Adventures in Self-Publishing, Chap. 5 Understanding POD Business Models (Part II)

This series highlights aspects of my experience self-publishing The Alexandria Project.   If you'd like to read the book this series is based on, you can read the first three chapters for free here.

Photo courtesy of "Visitor7" at Wikimedia Commons.  Creative Commons Attribution-Share Alike 3.0 UnportedLast week we looked at how Amazon, Apple and Google make money by working with self-published authors, what they do for them in return, and what that means for you.  As promised, this week we'll take the same kind of look at the myriad POD outfits that provide a wider range of services.

As you'll recall, Amazon, Apple and Google each have quite different motivations, based on the significant differences in their overall business models.  One result of the fact that self-published authors generate a very small part of the revenues of each of these companies is that each offers very few services in return, and most or all of those services are automated.  Another is that none of the three companies has an incentive to make it easy for a self-published author to sell through any of its competitor.  Indeed, quite the opposite.

In contrast, for most POD publishers, helping you get your book to market in every logical distribution channel is their only business.  So that should be good, right?  Well, yes and no.  Here's why.

As I pointed out last week, one of the most important factors in picking a POD of any type is how well their interests and goals align with your own.  To give the most blatant example of this, if the POD can satisfy all of its goals simply by taking a large up front payment from you, then the result may not be what you hope for, and especially if service was the reason you used a full service POD instead of going directly to, say, Amazon.

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True, if the same POD ends up with thousands of vocally unhappy customers, it will end up in trouble.  But if instead it generates a lot of “only” under-satisfied customers (say because the POD has too few employees to give prompt attention and good service to all of its customers), it may decide that it is better off on a net basis not supporting the extra overhead needed to better satisfy its clientele.  And since there are so many one-time authors, it may not care if it doesn’t get much repeat business, either.

On the other hand, if the same POD’s advertising pitch is that,  “we’re much cheaper than the competition, so if price is more important to you than personal service, we’re your boy!” you might end up satisfied with the same service, and even come back again.

So you have two challenges in picking a POD: the first is defining your objectives and identifying the PODs whose business models best map to your objectives, and the second is trying to figure out which have the best reputations for delivering high quality, timely services.

With that by way of introduction, let’s take a look at the range of services that POD publishers provide, so that you can figure out which you care about, and which you don’t.  Not all POD publishers provide all of the services listed below.

1.  Critiquing, editing and/or proofreading.

2.  Designing the internal layout and design of your book.

3.  Providing hardcover and softcover cover designs and/or allowing you to customize one of a number of provided templates (a less expensive alternative).

4.  Contracting with a printer to provide the hard copies.  Almost all PODs, and indeed many traditional publishers, use the same printer, called Lightningsource, a business unit of Ingram Content Group, Inc., which wholesales over 2,000,000 book titles.

5.   Converting your book to the major eBook formats, and then submitting your book to eBook distributors (at least Amazon, Barnes and Noble and Apple).

6.  Listing your book with appropriate indices for hard-copy distribution.  This makes it possible for brick and mortar stores to order and stock the book, assuming you’re able to successfully promote it.

7.  Make it possible to direct sell hard copies through their site, or yours (via a shopping cart widget).  What this means is that they will forward the order to Lightning Source for fulfillment, and eventually pay you your royalty on the sale.

8.  Handle the accounting and record keeping, let you check how your sales are doing on line, and pay you periodically.  How current their on-line reports are, and how frequently you will get paid, can vary widely.

9.  Providing a web page for your book, or web sites of various degrees of sophistication and cost.

10.  Provide marketing collateral (business card, posters, etc.).

11.  Provide active marketing assistance (prepare and submit press releases and more).

12.  Throughout the process, the good ones will give you ongoing advice, usually by phone as well as email.

The takeaway from this is that most, but not all, POD publishers are big on providing services. 

In almost all cases, a POD’s services are combined into packages at ascending costs.  Often, the lowest cost package is intended to just get your book into hard copy distribution.  The next most expensive package might add eBook preparation and submission, a press release, a basic Web site where you can add some text of your own from time to time, and some marketing collateral.  The most expensive package might include editorial assistance in shaping your book up, a website with a blog, and more extensive marketing services.  Each level would provide a larger number of printed books included in the package price.

The first PODs to come along tended to be very full service, generating higher per-customer revenues.  As more and more entrepreneurs and existing businesses dove in, the range of business models began to diverge, with some targeting the price conscious (e.g., and providing a very basic package at a low price. 

So how do these types of PODs make money, and how does this affect you?

POD publishers have three main revenue streams: 

1.  The fees you pay them up front to help you get your book to the point where people can buy it.  These fees vary widely depending on how many services you wish to buy, either as a package, or as a package plus a few a la carte options.  Competition and the ability to compare one publisher to another has tended to compress the differences in services and prices between POD publishers, and also to make it possible, although time consuming, to compare one to another.

2.  The markup on the printing cost that almost all POD publishers charge their authors.  The difference in the markup can be substantial, and some PODs are more transparent about the economics of their pricing than others.  It’s worth noting that you can go direct to a printer yourself after either doing your own layout work, or using a POD publisher or a free lancer to do that for you (this assumes that you’ve selected a POD that allows you to own your own electronic files (covers and text), which we will talk about further next week).  As already noted, the printer will be direct shipping to the customer anyway, so if your book does very well, you may want to pick a different partner with a better author royalty structure.  A few authors may even decide to become publishers in their own right, meaning that they’ll take delivery of books straight from the printer, and then ship them themselves against orders and payments they take directly from their customers.

3.  A commission on eBook sales.

The most obvious takeaway from the above is that a POD can make money regardless of whether even one copy of a book sells, so long as it charges enough for the service package.  Since the rule of thumb is that fewer than 30% of the c. 150,000 new titles that are published each year sell more than 100 copies, it’s easy to see why the first, and most of the current PODs, still focus on service package income.  Further evidence of this is the fact that very few PODs do any sort of editorial review – in short, they’ll publish anything, no matter how bad it is.  It would be fair at this point to wonder how different these PODs are from the traditional “vanity” publisher.  Indeed, some will be happy to sell high-priced promotional and other services to authors whose work doesn’t stand a snowball’s chance in hell of ever attracting an audience.

PODs that focus primarily on services therefore have an incentive to up-sell you to the most complete and expensive package possible.  Many of these services (e.g., the promotional ones), in the opinion of most people in the know, are highly unlikely to pay off, even if your book is pretty good.  This is simply because the type of services offered are a bit like throwing an extremely tiny pebble into a very big lake.  The ripples they produce simply go unnoticed.

At the other end of the spectrum there are PODs that figure they can compete on price and make it up in volume.  Of course, you shouldn’t expect to receive the same level of individualized service.  Some of these PODs may only offer basic services (e.g., no editing, proofreading, press releases, etc.)

In the middle lie those PODs that hope to make money on book sales as well.  Some of these PODs will screen books from potential authors, and reject those that they don’t think will sell.  Predictably, those that reject bad work are likely to be those with the lowest priced services.  This is logical, because they need a certain percentage of their authors to sell reasonably well in order for them to do well.  Since success in the marketplace will depend greatly on luck and the author’s promotional efforts, the POD would ideally like every book to be a potential winner so that enough actually do well for the POD to hit its desired profit number.  That said, these are not traditional publishers, because they do not provide the additional services that a traditional  publisher would (a cash advance, editing and promotion at no cost to the author, and so on).  On the other hand, most do allow the author to keep ownership of her book.

The three models above account for the great majority of PODs, but this is a dynamic marketplace that has changed rapidly, and can be expected to do so for the indefinite future.  As a result, creative entrepreneurs have come up with some interesting variations on the POD model.  One of the more interesting of these is Smashwords, which has rightly received much attention.  It has also attracted a very large stable of authors (over 30,000, according to the Smashwords “About” page), many of whom have multiple titles listed through Smashwords.

The first and most obvious thing to point out about Smashwords is that it doesn’t cost an author anything to use the site’s tools to convert her manuscript into an eBook, or to list her book for sale through the Smashwords site, or to get it listed at Amazon, Barnes and Noble, and Apple. 

The second thing to note is that Smashwords pays very high royalties to authors.

The third, final, and not surprising (in light of the above) thing to note is that Smashwords only deals in eBooks.  Why do I say not surprising?  Because that’s how Smashwords can afford to charge nothing other than a cut of sales.  Like Amazon and Google, they provide an automated platform that doesn’t require any staff to work directly with authors to get their books in shape to go on sale, so the overhead associated with taking on a new title is minimal.

Smashwords is also refreshingly candid.  Here’s an example from the same “About” page:

Will I sell a lot of books on Smashwords?

Probably not. How’s that for an honest answer?

Like the other PODs, whether or not your book succeeds will depend on your own efforts.  But Smashwords has also been creative in coming up with tools to help its authors sell more books, such as coupon offers and ways that Smashwords authors can work together.  As a result, unlike most PODs where an author interacts only with the POD, Smashwords has set about creating a community where its authors can, up to a point, interact among themselves.

What I’ve found to date in my own experience is that the easiest way to end up as a happy author is to look for as little as possible from a POD.  That’s because the business model of the typical POD’s based on high volumes, low margins for the basic package (which may even be a loss leader product), and low repeat business.  That means that there’s insufficient incentive to provide good service, or, frankly, to be very honest about the true value of many of its services.  From this perspective, getting a basic, highly automated package starts to look pretty good, assuming that you’re willing to put in the extra time to work on formatting, cover design and the like. 

Unfortunately, because the major distributors have refused to adopt a common formatting standard, and the fact that Microsoft hasn’t made it a priority to make it easy to set up files for book presentation, this means you’ll either have to invest some real time in book formatting, hire a free lancer to do that for you, or settle for a less than professional looking book if you go the cut rate, automated route.

So there you go.  Now that we’ve gone through how the PODs work and what drives their business models, we’re ready to the next steps: deciding what services you want, locating the PODs that offer them, and figuring out how to evaluate them. 

See you next Friday.

Read the first chapter of this series here

Read the next chapter of Adventures in Self-Publishing here

 Read Chapter 1 of The Lafayette Deception (the sequel to The Alexandria Project) here