Distribution: Major Options and Important Issues

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June 2014
by Thomas Woll
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If you want to reach readers through the sales channels that still sell the most books, you need to do print editions; you need to sync your operations with the needs of wholesalers and retailers that handle print editions; and you need to understand what your distribution options are.

Remember: All the wholesalers and retailers you or your distributor pitch will also see books from all your competitors. Usually, these distributors will take no more than a few seconds to review a book’s jacket or cover and hear the pitch for that book.

DistributionGraphicWhat follows outlines six distribution options and recommends those likely to be best for independent publishers. As you’ll see, some will work only for midsize independents, but knowledge of all six alternatives will help you choose your best option even if your publishing company consists of just one person, you.

1. Use your own reps and do your own fulfillment. The best way to sell books is to have a sales staff dedicated solely to the demands of selling your books directly to accounts. Optimally, the sales staff’s primary means of survival is the money earned from selling your company’s own books. That way, your books will come out of the sales bag first whenever and wherever your reps pitch buyers.

Of course, this involves two major challenges—paying the sales staff and being responsible for warehousing, fulfillment, and collection activities. The fact of the matter is, if you’re not doing over $10 million in annual sales, it probably won’t pay you to have your own sales force. Even with $10 million a year from sales, the staff would have to be small. And, in this scenario, you would be responsible for collecting your accounts receivable, with the risk of being unable to collect all that’s due.

Why do I say you should be doing $10 million in sales to warrant maintaining your own sales force? Let’s compare the cost of using commissioned reps (see option 3, below) with the cost of in-house reps. For simplicity’s sake, assume that commissioned reps are paid an average of 7.5 percent, which combines 10 percent on retail sales and 5 percent on wholesale, and that each house rep gets a $40,000 salary, plus 25 percent benefits, plus a car allowance of $200 a month, and travel and entertainment expenses of $100 a day for 90 days. This totals to $61,400, not counting bonuses.

CLICK CHART TO ENLARGE IT.
distribution-chart

As you can see, the break-even between commissioned reps and house reps comes between $750,000 and $1,000,000. But this is for one rep! You’d need at least three reps to handle your sales, which means you’d have to be doing about $3 million minimum to consider it. Roughly, you’d need sales of $1 million for each in-house rep you have.

The number of reps it takes to cover the entire country adequately has declined considerably as the number of independents has declined. It has also gone down as the proportion of books sold to the major Internet retailers has increased. At a minimum, you’ll need three reps, with their attendant costs.

2. Use in-house reps and outsource fulfillment. Using your own reps and an outside fulfillment house lets you maintain your sales contacts but eliminates the need to maintain a warehouse and the need to deal with collection. In this scenario, the in-house reps take the orders but send them to a shipping and fulfillment organization that does all the back-end work, usually for a variety of publishers. The fulfillment organization collects the money from the accounts and regularly passes it along, minus its fees.

Given the sales levels that major accounts require, this is a good way to operate if you are doing more than $500,000 worth of business with the chains and more than $3 million overall annually. With this kind of distribution and fulfillment arrangement, you can produce high-quality books while ensuring that your company remains sales-driven because staff can concentrate on sales and marketing without having to do the day-to-day invoicing, picking, packing, shipping, and collecting.

Many fulfillment operations offer this type of service, and some distributors will provide it for clients.

3. Use commissioned sales reps. The good news about commissioned reps—who sell your books as well as books from numerous other publishers—is that they have to make a living. So if your books are among those that look good to them, then they will probably sell them well.

However, if their other publisher clients are putting out better books (translation: books that the reps see as more salable), then your books will get less attention. And if one of their other clients happens to have a new book that competes with one of your new books, the more salable of the two will prevail—which may be to your benefit or your detriment.

Commissioned reps usually get 10 percent on retail sales and 5 percent on wholesale sales. In many cases, the reps call on accounts directly but then have the accounts send the order to their preferred wholesaler, which allows an account to consolidate the number of companies with which it does business. If this happens, the rep might not get credit for the sale, since the name of the account that is ordering the book is “hidden” under the wholesaler’s name. Accordingly, nearly all publishers now pay reps a small percentage on the larger wholesaler sales as well.

As the table above shows, commissioned reps will cost you less than in-house reps, and using them keeps fixed overheads down, since you pay only for what’s sold and don’t pay for benefits or travel.

4. Use a distributor. A distributor is an organization that warehouses, sells, and fulfills orders for a number of publishers. The benefits for you include having all sales, shipping, and fulfillment functions—including accounts receivable and collections—in the lap of the distributor instead of in yours. At the same time, the distributor provides you with a reliable cash flow time-frame and protection against bad debt, as the distributor is usually responsible for that.

Other benefits of using a distributor can be that the distributor has relationships with retailers and wholesalers that you don’t, which means that these booksellers can place one consolidated order for all the distributor’s publishers at discounts more favorable to them.

This kind of service is appealing for many independent publishers because it frees them to concentrate on what they normally do best (and prefer to do): find new books, edit them, and market them.

One downside in using a distributor, as in using commissioned reps, is the fact that they must deal with so many books besides yours. Many distributors use commissioned reps themselves, which means that the people actually selling your books report to the distributor’s sales manager and are one step farther away from your control.

Furthermore, given the number of books that a distributor handles, both it and its reps will prioritize publishers’ lists and individual titles. If your book is rejected by the first few buyers when the distributor’s reps show the cover or blad (a cover of the book bound with finished sample pages), it may never again come out of the bag.

Additionally, a distributor usually requires a 27 to 30 percent distribution fee from its publishers, and bills for other functions as well, including returns, cataloging, sending review copies, and the like. Ultimately, the fees can climb to 32 to 33 percent of net sales, or higher, which makes profitability difficult if you price your books according to market demands.

Another downside to using a distributor is the risk of entrusting your inventory and accounts receivable to an organization over which you have little or no control. In many instances distributors have gone into bankruptcy, leaving their publisher clients trying desperately to get money owed and to retrieve their books from a distributor’s warehouse.

When a distributor gets into financial trouble, all its client publishers suffer. All will be forced to share what little payout there might be, and to maintain their inventory at the distributor until the bankruptcy judge decides it can be released. In the meantime—and the meantime can be a very long time—the publishers caught up in this situation will not be paid and cannot sell the inventory that is tied up.

Still, the better distributors play a important role in the support of, and indeed even the very survival of, smaller publishers.

5. Rely only on major wholesalers and key Internet retailers, especially Amazon.com. This is an option I strongly advise against because wholesalers and Internet retailers will be reactive and not proactive. None of them will actively sell your book, but virtually all will encourage you to use promotional programs they offer for a price. Remember, the marketing program for your book is your responsibility, not the wholesaler’s or the Internet retailer’s.

The wholesalers and internet retailers may keep a small amount of inventory to ship if orders come in because of a review or an author’s appearance or for any other reason. They will print on demand if possible, and/or they will sell your books as e-books. But, given all the other books readily available on their shelves, your book doesn’t stand much of a chance just sitting there or being included in a database, and it will be difficult, if not impossible, for you to publish it profitably.

6. Rely solely on a range of Websites, primarily your own. Selling through your own Website as well as through booksellers’ sites and sites for other businesses and associations is a low-overhead way of doing business. The question that arises, however, is: How many copies will you ultimately sell?

The upside of Internet selling is that it is easy and painless. Amazon.com, the largest of the online booksellers, had North American media sales of $9.2 billion in 2012, up 15 percent from 2011, with media sales defined to include books (print and electronic), CDs, audiobooks, music, and DVDs. Although Amazon doesn’t break out book sales, they are thought to account for about two-thirds of the total media sales figure, in this case about $6.1 billion.

I am hesitant to advise relying only on the Internet, but this has nothing to do with the medium. My concern relates to the false expectation that publishers may have about their ability to sell large quantities of books online. This result is the exception, not the rule, yet publishers, always optimists, may think they can sell more than a reasonable quantity. While every publisher must take advantage of every sales outlet and put books in as many formats as possible to generate sizable sales figures, publishers also need to remember that most books sell very modest quantities. Internet-only sales strategies will, in most cases, yield very minor sales.

Best Choices

Given these six options, which ones are reasonable for most smaller publishers? As indicated, I think that using commissioned reps is feasible, as is using a distributor. If I had my choice, some funds, and a publishing program doing $3 million or more, I’d probably opt for two in-house salespeople, one working on major national accounts and the other managing a group of commissioned reps.

Why? Because ultimately, your sales are your lifeblood, and it is very risky to entrust them to someone outside of your organization who is not party to the daily needs and demands of your business.

Furthermore, I think every organization needs to develop sales contacts that facilitate direct feedback from the field. That feedback allows you to establish personal rapport with buyers and to get to know and understand their needs, which are critical to your success. Also, it allows you to be directly proactive, rather than reactive, during the whole sales process.

The problem, of course, is that your salespeople may not be able to get in to see various buyers, especially those at the chains, because your sales volume is too small or you can’t present five or more titles per category per visit.

Vendor-of-record programs have ameliorated this situation to some extent, as they allow smaller publishers to present their books to major retail buyers, which can then buy the books from wholesalers the publishers have contracted with and with which the retailer does business.

The only difficulty with VOR programs is that the publisher has very little control over tracking orders. A bookstore buyer may well like a book but, because of a variety of internal problems or daily distractions, never generate an order for it. Often, the publisher wouldn’t find out that the order wasn’t placed until months later—or never.

Overall, though, vendor-of-record programs work. To explore ways of working with vendors to get your books distributed, email or call wholesalers and ask them what their vendor-of-record requirements are.


Thomas Woll, the president of Cross River Publishing Consultants, Inc., has been a vice president and general manager at John Wiley & Sons, vice president and publisher at Storey Communications, and vice president and publisher of the Rodale Press book division. This article is derived from the new, fifth edition of his book Publishing for Profit: Successful Bottom-Line Management for Book Publishers (April 2014). To learn more: chicagoreviewpress.com.

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