There are millions of indie authors that dream of getting signed by a major book publisher. Some believe that it is the ultimate badge of honor and gives them validity for all of the hard work they put in, perfecting their craft. There is a dark side to getting a publishing contract and its known in the industry as deep discounting.
Standard trade royalties are based on a percentage of the publisher’s list price. But publishers have come up with a variety of clever methods to base royalties on the much lower net amounts they actually receive from booksellers and wholesalers. Then they add insult to injury by cutting the royalty rate itself by as much as two-thirds. When an author gets paid on less than half the list price, that’s bad enough. When an author gets paid only one-third the normal rate on that reduced price, the word “pittance” seems appropriate.
So-called “deep discount” clauses let publishers offer titles to booksellers and wholesalers at big markdowns. They stipulate that a publisher’s sale at a discount of over 55%, for example (a number that appears to be the new standard), the author’s royalty suddenly drops from, say, 15% of list price to 15% of the far smaller amount the publisher actually receives. A standard deep discount clause looks something like this: “On copies of the Work sold by the Publisher at a discount of greater than 55% from the publisher’s retail price through channels outside of ordinary retail trade channels, the author will be paid a royalty of 15% of the Publisher’s net proceeds.” (Many smaller publishers, which pay royalties on net proceeds to begin with, often slash the royalty rate in half on discounts from 50–70%, and by 2/3 for greater discounts.) Thanks to that drop in royalty payments the publisher makes out like a—well, the word “bandit” springs to mind.
It seems fair that when a publisher sells a book at a deep discount, the author’s take might be reduced proportionally. But there’s no proportionality in many standard “deep discount” clauses.
Let’s do the math on a hypothetical book with a list price of $10: At a 55% discount to retailers, the publisher would receive $4.50 per copy, minus the author’s 15% royalty of $1.50. That leaves the publisher $3.00 before printing and other expenses. Increase that discount to 56%, and the publisher receives only $4.40 from the sale. But under some “deep discount” clauses, the author’s royalty would suddenly plummet to 15% of that $4.40—just 66 cents—thereby magically increasing the publisher’s take to $3.74. But what’s magic for the publisher is misery for the author, who takes a haircut of more than 55%. With a clause like this in effect, why would any rational publisher maintain a higher wholesale price when a lower one would deliver 25% more to its bottom line—entirely at the author’s expense?
In the modern book selling world traditionally published authors really have to watch out for deep discounting. Sadly, this is a stark reality of the publishing industry and cannot be avoided.