How Amazon's Pricing Affects Author and Publisher Profits

Authors and independent publishers are sometimes upset to find that online bookstores like Amazon.com are selling their book at a discount from the list price (the price printed on the book).

For books sold and shipped by Amazon, the fact that Amazon has chosen to sell at a discount to list price typically has no effect on the amount of money that authors earn – they still receive their standard payment from Amazon or their publisher, distributor, or wholesaler.

Amazon is reducing their own profit margin (to undercut their competitors) when they choose to sell a product below the list price. Of course if you are selling books on your own website, then you are competing with Amazon.

If you have a publisher, it's possible that Amazon's discounting could affect your royalties. Check your contract to see if there are any provisions that lower your royalty rate when books are sold to consumers at below list price. But keep in mind that there is nothing you or your publisher can do to affect Amazon's pricing.

Although Amazon's discount policies may not affect how much you get paid for each book sale, there are ways to increase your profits through Amazon. My ebook, How to Sell More Books on Amazon, discusses five ways to potentially increase profits from Amazon and provides a wealth of information about promoting books on Amazon. Be sure you are taking full advantage of strategies to mazimize your sales and profits on the world's largest bookstore.

Comments

[Bonnie Kreitler]

Am I missing something here? Whether or not an author gets 45% of the list price of the book will depend on the terms of the CONTRACT the author has with the publisher. Are you talking about self publishers rather than authors whose books are published by someone else? And if a self-publisher is using POD, what does Amazon consider the 'list price', especially if the self-publisher is using Amazon's POD system to get print copies of their books?

[Dana]

Thanks for your question Bonnie.

The list price of a book is the suggested retail price that is printed on the book cover. The publisher chooses the list price.

In the example that I gave, if you have independently published your book and you sell to Amazon through the Amazon Advantage program, you would be selling to Amazon at a 55% discount from list price, meaning that Amazon is paying you 45% of list price. My point was that you will still get 45% of the list price regardless of what price Amazon chooses to sell the book for. When Amazon discounts the book to consumers, it doesn't affect your profit.

If you have published your book through a publishing company, rather than publishing independently, then you will receive whatever royalty is stated in your contract with your publisher. It doesn't matter what price Amazon is charging to consumers, you still receive the same amount.

I hope that clarifies it. Good luck with your book!
Dana

[Jonathan]

It does matter to an author published by a conventional publisher what Amazon sells it at, because to fund that extra discount, Amazon will cajole the publisher into giving extra discount. In many publishing contracts, once the discount to a retailer is over a certain amount - often 50% - the royalty per book which ultimately goes to the author is vastly reduced. Publishers and the authors take the hit, not Amazon.

[Keith]

I work for a conventional publisher. We've tried to use the Amazon Advantage program, but its terms cut too far into any profit margin to make the program viable. First, as stated, you must give a 55% discount, leaving you 45% from which the publisher must pay the print bill, staff, and royalties. So if my book retails for $20 and it sells through AA, I'm looking at $9. After expenses, we recoup about $1-$2 per book.

But, that's not all. AA also expects us to pay shipping to them and then shipping on all returned books. That's a double whammy against the $9 and we all know shipping isn't cheap.

Wait, there's more. When AA returns books, often they're damaged and unsellable. So we have to write off that merchandise at a fraction of it's cost. Oh, and we have to pay the return shipment charge.

Yes, there's still more. AA only pays for what it sells and they often won't keep inventory. So they return (often damaged) what they don't sell, at our expense. Then they turn around and order fresh stock, again at our expense for shipping.

Finally, as if that weren't enough, they don't pay on time for what they sell. So we're stuck with no books and no payment, having to waste valuable staff time with managing shipments to/from AA and also to seek payment.

All in all, Amazon Advantage blows. It's simply another example of Bezos's "I win-you lose" business philosophy.

[Dana Lynn Smith]

I agree with you Keith - it's very hard for publishers to sell profitably to Amazon through the Advantage program. I used that as an example to illustrate how the numbers work, but it's not something I necessarily recommend.

One way to eliminate returns and shipping costs is to set your book up for on-demand printing at Lightning Source on a non-returnable basis. Whenever a customer places an order on Amazon, LSI will provide the book to them.

Even if you have already done an offset print run, you can still make your book available through LSI, which makes it available through Ingram, which in turn makes it available to all bookstores and libraries.

If you are not trying to sell through retail (physical) bookstores, you can also consider making your book available through LSI at a lower discount. Many authors sell at 20% discount there.

Aaron Shepard has two excellent books on this topic. For more information, see this post: http://bit.ly/aj1Hp1