Ever wondered what the largest bookseller in the world looks like behind the curtain? Check out these pictures.
ICRS is the place to meet with the greater industry, including hundreds of international publishers, retailers and authors. Many times, the international market is overlooked by small publishers, but larger publishers rely on more than 10-15% of their revenue to come from both export sales as well as foreign licensing.
If you are interested in selling your books to international distributors and retailers, here are some contacts.
If you are interested in licensing your books to international publishers (for both English reprints as well as foreign language translation publishing, here are some contacts:
Terry Draughon is another industry veteran who has worked at the management levels of both large publishers and distributors. His expertise is helping publishers get their books placed at retail, and being the advocate for the publisher/author in the retail channel.
Terry is the Vice President of Sales for Send The Light/Advocate Distribution Solutions and calls on all of the large booksellers and chain retailers.
I asked Terry to share some of his experience with small publishers.
For more information about Advocate Distribution Solutions, click here. For more information about how Snowfall Press partners with Send The Light (STL) and Advocate to offer expanded distribution solutions, click here:
In my last post, I talked about distribution being an equalizer in the publishing industry.
In the CBA (Christian Booksellers Association/ and publishers) market, the terms ‘distribution’ and ‘wholesaling’ are used interchangeably to describe a supplier, or middleman, who buys books from publishers and manufacturers and then resells them to retailers. And while the supply-chain function of the distributor and wholesaler are similar, there are some important differences suppliers need to know to make their businesses more profitable.
Wholesalers bridge the gap in the supply chain between the supplier and the retailer. Wholesalers provide a service for retailers. The strengths of the wholesale model are the tens of thousands of titles that can be purchased from one source, in one box, on one invoice – many times shipping with free freight. The most important factors in determining whether to use a wholesaler or which wholesaler to use are:
- Selection (or fill rate – plenty of titles to draw from and the inventory available to fill them)
- Speed (how fast you can get your selection form order time – wholesalers average 2-3 days, publishers 7-10 days)
- Service (low minimum orders to qualify for free freight)
Distributors provide an additional important service to the industry by representing product lines. Here are some benefits to look for with a distributor, or company that handles a publisher’s third party logistics (3PL):
- Distributors take publishers’ and manufacturers’ product lines and combine them with the best services of a wholesaler. (speed, selection and service)
- Discount (all of the above at a publisher discount)
- Direct representation (may include a sales team calling on retail clients)
Both types of supply chain companies are important to a supplier’s success. Suppliers/publishers need to consider the costs of trying to do their own distribution and juggling all that it entails, against the benefits of partnering with professional distribution companies. Sometimes, you can find both a wholesaler and a distributor under the same roof, which can be a huge benefit.
What does distribution really mean? In traditional publishing, the larger publishers do their own distribution to multiple sales channels, usually from a warehouse that they control. Smaller publishers may use a smaller warehouse combined with a contract distribution facility.
Distribution can be a great equalizer. The larger publishers have direct distribution relationships with retailers, where they ship directly from their own warehouses to a retailer. This works well if the publisher has a large list to present, or well known, best-selling authors. The retailers feel like they don’t have a choice, but to order direct for the extra discount that they perceive as more important than broader product breadth.
The large publishers also use wholesalers to ensure that their retail partners can get rapid replenishment on titles, and to stock the ‘long tail’ product where a store may only want 3-4 units per year.
A small or micro publisher can usually get access to a wholesaler like Ingram or STL Distribution, but this doesn’t mean they are being ‘distributed’. This simply means that a book might be sitting on a distribution shelf, and listed in the database. Many times, it means that the major retailers have the title listed on their own databases and can order the title, even if they don’t have it in stock. But the book has never been ‘distributed’ so that the end consumer can find it at a retailer and buy it.
I spent two years as the Senior Vice President of STL Distribution, the largest Christian book wholesaler and 3PL (third party logistics or contract distribution) distributor in the country, if not the world. At the time, they had a huge European operation that has since been sold. STLD purchased FaithWorks in 2005, which at the time, was one of the first Christian 3PL distributors in the industry. This is the model that helps the small publisher get closer to the true distribution.
Successful 3PL operations have true sales and marketing components and represent the services that most large publishers have internally. I know the team at Advocate Distribution Solutions (the 3PL division of STL Distribution) pretty well. I hired some of them. If you think that is a fit for you, let me know and I will make an introduction.
In my next post, I will talk about the differences between wholesale distribution and contract distribution. Each is a good model, but built for different purposes. But, they both become really powerful when combined in the same box, which is what STL Distribution is doing.
I recently wrote a couple of blog posts about the mathematics of bookselling, using a book by Leonard Shatzkin as the basis for the different purchasing philosophies that book buyers must use.
While I was at STL Distribution, we ran an marketing campaign around this same idea, and I just found the video that we produced. Enjoy.
In the previous post, we looked at two bookstores run by Phil and Turner. These characters were running their stores based on two different purchasing philosophies. At the end of the year, they both ended with the same gross profit.
- He had more titles (breadth of selection)
- He ordered more often, and could meet changes in demand more quickly
- More selection led to higher dollars per sale at the register
- Fewer units per title meant less overstock and fewer returns
- Faster turns meant faster cash flow, and cash is king
But wait a minute, what happened to the old adage, ‘stack-em-high and watch-em-fly?’ Certainly discount is more important on hot best selling items…right?
Let’s look at a hypothetical best-seller called Laugh Out Loud (LOL). The retail price is $20.00. The publisher is promoting the book heavily, and is offering the bookstore 52% for an advance order of 150 units. The book is successful, just like the sales rep said, and the inventory sells out in six months.
Phil loves discount and he jumps at the deal.
His sales are $3,000 (150*$20)
His cost of sales is $1,440 ($20*.48*150)
His gross profit is $1,560 ($3,000-$1,440)
Phil’s average inventory investment is 75 books for six months (150/2) at a cost of $720 ($20*.48*75). Average inventory investment means the cash is gone. It can’t be used for anything else.
Phil’s inventory turn is four times/year (150 book sold in half a year).
Phil’s ROI is $1.08 for every dollar invested in inventory on the best-seller. (gross profit/cost of sales) or ($1,560/$1,440)
Phil’s annualized return is four times the ROI (4 turns/year) or $4.32 for every $1.00. Phil earned $4.32 for each dollar he invested in the LOL promotion
Turner, being a different sort, says no to the discount and buys 25 units from his wholesaler at 40% discount. He continues to order 15 units every time the inventory falls to 10 units on the shelf.
His sales are $3,000 (150*$20)
His cost of sales is $1,800 ($20*.6*150)
His gross profit is $1,200 ($3,000-$1,800)
Turner’s average inventory investment is 18 books ((25+10)/2) or $216 (18 units*($20*.6)
Phil’s ROI is $.67 for every dollar invested in inventory on the best-seller. (gross profit/cost of sales) or ($1,200/$1,800). This is considerably less than Phil’s ROI! Not only is the ROI less, but the gross profit is $240 less too!
Now the rest of the story.
Because Turner operated on a Just-in-Time (JIT) inventory philosophy, his inventory turn is 16.68 times/year (150 book sold in half a year divided by average inventory of 18*2 to annualize). Because of these turns, Turner’s annualized jumps to an astounding $11.34 for every $1.00. Turner earned $11.34 for each dollar he invested in the LOL promotion!
Turner was also able to use the available cash on hand due to less inventory investment ($216 vs. $720), which was more than $500 more than Phil had to work with, to buy other titles. If Turner invests this $504 at the same rate of return, he will generate nearly $3,000 MORE in gross profit during the same six month period than Phil will earn, from the same inventory investment.
Even if Turner’s additional titles only turn twice on each dollar invested, instead of the eleven turns he sees with LOL, he will generate another $334 of gross profit during the six month period, easily wiping out the perceived discount advantage that Phil thought he had
As with retail, the publisher has to consider this same math when deciding on a print model. The old ways of ‘stack-em-high and watch-em-fly’ don’t work for the publisher either. The new model utilizes short run printing and true print-on-demand options. Retailers are maybe less important for some publishers, but engaging sales through direct-to-consumer tools are becoming more important. How does this sort of math help a publisher be more nimble? Profitable?
Something to consider.
I found this post to be challenging, mainly because the process of analyzing numbers is quite a ways down the list of things that I love doing. Don’t get me wrong, I love looking at top line business numbers, especially as they relate to sales growth. But margin analysis can quickly make my eyes cross, even in the midst of being a key to business growth. However, this information is key for booksellers and I had help making is as simple as possible.
During my stint as head of sales for a major book distributor, our CEO took our leadership team through what turned out to be a crash course on the mathematics of bookselling, which we found out later, he had adapted from a monograph by Leonard Shatzkin with the same name. By asking a simple question, he helped us understand bookselling better than most people in the industry. Buckle up. I am going to share my notes from this session in two posts.
What is more important in determining financial success? Gross margin percentage or inventory turns?
Let’s look at two bookstores run by Phil and Turner. Each has $100,000 to invest in inventory.
Phil purchases his inventory from publishers at publisher discounts – we will assume 50% for this exercise. Phil has to carry more units per title to make sure he doesn’t run out when the publisher takes a week or two to fill the order, and to make sure he can meet the minimum order requirements from the publisher. Phil is happy when he achieves four inventory turns per year.
Turner is a bit of a rebel, and decides to forgo the extra discount and orders his product from a wholesaler at 40%. Turner orders a lot more often because the order processing time is much quicker with the wholesaler – his orders ship the same day he orders. The other important benefit the wholesaler offers Turner is that all of his publishers can be added to the same box and shipped together. This allows Turner to stock more titles, even though he is carrying less of each title on the shelf. As a result, Turner achieves six turns per year.
Here is where we break out the math.
Assume that Phil and Turner both sell their books at full retail, and assume their costs (rent, financing, etc.) are the same. Which is better off financially? Let’s take a look.
Phil gets 50% discount.
Annual purchases are $400,000 ($100,000 x 4)
Inventory sold four times at retail equals $800,000 ($400,000/.5)
Sales = $800,000
Cost of Sales = $400,000
Gross Profit = $400,000 ($800,000-$400,000) or 50%
Turner gets 40% discount.
Annual purchases are $600,000 ($100,000 x 6)
Inventory sold six times at retail equals $1,000,000 ($600,000/.6)
Sales = $1,000,000
Cost of Sales = $600,000
Gross Profit = $400,000 ($1,000,000-$400,000) or 40
In this exercise, they are equal. They both end up with the same gross profit. Does this surprise you? It surprised me. I assumed that more discount meant more gross profit. This same inventory turn concept applies to publishers who work with short run printing. The more turns, the better the cash flow, even with less ‘margin’ on a book. Reducing risk, by printing less (especially true print on demand) is not only profitable, but the way of the future.
In the next exercise, we will see some interesting things happen with the numbers that our two retailers are experiencing.