If you're an author, it's important to know the difference between retail margin and trade discounts. Here's a handy glossary for the savvy writer.

DEFINITIONS
Retail margin is basically the difference between your books wholesale price and your books retail price. For example, a book with a cover price of $10 and a wholesale price of $5 has a 50% retail margin.

Wholesale price is the cost of your book to a retailer. To use the same rudimentary example, a book with a cover price of $10 and a retail margin of 50% will be sold to a retailer for $5.

Retail price is the same as cover price or selling price. This is the cost of the book to the end consumer (the reader). The retail price is typically printed on the cover of the book and also embedded within the barcode on the back. For example, a book with a wholesale price of $5 and a retail margin of 50% will have a retail price of $10.

As you can see, retail margin, wholesale price, and retail price are interconnected. By having two figures, the third can be calculated.

The fourth definition to be aware of is the trade discount, which is the percentage off the retail price that a wholesaler or distributor pays for your book. Since the retail margin is a portion of the trade discount, the trade discount always exceeds the retail margin. Distributors typically expect between 50% - 70% in order to provide an acceptable margin to the retailer.

MAKING DISTRIBUTION WORK FOR YOU
It should come as no surprise that the amount of distribution your book enjoys rests largely upon its trade discount. Generally, the higher the discount, the greater the distribution. Think about it - distributors want to make money, too. So do retailers.

While your book's trade discount is but a piece of your pie (albeit a big piece), it is the entire cake for distributors and retailers, who together must split the take. The greater the number, the greater incentive they have to distribute your book, sell your book, and market your book, etc. The proper trade discount depends upon each author's intentions, and can vary from author to author just as readily as from book to book.

Obviously, the higher the retail margin, the higher the cover price, so authors interested in maintaining the lowest cover price possible will often opt for a lower retail margin. Conversely, those authors who long for the best distribution possible will elect a higher trade discount, even though their cover price will increase accordingly (or their profit will decrease accordingly).

Non-fiction or niche-markets are less affected by higher retail prices and greater distribution is often advantageous in finding those markets. Often, the author will have little to no say in what trade discount to offer for their books -- its whatever the distributor mandates. Trade discounts can be as low as 20% to successfully get listed on Internet retailers like Amazon.com, who manage to make a profit with such low margins through EDI (electronic data interface) with distributors like Ingram and on-demand publishers like iUniverse and Outskirts Press.

By comparison, trade discounts can be as high as 75% - 80% when dealing with a niche wholesaler, or when attempting distribution for a book that does not have a proven market. In these cases, the distributor may be padding the coffers a bit in anticipation for a "harder sell" and perhaps, also, in preparation for offering an increased retail margin to close the deal.

INDUSTRY STANDARDS
Industry standards for retail margins are difficult to define because, ultimately, it comes down to negotiation between all parties involved. Publishers have the power to negotiate with distributors, who have the power to negotiate with retailers, who have the ability to negotiate with the reader, but the typical trade discount is around 55%, which allows for a typical retail margin of 40%.

Publishing-on-demand is removing some of the participants in this little dance, and as a result, the same piece of pie is being divided among fewer people, resulting in more money for the remaining players (especially the author).