Sell-in, Sell-Through, Earn-Out
Today I want to explain some publishing terms that sometimes get confused: sell-in, sell-through and earn-out (and I’m reluctantly throwing in returns at the last minute.)
SELL IN: This is the number of copies ordered by retailers (or any other entity) prior to publication of the book. Sometimes this number is called the “lay down” and you’ll hear publishing types say things like, “What was the lay down?” The number tells you how many copies are available to consumers on the day the book first goes on sale. The sell-in figure helps to determine the initial print run.
Of course, the publishing industry has this lovely little tradition called returns* so the sell-in could be just the beginning of your skyrocketing sales figures… or it could be a vastly optimistic early sign of your book’s success, only to be decimated by reality, otherwise known as:
SELL THROUGH: Also known as “net sales,” this is the number of books consumers actually purchase. The number is calculated and recalculated over the life of the book, and always takes into account the returns to-date. Sometimes you’ll hear people say things like, “The sell-in was terrific but the sell-through was disappointing.”
So to simplify: Sell-in refers to the number of books placed in bookstores. Sell-through refers to the number of books consumers carry out of bookstores.
EARN OUT: This refers to whether or not your book sold enough copies for you to earn back the advance you were paid by the publisher. To use this term in a sentence (verb form): “Did your book earn out?” Or to use it as a noun: “What’s the earn-out on that book?”
Keep in mind that the earn-out doesn’t determine the publisher’s profitability on your book.
*And what’s the deal with returns anyway?
Basically the deal is that “returns” are one of the most lamented aspects of the publishing industry, blamed for everything from making it difficult to have a profitable business to global warming and possibly even swine flu. (Okay, maybe not those last two.)
Bookstores can return unsold books to the publisher and get full credit on their account. So this is why your sell-in is one thing, and your sell-through is something else entirely. If your book is doing well, the bookstore will sell out and order more. If your book isn’t selling, the bookstore can package it up and send it back.
The tighter a bookstore’s finances are, the quicker they’ll send back a book. Some bookstores will only give a book a month on the shelf to show some significant sales (however they define significant) and if it doesn’t measure up, back it goes. In tough times, bookstores occasionally return books for credit rather than paying their bills with actual money, setting into motion a devastating financial spiral for many publishers (who actually need cash to run their business, not a warehouse full of unsold books).
Of course, one of the unsung advantages of e-books? No returns.
Any questions about these very exciting publishing terms?
© 2011 Rachelle Gardner, Literary Agent
Thanks for your concise explanation of sell-in, sell-out (and shake it all about…LOL).
I was looking with reference to the terms used relating to smartphone sales, but I guess they borrowed the term from the book industry?
BTW I looked for your e-book “How Do I Decide?” on Apple’s iBook store – but no luck. Hey …I suppose its not worth bothering with a tiny market of over 500 million credit card holding iTunes account holders….LOL
I think I’m right to say they were first with self-Publishing. I am sure Apple users would like to read your book.
Or maybe you are concerned about a DOJ anti-trust investigation…LOL
Anyway, I really enjoy your blog which I came about accidentally and look forward to exploring it more.
Aw, this was a really nice post. In idea I would like to put in writing like this additionally – taking time and actual effort to make a very good article… but what can I say… I procrastinate alot and by no means seem to get something done.
Apple now has Rhapsody as an app, which is a great start, but it is currently hampered by the inability to store locally on your iPod, and has a dismal 64kbps bit rate. If this changes, then it will somewhat negate this advantage for the Zune, but the 10 songs per month will still be a big plus in Zune Pass’ favor.
Retail is not as simple as it appears. If you don’t learn the basics, you are setting yourself up for failure.
>It is both sad and impressive to see all of our books in our warehouse, depending on why they are there. I should post a pic sometime so you can see.
>Very helpful! Thanks!
>Thank you. Yes, those returns make my wallet scream "OUCH!"
>This was so informative. Thanks! Wish I had understood these terms when my book was released. I found the numbers very confusing. Now I'll be better informed with my next book!
>It's amazing how much information can be put into such a small space. Outstanding, thank you.
I do have a question:
What happens to returns? Working in retail I know often times they go back into the system. A printer from a box store that never sells will get sent to a different box store where it will, for example. Is the same true for books? Where an independent seller may return books that didn't sell to their demographic, will the publisher then send them to a different indie seller who's selling through them like McDonald's sells through fries, or will they go to the local recycling center?
>BOY! .. we rookies, as someone said, don't even know what we don't know!
>Great post and follow up comments/questions.
In light of all of these nuances of publishing, the bottom line (to me) seems to be that writers need agents.
>I am learning so much from your blog an look forward to tomorrow's post for more information. Thanks Rachelle.
>A company like Amazon.com has a lot of wiggle room when it comes to prices. Because they don’t have to have stacks of books available for people to see, they are able to limit their inventory to those books that are actually selling and they can stuff their warehouses tight without leaving space for customers. Because their per book cost is so low, they can pass bigger savings on to the customer and still make as much as or more than a traditional bookstore from each book.
>I'm learning so much. Thank you!
>Publishing sounds like a circus juggling act to me.
>@Walt: Not an industry expert, but I imagine that authors/publishers get the same amount of money whether or not a coupon was used to purchase a book. My guess is that the contracts all stipulate certain percentages of list price for author royalties, and the publishers sell to the bookstores at a fixed price anyway. The bookstore will then usually sell for the list price on the cover, but if they choose to sell it for lower, they take the hit (but likely try to make up for it in volume sold). I'm sure Rachelle will correct me if I've misstated anything.
>Walt Mussell: The "retail price" is actually the "list price" or what the book is listed at. If the author is getting royalties based on the retail price, then bookseller discounts don't affect them. Even if the author is getting royalties based on net, the bookseller discounts still don't factor in. (Amazon sells a lot of books at a loss.)
Erin: The only way to know the sell-in is to ask your publisher. (Or ask your agent to ask your publisher.) And no, the publisher never keeps you updated! You have to ask.
Yes, publishers always keep some reserves against returns; how much they can keep is specified in your contract.
>Hart Johnson: Tomorrow's post may shed a little light on this issue. But just keep in mind that when you're hoping to lay down 20,000 or 50,000 (or more) copies of a book, POD doesn't cut it. And you mentioned
"smaller initial shipments" but that doesn't address the importance of shelf space . If Barnes & Noble only had one copy of your book on the shelf, how would anyone notice it? Part of the reason returns still "work" as part of the process is because bookstore real estate is valuable. You've got to print a lot of books and sell them in, so that stacks of them are sitting there for the consumer to see as they walk by. It's worth it as a powerful marketing tool, even if it means a lot of those books will eventually be returned. They'll still sell more books this way.
>This is really helpful. I still wonder though, in this day and age of next day shipping and PoD, why this is permitted. It seems like smaller print runs, smaller initial shipments, and then responding to actual sales would save a ton of money.
>You're right, Rachelle. The returns you're talking about are different than the ones I mentioned in my commnet. I guess two cups of coffee are not enough to make me lucid. Off to get a third….
>Wow! The things I NEVER knew… this post is SO HELPFUL. Question: How do you find out what your sell-in figures are? I guess you find sell-out on Amazon through bookscan, but for Sell-in, does your publisher keep you updated? Do you just need to wait and see? And, if you have earned out your advance, will the publisher reserve some of your royalties against the possibility of returns?
>Thanks so much for this great information.
We have a wonderful opportunity to learn the lingo and terminology from a top professional through your posts.
It is greatly appreciated.
>If the author and publisher are getting paid based on the retail price, then do the various discounts/coupons offered by booksellers affect what gets paid back to the author and publisher?
>David A. Todd: Okay, good point, sometimes readers may demand their money back on e-books. But a handful of unhappy readers can't compare to say, Walmart returning 3,000 copies of a book. That is devastating to both author and publisher, but it happens.
Sharon Bially: I've seen people quote all kinds of stats on what percentage of books earn back their advances, from 10% to 50%. But I don't think an accurate number exists. As far as I can tell (someone please correct me if I'm wrong) there's never been a comprehensive study that collected actual data from publishers (who are the only ones who really know) and created an accurate average across the industry.
>Interesting, thanks! Q 4 U: Approximately what percentage of books actually do earn back the advances paid by publishers?
>Actually, there are returns with e-books. Sometimes a buyer clicks on the wrong book; sometimes they accidentally click twice. Sometimes they are so unhappy with the book that they return it. So people who sell e-books tell me. I still don't have any up yet. Of course, no warehousing is needed for returned e-books.
As ever, thanks for these fascinating insights. Really useful.
>Richard: I'll answer that question on the blog tomorrow, thanks!
>When I owned a bookstore, we would only buy what we could sell, it sometimes cost shipping to do the returns unless free shipping was part of the deal. So I selected carefully, learning what my customers liked.
>When my first novel came out, I asked the owner of our local bookstore, a friend, if he'd like me to sign the copies on his shelf. He had me sign three, but not the rest of them. It was only later that I learned about that nasty thing called "returns." And, of course, signed copies can't be returned. Live and learn. (Sigh).
Oh, and could you explain "remaindering" in a future post? I wish I could recall the poem I've heard Jim Bell quote that begins, "The book of mine enemy has been remaindered, and I am glad."
>Another reason why I come here–to learn about terms like these.
Sounds like returns is a dirty word in the industry. I'm guessing that sell in numbers tend to be conservative for first time authors.
It is fairly simple math. Consider the case where the advance is $50,000 and the publisher spends an additional $50,000 on other things. Suppose the author gets 10% of retail and the publisher gets 50%. If the price of the book is $10, the author get $1 and the publisher gets $5. To earn out, 50,000 copies of the book must be sold, but for the publisher to earn back the $100,000 it has invested, only (100,000/5) or 20,000 copies of the book must be sold.
>"Some bookstores will only give a book a month on the shelf to show some significant sales."
I suppose that explains why so many books are listed on Amazon.com for preorder several months in advance. My experience has been that if you just put a book out there with little to no promotion leading up to the release date, it takes at least a month for anyone to notice it. A one month and done policy would be particularly deadly for a book if the publisher is also looking for book sales before it allocates money for promotion.
>I'm interested in the idea that whether or not a book earns out does not determine its profitability to the publisher. How can a book be profitable if it doesn't earn out? I write in the picture book realm where advances (at least mine :)) are not in the range of "significant". But whether the advance is $5000 or $50,000 it would seem counter-intuitive that a book could be making a profit and not earn out…
Thanks! Love you blog, BTW!
>No question. I just hope I sell through and earn out!
>I guess sometimes it's more advantageous to have a low sell in, so that your sell through is high, causing reprints of your book, rather than a high sell in that doesn't sell through despite the same sales as the first example, causing your book to be cancelled.
Man! Nightmare in the making.
>Wow, very useful and succinct explanations of these terms. I kept seeing these and was still a bit unclear. Very useful to a blog-reading newbie like me 🙂
>I remember a discussion about this last year and was equally fascinated.
That whole e-book thing… *Shiver* Did you read Mike Hyatt's post on why he thinks e-books won't take over as quickly as executives are predicting? Did you have an opinion?
>I just learned that books can be returned from Mary Kole's Webinar a few days ago. I had no idea. Thanks for defining these terms so clearly.