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How some companies sell so cheap

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#1 John Ashtone

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Posted 24 September 2012 - 03:42 PM

I wasn't sure which area of the forum to put this in so I have gone for Ebay as many will have been baffled how some companies can sell stuff so cheap.

It is Economies of scale and my example is for the Printing industry, so Publishing, card games, board games and all sorts of other areas of industry where initial out lay is the main cost, and it can be very revealing.

Let's say you have a new book, and the agent has found the ideal Publisher, you have taken two years to write it, but forget those costs, they are gone, and will ony be covered if your book is a best seller, however let's pretend it is.

The Publisher decided to print 5,000 copies, there are the agents fees the Publishers marketing costs, editing costs and sitting around in a plush office costs, lets say £5,000, the printer is charging them £2,500 for setting up costs and £2,500 for printing costs, that is £10,000 so £2 each, they sell into a wholesalers lets call them the River and the Garden (everyone in the trade does lol) @ £2.50 and they sell them out at £5.00 each.

All well and good, no surprises there, but let's say it is a bestseller, the Publisher has had a couple of reprints, and it is still selling, heres what happens.

The Publisher has already sold 5,000 so they print another 5,000, already they have covered their overheads, also the printer will have the setting up costs on computer, however the Publisher will still be charged for this, it is all part of the game.

The cost of each book is now £1 and any price the publisher sells over that is profit, lets say they sell them @ £2,25, £1.25 profit on each book, now they get back any money for the author.

And the book keeps selling so the Publisher orders 10,000, but now the The Garden and the River want a bigger discount, no problem, although the setting up costs are £2,500 the printing costs are only £4,000 as extra costs for bulk come in, Each book is now 65p each to produce, so the Garden and the River get them at £2.00 the publisher has made 10p more on each book (£1.35) and yet sold them 25p cheaper.

It gets better, we will disregard the Dan Brown's and J.K. Rowling's of this world and stick to the reasonable seller, the Publisher has 50,000 printed, the costs are £2,500 setting up fee from the printer, £15,000 for the books, = £17,500
that is 35p each.

But here is the killer, they sell the first 30,000 to the wholesalers at 80p each, who in turn are now selling them to you or I @ £3.50 so they are selling them at £2.70 profit, 20p more than the original price.

Meanwhile the Publisher has already taken £24,000 thus making £7,000 profit on this print run, they could if they wish, and often do, sell the remainder at whatever price they want 20,000 @ 1p each and still make another £200, needless to say at that point they would probably be sold at more than 10p, however for the purpose of my illustration that is how it works.

In fact Publishers of some books where they know there is likely to be a minimum sale, Agatha Christie anyone, will often have 100k print run with 50k to 70k earmarked for the remainder market.

The big glossy books, work on slightly different numbers but the principle is the same.

I hope this has enlightened some of you to why some stuff is priced like it is, now I am back to writing my next book for Kindle on ~Starting and Running a Business, I already have a factual History book on kindle.

#2 Forum Admin

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Posted 24 September 2012 - 04:10 PM

Great post John.

Did you introduce yourself?:


It would be great to know a bit about you.

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