $2.25 per copy to print ... provided the books are ordered in batches of 30,000 or more. The per-copy price for small publishers, whether they go with an offset printer or a POD company, will be much higher, simply because they can't buy in volume. A certain amount of the printer's cost is purely the cost of setup, and that's the same price whether you're ordering 100 copies or 100,000.
So, from purchase to production to printing, a $6.99 paperback has cost the publisher about $2.50. Big profits time for the publisher, right? Only if they get to sell all their books directly from their own warehouse. And they don't: they need to send the books to distributors like Ingram so that the books get into bookstores.
And distributors like Ingram and Amazon.com generally want a 55% commission from the sale of every book they handle. Fifty-five percent, kids. Smaller bookstores may only ask for a 40% commission, but the big boys want 55%.
So, out of the $6.99 paid by a reader for the paperback at Amazon.com, $3.85 goes straight to Amazon. Once you subtract that and the direct production costs from the book, that leaves a whopping $0.64 "profit" per copy. If they've struck a deal and only have to pay a 40% commission, the "profit" rises to the kingly sum of $1.69 per copy.
But much of that $0.64-$1.69 isn't profit at all. Remember those 5,000 books that didn't sell? Those still had to be printed, and the publisher most often doesn't get them back. The bookstores rip the front covers off the unsold books, dump the books themselves in the trash, and mail the covers back to the publisher for credit. The book returns alone in this example would eat up $0.45 of the $0.64, leaving a mere 19-cents-per-book profit. And some portion of that 19 cents needs to be used to pay the other departments at the publishing house that aren't directly involved in production, such as the acquisitions department and the legal department, but most especially the marketing department.
After all, the marketing department is responsible for stuff like designing and placing ads and sending authors on book tours. They can make or break the book. I didn't include the book's marketing cost in the original equation because this is a very elastic cost for paperbacks. Sometimes a big publisher goes whole hog to promote a book, but sometimes they quietly release it to bookstores and let nature take its course.
Marketing costs take many more forms than paying an intern to set up author signings or paying designers to create the ads you see in magazines and newsletters. Do you ever stop to browse through the stacks of new releases placed prominently in the fronts of bookstores? That's not usually the staff sharing their new favorites; the publishers of those books pay to get their copies up front where people can see them.
If you want a number, though, possibly two to fifteen cents out of every dollar spent on the book (see below for statistics on textbook costs) goes toward marketing. But let's say that the publisher in this case has decided to back the print run with a bit of promotion, and they pay to get the book placed well for a week in stores and take out some magazine ads. The marketing budget takes up 50 cents per copy. And so if you subtract 45 cents for unsold copies and 50 cents for promotion from $1.69, the publisher gets $0.74 profit per book in a better-case scenario. But it could just as easily come to a $0.31 per book loss in the land of the 55% commission, or if there are a lot of unsold copies.
So in the end, it's the distribution costs that are the biggest expense of a paperback fiction book, followed by the cost of printing. No fiction publisher can refuse to deal with Amazon.com2 or Ingram and expect to get their books into as many hands as possible, so they have to factor those big 40%-55% commissions into their book pricing.
(Go on to Part Two: Why new textbooks are so expensive, Part Three: Why can't most publishers print books for $1?, Part Four: Book distribution and printing cost too much. Why don't publishers switch to e-books?)
1: The number of copies printed and released versus the number of copies sold is called the "sell-through rate". An 80% sell-through rate -- that is, 80% of the released copies sell and 20% are returned -- on a mass market book is considered very good. Anything above 80% is awesome. I'm actually using an 83% sell-through rate in my example; most books will not sell that well, so the cost of paying back the author's advance would eat into the 64-cent profit outlined above.
And again, the 80%-as-excellent-sell-through applies to mass market books. Small press books with much smaller print runs may require sell-throughs of 90%-100% for the publisher to simply earn back the production and promotion costs. Or, a seemingly-unreasonable cover price: $20 for an 80-page poetry collection.
2: HW Press refused to deal with Amazon because of their commission rates. The publisher didn't want to bump the book price by $3 just to account for Amazon.com's cut. Selling on the web is selling on the web, right? But it's not. Amazon.com goes around the world and offers a bunch of discounts and incentives that a Mom-and-Pop distributor can't match. Amazon.com offers rewards credit cards, for instance, and was able to negotiate cheaper shipping costs for itself with the US Postal Service because they do such a high volume. Furthermore, LibraryThing and Bookcrossing and a host of other sites pull their data directly from Amazon's data, and if you're not in there, it's like your book simply doesn't exist for a certain number of potential readers. Amazon.com is the 15,000-pound gorilla in publishing. People look at you funny if you tell them that, no, you can't get the book on Amazon, even more than when you tell them they can't find your book down at the local Barnes and Noble, either.
And when you come down to it, Amazon.com's cut is not necessarily unbridled greed. They have warehouses to maintain and staff to pay. The free shipping you get with every $25-or-more order gets paid for out of their commission. I know one online bookstore, Shocklines, that only charged a 40% commission; the owner is having to close down the shop because he ended up doing too much business to keep up with on his own, but he could never quite make enough to hire an assistant. It's an expensive business.