Ah, money! We don't talk openly enough about money here in the US, and it really is a shame. Let's break that mold today. Here's a brief overview of how much OpenIntro makes from each book sale, and I'll go into greater detail in the dedicated sections:
- For paperbacks priced at $20, the margin is $4.75 to $6.09 for retail sales. For our one book priced at $10, the margin is $0.90. Wholesale purchases generate somewhat lower margins than retail sales.
- For digital sales, about 98% of buyers choose a price of $0, while 2.3% pay, generating an average royalty of $10.18 per purchase from that 2.3%.
Our per-book revenue doesn't need to be very high, because we have kept our costs very low and aren't beholden to shareholders who demand ever-increasing profits. On the other hand, Big Publishers' revenue is likely to be more than 10x this amount for each book due to their business design and profit demands. In general, our revenue goes to cover operational costs, such as desk copies for teachers, website costs, and other misc expenses. We may also start hosting paid interns sometime in the future. Details related to costs will be covered on the blog in the future.
Paperbacks
We use Kindle Direct Publishing's paperback distribution (formerly CreateSpace, a company that Amazon bought). I'll break down how the pricing works for OpenIntro Statistics, which is our most popular textbook by number of sales and our highest margin textbook.
- Amazon.com: $20 retail price, $6.09 margin. For books sold through KDP, Amazon.com takes 40% off the top, so $8. Of the remaining $12, we next pay for the book's production cost of $5.91, paid to KDP (also Amazon), leaving OpenIntro with a $6.09 margin for books purchased on Amazon.com.
- Wholesale: $12 wholesale price, $4-5 margin. Of the $12, we pay about $0.36 in payment processing (credit card) fees, $5.91 for the book production cost, and then typically $1-2 per book for shipping. This typically leaves a margin of $4-4.50.
Seeing that we make more money from sales on Amazon.com, you might feel inclined to buy a paperback from Amazon rather than the college bookstore. However, I'd encourage you to actually buy from your local store if you need a paperback. Ultimately, our organization became overdependent on Amazon after Amazon bought CreateSpace, so building alternative distribution is better for us, even if it comes at a reduced margin.
The example pricing above represents OpenIntro Statistics. For other books, the margin is lower. If you'd like to calculate the exact royalty on a different book for retail sale, start by removing 40% for Amazon's off-the-top margin, then use the formula $0.85 + $0.012 * [number of pages] to calculate the production cost of a textbook that we pay for.
One particular exception to the $4.75-$6.09 royalty for retail sales is Introductory Statistics with Randomization and Simulation, which has a margin of $0.90 on a retail price of $10. This book is from 2014, when we were setting very small margins. In its next iteration, this book's retail price will be set at $20.
For reference, we don't plan to move beyond the $20 price in the next ~decade, assuming inflation remains in reasonable check and Amazon does not change its margin or our costs. OpenIntro is sustainable based on that retail price for paperbacks. We may again offer hardcover books at a higher price at some point, but the margin would not be much different than the paperback.
Digital (PDF)
We use an optional contribution model for digital versions. During 2020, about 97.7% of "buyers" set the price to $0, while the last 2.3% chose to pay an average of $12.72. Leanpub takes 20% of the sale price to operate their website and cover processing fees, leaving an average royalty of $10.18 for the 2.3% who chose to pay. Ultimately, from the average download, we make an average of $0.23. Fortunately, there are a lot of downloads, so this generates a very useful amount of operating funds. :)
One aspect I wanted to comment on is the 97.7% who do not choose to pay -- this is 100% okay, and it is expected. Two considerations that are top of mind:
- Some students aren't in a financial position to contribute. I can speak for everyone in OpenIntro when I say that we do not want students to make an optional contribution if it puts them into (more) debt.
- We are also very conscious that many students who download the PDF also purchase the paperback, so these students have already made a contribution to OpenIntro through that purchase.
We do hope folks who are already out in the workforce (e.g. self-study) and making a reasonable salary as well as any students who feel like they are in a financial place to do so will contribute.
Author royalties
For some textbooks, a portion of the royalties go to one or more authors (which is agreed upon by all authors and are very modest). That said, the lion's share of royalties stay with OpenIntro, which is a nonprofit, including 100% of the royalties from OpenIntro Statistics. We are able to do this because none of the people who have worked on OpenIntro have done so with the intent of being dependent on royalties for income.
Partner program
One other area that I've left out of this post is partnering textbooks, including the Precalculus and APEX Calculus textbooks. By design, the partner program with these books did not generate any revenue in 2020 for OpenIntro, which was a year for testing our infrastructure as we explored expanding the project. As we evolve this program, we'll implement changes to make it financially sustainable and scalable.