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My Lightning Source System for Self-Publishing Profit

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My Lightning Source System for Self-Publishing Profit

by Aaron Shepard

Based on my own experience with Lightning Source, which goes back to 1998—only about a year after the company’s founding, when it was still called Lightning Print—it remains the prime choice for most modern self-publishers determined to maximize profit.

I have no official connection to Lightning except as a publisher client, and I have neither sought nor received any endorsement from it, but I’ve published almost two dozen books through it. And though I’ve worked also with BookSurge, CreateSpace, and Replica Books (now TextStream), sales through Lightning provide the bulk of my income today.

Of course, not all Lightning publishers make money, but many do, and our ranks are growing. For a very rough idea of what’s possible, here are the results of a 2008 poll of Yahoo’s pod_publishers group—a gathering point for Lightning publishers worldwide—with 28 members responding. Dollar amounts are average monthly profit from POD sales, given in U.S. dollars.

29%$0–$100

29%$100–$1,000

25%$1,000–$5,000

11%$5,000–$10,000

4%$10,000–$50,000

4%$50,000–$100,000

0%$100,000

The respondents most successful with Lightning have published multiple titles in nonfiction, which reflects a truth about self-publishing in general.

Initial Money Matters

Let’s look at the financial factors for a typical book, namely a black-and-white paperback with color cover. These figures are from early 2010, but Lightning’s charges have been remarkably stable. In fact, the U.S. prices haven’t gone up in most of a decade.

Setup and maintenance fees. There are no fees just to set up an account at Lightning. Each book submitted digitally has a setup fee of $75 for interior and cover combined, plus a $30 fee for a proof copy, and a $12 annual “catalog fee” for inclusion in Lightning’s database and its electronic feed to booksellers.

Printing cost. Printing is charged by the page, with an extra charge per copy for the cover and binding. For paperbacks less than 10 inches high, printing costs are 90 cents per copy and 1.3 cents per page.

List price. You assign the cover price yourself. Lightning imposes no minimum or maximum limits on it.

“Wholesale” discount. Since Lightning is both a printer and a distributor, after printing your book, it buys it from you at a discount off your list price to resell to its “distribution partners”—the wholesalers and retailers that can order direct from it. They include Lightning’s primary partner, Ingram Book Company. Lightning passes the entire discount along to these partners. (Which is why Lightning calls it a “wholesale” discount instead of a “distributor” discount, which is what it really is.)

The most unusual thing about the distributor discount you give to Lightning is that, like the list price, it’s set by the publisher. Note, though, that the discount you set at Lightning is only for Lightning and its distribution partners. It is not the same as the discount later given by Ingram, Amazon, or any other wholesale or retail bookseller to its customers.

Deciding on a Discount

Now let’s look at the whole matter of discounts in more detail. In the world of publishing in general, any publisher can offer any discount. But unless you offer a standard discount (40 percent or greater), your book will generally not be stocked by bookstores, because they can’t make enough (or any) money from it. And it generally won’t be stocked by wholesalers, because they know that the bookstores won’t carry it. And if it’s not stocked by the wholesalers, then bookstores will probably figure that ordering a copy is too much hassle, even if a customer comes in and asks for one—assuming the bookstore can figure out how to order it at all.

What is likely worse for you, if your book isn’t at the wholesalers, Amazon won’t carry it or usually even list it unless you sign on with Amazon Advantage or CreateSpace—and that would kind of defeat the whole purpose, wouldn’t it, since you’d be giving Amazon a discount between 40 and 55 percent anyway. So, you’re more or less stuck with standard discounts.

Or you are unless you’re distributed by Lightning Source.

All Lightning books are automatically carried by Ingram and shown as perpetually in stock, no matter which kind of discount they have.

With Lightning, the choice is up to you. You can set your “wholesale” discount—the one Lightning gives to Ingram and other booksellers ordering directly—anywhere down to 20 percent. In fact, your discount can be different for each book, or even for each country for each book. Plus, you can change it whenever you want. (There’s an exception. If you have a separate account with Ingram, you’ll have to stick with the discount agreed to for that. The moral is, don’t have one!)

But exactly what happens if you set a short discount? Let’s see how this plays out through Ingram.

Ingram doesn’t publicize its guidelines for discounts, but its practices seem pretty consistent. If your discount at Lightning is 55 percent, Ingram gives retailers a base discount of 40 percent. With a 50 percent Lightning discount, Ingram gives 35 percent. In other words, Ingram takes 15 percent of your list price as its own cut.

But once you enter the realm of short discounts, Ingram’s discounts to retailers drop sharply. At this point, Ingram increases its own cut to 25 percent—an anachronistic practice from the days before POD, when a short discount meant higher capital investment and greater risk for Ingram.

A Lightning discount of 40 percent—often set by new self-publishers who believe bookstores will get the full discount—yields an Ingram discount of only 15 percent. And for a Lightning discount of 20 to 25 percent, Ingram’s base discount is exactly zero.

You may be wondering how a bookstore can make any money from selling a book when Ingram offers no discount. Generally speaking, it can’t. And in most cases, it should not expect to. Bookstores are used to “special ordering” single copies to fill customer requests, for which they normally get no discount from a publisher.

Amazon, of course, sells many Lightning books in quantity. But Amazon has a direct line into Lightning. Once Amazon receives enough orders for a book to show customer demand—and it doesn’t take more than two or three—it will probably decide to go to Lightning and order the book to stock its own warehouses. And Lightning will give Amazon the full discount you’ve specified.

In fact, it’s possible that Amazon receives additional discounting as well—say, a discount for quick payment, coming out of Lightning’s own pocket.

But Amazon’s case is even more special than that, because of its arrangement with Ingram for drop shipping. When an Amazon customer orders a book and Amazon has no copies in stock, it gets Ingram to send the book directly to the customer with Amazon’s packaging and paperwork. And this arrangement most likely comes with special pricing from Ingram.

As a result, it’s more than possible that Amazon does make money—or at least can make money—from short-discount books.

And so can you. In fact, for any publisher working with Lightning Source and aiming primarily at sales on Amazon, a short discount is the very best way to maximize profit. For most books, it’s the only really logical policy.

A Short-discount Short Story

With anything but a short discount, you’re simply giving away money. A story about my first big book on Amazon illustrates the point.

I originally priced The Business of Writing for Children at $12 and told Lightning to set my wholesale discount at 50 percent. My idea was to give Amazon a fair profit when it ordered from Ingram—which was at that time the only way Amazon could get Lightning books.

I also wanted to encourage bookstores to stock the book, which I figured they’d do after customers saw it on Amazon and went to the store to ask for it—a common practice, especially in Amazon’s early years.

At the time, with the discount Amazon then offered on most books, its customers were paying around $10 for mine, which I figured was optimum. And with a production cost at Lightning of $2.30 per copy, I was making a net profit of $3.70.

It was a reasonable enough strategy, and the book was selling and earning well enough. But after a while I realized two things. First, bookstores were indeed ordering the book in response to customer requests—but as far as I could tell, they were not stocking it. So I was giving the stores a standard discount for nothing.

Second, Amazon was not making a “fair profit” from my book. In fact, if you counted Amazon’s operating costs, it was making no profit from it. What it was doing was taking my discount, then turning around and giving as much of it as it could to its customers. Amazon was intentionally operating at a loss and providing huge discounts to customers so it could undercut traditional bookstores.

So I took a look at that money Amazon was passing along to its customers, and at that money being kept by bookstores who weren’t stocking my book, and I says to myself, says I, “You know, I’d rather keep that money in my own pocket.”

So I did. I told Lightning to change my wholesale discount to 25 percent. That would have nearly doubled my profits—but I also wanted my pricing to remain optimal, and Amazon was then offering no discount on short-discount books. So, I also lowered the book’s list price to an even $10. With these figures, my clear profit was $5.20 per copy—an increase of over 50 percent.

How did this affect my book on Amazon? The discount was removed, so customers now paid a full list price of $10 instead of a discounted price of roughly the same.

That’s all.

There was no penalty, no scream of outrage, no subtle undercutting or loss of position in search results, and no noticeable loss of sales. My book was the #1 children’s writing guide on Amazon before the change, and that’s exactly where it stayed afterward. Meanwhile, I was making hundreds more dollars per month.

Let’s be clear, though, about one thing: You can’t set a short discount unless you’re thoroughly prepared to Forget Bookstores—the first principle, as always, of my minimum-hassle, maximum-profit publishing plan. With Amazon and other online retailers eager to sell books and commanding more and more of the market, dealing with traditional booksellers in most cases simply isn’t worth the trouble.

Short-discount books are not universally welcomed among online sellers, though. In 2009, Borders.com became the first—and so far, the only—major online bookseller to stop offering short-discount Lightning books.

The hard truth is, no single set of terms and policies is optimal for every possible bookselling situation. You need to choose your main focus and let other situations work themselves out as they may. My own choice, and the one I recommend as most profitable for most self-publishers, is to aim at Amazon with a short discount of 20 percent at Lightning Source.

But whatever you do, don’t “compromise” by setting a discount at Lightning midway between 20 percent and 55 percent—an error new self-publishers commonly make. You lose much of the benefit of the short discount without gaining any of the benefits of a standard one. Once again, that’s just giving away money.

Aaron Shepard’s latest book, POD for Profit: More on the NEW Business of Self-Publishing, covers these and other aspects of dealing with Lightning Source, while his earlier book, Aiming at Amazon, lays out the basics of his bookstore-free publishing plan. To learn more, visit Aaron’s Publishing Page at newselfpublishing.com.

 

 

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