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The Case for Profit Sharing

In all the debates over appropriate ebook rates, there is an answer that rarely comes up: profit-sharing. I’m talking about profit-sharing, not just for ebooks, but across the board.

While the majority of our deals are still traditional, we’ve been increasingly doing profit-sharing deals. I’ve become increasingly convinced that profit-sharing can be a much better way for authors and publishers to do business, for reasons both obvious and subtle.

Let’s start with a biggie. Successful authors make more money in profit-sharing deals. A reasonably successful book (30,000 copies sold in all formats) might make a bit over one-third more under profit-sharing than under traditional royalties. A successful book (60,000 copies sold in all formats) can do 50% better than traditional royalties. These calculations are based on a set of reasonable assumptions, but if, for example, returns are unusually high, then profitability will be reduced.

These calculations are also based on a 50-50 profit split. At BenBella we sometimes provide escalators that take the author –publisher split as high as 70-30, in the author’s favor. So if the book is very successful, it can bring author royalties as high as double the traditional model.

This isn’t just theoretical. Here are two recent examples:

One recent book sold 46,074 print books and 9039 ebooks in the first six months after publication. Royalties earned under our high-upside model were $307,113; under the standard model they would have been $189,614. Our payout was 62% better than the standard model.

Another book sold 22,389 hardcovers, 4655 paperbacks and 19,815 ebooks. Royalties earned under our high-upside model were $250,027; under the standard model they would have been $127,896. Our payout was 95% better than the standard model.

But the benefits go well beyond the financial. Profit-sharing puts authors on the same page as publishers on a broad range of issues.  Whether the issue is the appropriate format (hardcover vs. paperback) or Infusionsoft Reviews , print runs, marketing spend or even paper stock used, profit-sharing forces us both to look at the decision from a business perspective.  The author is less likely to push for an expensive paper if they ultimately have to bear part of the costs. But at the same time I’m more likely to agree to an expensive paper knowing that the author still wants it after considering the impact on our joint P&L.

At BenBella we treat all of our authors as partners, regardless of the financial arrangements. But a profit-sharing deal supports this way of thinking, which traditional royalty arrangements can tend to undermine it.

In future posts I’ll talk about the downsides of profit-sharing deals (there have to be some, right?) and address how BenBella can afford to pay such substantially higher royalties in these deals.

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