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Income Report: Why Exclusivity is Bad (Unless You’re Amazon)

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by Nick Stephenson in Books and Writing

Don’t get me wrong – exclusivity can be a wonderful thing. If you’re getting something in return. Consider this situation:

You sell breakfast cereal. Some of your products are at the budget end of the scale, others more premium. Your net wholesale profit per unit is around $2 – $4, depending on the product range in question. You sell to Walmart, who represent about 85% of your sales, and a bunch of other supermarkets who make up the other 15%. Things are looking pretty good.

One day, Walmart calls you up and says: “Hey, we love your breakfast cereal. We’d like to offer you a special deal. In return for exclusivity, we’ll keep paying you $2 – $4 per unit, but we’ll feature you more prominently in the store and let you run in-store promotions throughout the year, which we’ll push hard for you. Both parties can opt out after a certain number of months.”

Sounds pretty good, right? In return for exclusivity, you’re getting a fair wholesale price and some tangible benefits. For some, this might be enough to sign on the dotted line.

 

 

But consider an alternative offer…

Walmart: “Hey, it’s Walmart here! We love your breakfast cereal. We’d like to offer you a special deal. In return for exclusivity, we’ll let you run in-store promotions throughout the year and we’ll feature your product as part of our special monthly membership program for breakfast cereal.”

You: “Sounds good! And we keep the same deal on the prices, right?”

Walmart: “Well, we’re keeping the same retail price, so the customer pays the same – unless we’re giving your stuff away as part of our membership scheme. This means we might end up paying you $1.39 or less per unit, instead of the $2 – $4 we currently pay.”

You: “Oh, okay. Well, I guess you’ll shift a ton more in volume to make up for it, right?”

Walmart: “Umm… well a few of our retail partners earn more. But it’s not guaranteed.”

You: “Wait a minute. How many other people are getting this special exclusivity offer?”

Walmart: “Everyone.”

You: “Okay, so in return for taking a lower price on wholesale, you’re offering… what, exactly?”

Walmart: “You’ll be able to run in-store promotions. Like discounts and special deals.”

You: “That sounds cool. So, you’ll push those promotions hard in return for me taking a lower price?”

Walmart: “Umm… no. You’ll have to buy some advertising otherwise people won’t know your deals are running.”

You: “I don’t really want to switch to advertising a lower-profit product. Is there anything else you can offer in return for me dropping my wholesale prices by 30% – 65% or more?”

Walmart: “Of course! If you’re in the top 100 selling exclusive products, we’ll offer you a financial bonus.”

You: “Cool! How much is the bonus?”

Walmart: “Umm… we don’t know.”

You: “Ballpark.”

Walmart: “Sorry, we only announce the bonuses during the month they’re paid.”

You: “Okay, okay. Let me get this straight… You want to pay me 30% – 65% less, AND you want me to go exclusive. And in return, you’re offering me the chance to promote special deals in your store… but you won’t tell anyone about them? Oh, and you might pay me a bonus if I shift a ton of units, but you won’t tell me what that is?”

Walmart: “You got it! Ready to sign up?”

You: “Uhhhh…”

 

 

 

Okay, you probably get the picture – the top example is any sane person’s idea of a potentially lucrative deal for both parties. The second offer is an example of what you’ll most likely get with KDP Select.

The bottom line: exclusivity is a terrible idea if you’re not getting anything in return for it – even if you’re only locked in for a few months. Which brings us around to KDP Select and the much-maligned Kindle Unlimited program.

Signing up exclusively with KDP is working for some people. Well, maybe 100 people. But realistically, anyone not in the top 100 KDP-exclusive authors is probably better served moving on. In fact, those not in the top 50 would probably earn more on other channels than they make in bonuses and borrows.

So, why bother with KDP Select at all?

One author I spoke to is 90% exclusive with Amazon. And that’s a smart move for him, because they just picked up his backlist for publication with Thomas & Mercer. They’re also offering him kick-ass audiobook terms. And possibly translations. And advances. And features in the Kindle Daily Deal. And they buy him lunch.

All in all, a pretty compelling offer.

Has Amazon offered you anything like that recently? If not, I’d suggest potentially re-thinking your position on KDP Select if you’re currently all in. Take a long, hard, think about what Amazon are offering you in return for slashed profits and lack of control. Is is really worth it? Because the more people joining Kindle Unlimited, the fewer will want to drop $3.99 (or whatever) on your book if they can get their mitts on it as part of their subscription.

I get it. You might have a good thing going. You might think that dropping out of KDP Select will spell DOOM for you. Well, I have no way of predicting the future – but I can show you my results.

Over the last 5 months, all but 2 of my titles have dropped out of KDP Select. To make up for anticipated lower volume, I worked on building up an audience at the other retailers, as well as building up my mailing list and social media accounts to sell more direct. Here’s the results:

July

This graph shows 4 titles in KDP Select

 

August

3 Titles in KDP Select

September

3 Titles in KDP Select

October

3 Titles in KDP Select

November

2 titles in KDP Select

 

The figures down the left axis are total USD royalties. You can probably see that overall income has stayed pretty steady in the last quarter, overall up roughly 10% – 15% since July (September was a little higher due to a new fiction release) while Amazon has fallen from around 85% of my income in July to around 55% of my income in November.

Sales on other platforms (iTunes, Nook, and especially Kobo) have grown from around 5% – 10% of total income up to nearly 30% of total income. It took a few months to get going, but the move was definitely worth it. My direct sales have gone up and down, between 18% and 30% (again, September was a good month due to a non-fiction launch outside of the ebook retailers).

Which brings me on to my other point – 2014 has been a great year, and a big chunk of that awesomeness has come from growing my email list. As well as keeping my Amazon, Nook, iTunes, and Kobo sales healthy, this has also allowed me to branch off into other areas. Those other areas (labeled “Direct” on the graphs) are now responsible for a decent chunk of income each month. And that will grow considerably as my email reach increases.

None of this diminishes my gratitude to Amazon for making self-publishing a viable career alternative for many, including me. But the rose-tinted glasses can’t stay on forever, right? There are opportunities to be had outside of KDP, and you don’t need to be a slave to the Hot New Releases window to make great things happen.

To put it in perspective – I’ve only released two new novels this year, compared to 4 last year. But my income has gone up. I’ve never believed that “just write more books” is a strategy – and I’m not really comfortable with committing myself to a three-month publication schedule for the rest of eternity just to keep things going. Take a look at this post to see what I mean.

Don’t get me wrong – dropping my titles out of KDP Select was scary. But, at the end of the day, entrusting almost 100% of my income to one retailer (who can – and have – slashed royalty rates on a whim) was even scarier. I still keep 2 titles in KDP Select, one fiction and one non-fiction, which means I can run free promotions from time to time. This may or may not change in 2015.

The end result? I’m now in a position where monthly fluctuations from any one particular source of revenue are less likely to spell trouble. My overall income has also increased since the beginning of the year, when all my titles were exclusive.

I’m telling you all this because I believe it’s important that authors understand what’s possible – and I’m no special snowflake. I’m not doing anything that you can’t learn to do yourselves with a little hard work.

To get you started, take a look at “Reader Magnets”. It’s free here:

Amazon: http://www.amazon.com/dp/B00PCKIJ4C/ 
PDF: http://noorosha.com/rm-download/

Now, if you enjoyed this free article (and the free book), please take a moment to share this page with 3 of your author friends. Or post a link on a forum, or on social media. And if you’ve got any questions, leave a comment – I’ll be dropping in for the next 24 hours or thereabouts to answer any burning queries.

In fact, let’s get a conversation going: If you’re all-in with Amazon right now, is it working for you? If you’re not all-in, or you mix and match, do you have any plans for growth in 2015? What’s your number one stumbling block with getting sales where they need to be?

Leave your answer in the comments! 

If you want a step-by-step guide to getting started on your email list, go download “Reader Magnets”. This free ebook will show you how to put this process in place and start building your email list – click below to grab your copy:

reader-magnets-3d

 

 

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