Distribution Agreements

From AAUPwiki
Jump to: navigation, search


The AAUP Business Handbook >> Part Two: Accounting, Budgeting, and Financial Management >> Miscellaneous Topics


Distributed Titles

A distributed title is one that is not owned by the press but one that the press undertakes to make available under a special arrangement with another company. An arrangement can be made for a single title or can include multiple titles. Generally the press does not produce distributed titles or have an investment in their inventory and will usually pay the owner a return that is larger than a normal royalty or other type of sales commission.

The press may or may not have an investment in time, such as in editing, design, or production. In addition, when another company seeks a distributor for its titles in an ongoing publishing program, the press will not have to invest time in acquiring the books. In certain special arrangements, an outside sponsor will pay for all editorial, production, design, and manufacturing costs for a title, but the press will actually do the work.

Sales of distributed or sponsored titles are reported on Schedule 2 of the Annual University Press Statistics Questionnaire under Net Sales of Commissioned Books. Amounts paid to the owner of the title or titles are reported under commissions/proceeds paid on the same schedule.

The Decision

The decision to distribute titles owned by another company can best be made by assessing the impact such an arrangement will have on all departments of the press. Because there may be no costs involved in developing and producing the books, the press may feel that distributed titles require little or no effort. A collaborative approach that carefully examines the amount of time and resources required to distribute the titles can give needed structure and direction to the undertaking.

For some presses, editorial involvement is key to evaluating titles for potential distribution. The editorial evaluation will include an assessment of the editorial strengths and weaknesses of the title or titles. Any title under consideration should share at least some common ground with the books that the press publishes. In the case of a list of titles, the press may want to consider such options as distributing a few of these titles, the "best" titles, all of the titles, only new titles, or only titles in a certain subject area. When considering the number of new titles to be added each season, the press may want to decide whether all books to be handled are in a certain subject area or whether the number of new distributed titles is proportionate to the number of new titles the press publishes.

For other presses, the marketing and sales department may be the driving force behind the acquisition of distributed titles. Marketing and sales analysis and opinions will be central in discussing distributed titles. They may take into consideration the following factors:

  • Salability
  • Required staff resources
  • Balance of effort for new titles versus backlist
  • Pricing

In making the decision to distribute other titles, such elements of publicity also need to be considered:

  • Availability of free copies
  • Availability of advance pages
  • Availability of jackets/covers/other publicity material
  • Required staff resources

Presses who enter into distribution arrangements usually receive finished books from the originating publisher (client); thus the design-production department is typically not directly involved with distributed books. Occasionally, when a press produces books for a client on a reimbursable basis in addition to the distribution fee or when the production department is responsible for the physical specifications of the books, the production schedules, and transportation to the warehouse, then the design-production department will generally be more involved. By directly handling matters of design and production, the press can maintain better control of the quality of the product and can more easily receive input from and obtain proofs for marketing. At any level of involvement, the production department can be very valuable consultants in assessing the quality of books under consideration. Good overall quality of design and type as well as of materials used to produce the books will add value to the distribution undertaking.

The point at which the business department of the press enters into the evaluation process can vary. Its involvement can be ongoing and may include the actual writing of the proposal/agreement. The business department will examine the potential return of the title versus the cost and risk involved in entering into the distribution arrangement.

The financial officer will need to know the number of titles and units involved in the initial shipment of books in order to plan for physically receiving the books into the warehouse and to evaluate the costs of doing so. For example, the books must meet any physical standards required for warehousing, such as bar codes and ISBNs. The financial officer will need to evaluate the costs for receiving and warehousing the books; for updating the books to meet warehouse standards, such as reboxing, stickering, and shrink-wrapping; as well as for coding the product into the press computer system in order to isolate required information for reporting and payment.

A sales budget in units and dollars needs to be practical and realizable, as does the cost of marketing efforts to achieve said budget. Comparing distributed titles to the press's own books can help set acceptable levels of performance for the distributed books. The success of a distribution arrangement depends not only on how many copies the press can sell at a sufficient price but also on the costs for warehousing and marketing these copies.

Gauging the marketplace for distributed titles under consideration creates another type of "investment awareness." Books that stay sold-i.e., those that have projected low unit rates of returns-may have to be weighed against books that require a great deal of marketing effort with higher unit movement both out and back in. Various types of titles will impact marketing time and dollars quite differently.

Whether considered individually or with input from other departments, the budget process is the best mechanism for evaluating distribution projects. Ideally, all the costs and contingencies can be included with various income projections. The final decision to distribute a line of books and to enter into a formal distribution agreement will be the result of this evaluation process and the belief that such an arrangement will be of overall benefit to the press.

The Agreement

Once the press decides to pursue a particular distribution arrangement, it can then negotiate the terms and conclude a formal written agreement. Negotiations may be initiated by one party presenting a draft contract or, more informally, by written or verbal correspondence. Regardless of which party initiates contact, the press will usually issue the agreement. As the provider of a service, the press defines the responsibilities and expectations of both the press (distributor) and the publisher.

The agreement will have four essential parts. The first part names the parties entering into the agreement and defines the purpose and duration of the agreement. For example: "The purpose of this agreement is to arrange for the sale and distribution of XYZ's books by the press in Territory A on an exclusive basis and in Territories B and C on an open market basis. This agreement will be made for an initial period of so many years to be renewed annually unless canceled in writing by either party with so many months written notice."

The second part of the agreement defines the responsibilities of the press and the press's expectations of the other party. This part of the agreement can be as simple or as detailed as both parties want. The point is not necessarily to favor one party over the other, but to make sure there is a complete understanding of all the relevant issues.

Title selection is key. (This can be a point of serious negotiation.) The press may feel it can take only selected titles; the client may want every one of its in-print titles stocked and represented. If the press does not think a given title will sell a reasonable number of units within a reasonable period of time, then the press should not stock that particular title. That does not mean the press won't sell this title if an order is received. What it can mean is that there is a variety of ways to represent the client's entire list. For example, a special order arrangement might allow a customer to order a single book that is not stocked with the understanding that the press will need to obtain this book from the owner before supplying the customer. (Coding the client’s entire list in the press’s computer system, whether stocked or not, needs to be carefully considered.)

The consignment of the books and physical inventory requirements can be the next part of the agreement. Both parties must decide who will pay for the transportation of books to the warehouse and for the insurance on them once they are there. Physical requirements for all books can include but may not be limited to the following: bar codes on all books, no prices on books, laminated covers, and shrink-wrap. If physical requirements cannot be met in all cases, the press will want to establish rates for such warehouse-related work as stickering, stamping, and reboxing.

The services the press will provide need to be clearly stated in the agreement. For example: "The press will receive books at its warehouse and will provide complete order fulfillment, which will include processing of orders and returns, and recording of all sales information and free book distribution. The press will extend credit to customers and engage in collection activities in keeping with its established credit and collections policies and procedures. Inventory control will be maintained by the press."

In exchange for the services provided, the press will charge a fee to the client. The press's fee for the services provided under the agreement is a percentage of net sales. The percentage charged will vary depending on the services provided by the press.

The way in which payment is made to the client can, in part, define the risk to the press. One approach records net sales over a given period (monthly, quarterly, semi-annually) and pays the agreed-upon percentage of sales within a certain number of days from the close of the period. This approach is easy to do and easy to report. It usually assumes that the press will bear the risk and the cost of bad debts.

An approach that gives the press more protection is one that calculates the amount earned by the client as a percentage of net sales and makes payments based on cash receipts less bad debt and less any expense incurred on behalf of the client. The press will report net sales on a monthly basis. Payments can be made quarterly based on cash received. The client shares the bad debt risk and the press pays with cash already taken in. Should the client not want to share the bad debt risk, the press can increase the fee it charges by an appropriate percentage. Payments are supported by sales, aged accounts-receivable reports, and accounts-receivable transaction reports. Any deduction made is supported by copies of invoices paid or, in the case of bad debt, copies of invoices not paid.

A general indication of intended marketing and sales efforts can be part of the agreement. However, marketing details should not be included. An acceptable but still general sentence could read as follows: "Marketing and promotions efforts by the press will include, but not be limited to, a listing of books in the appropriate seasonal and subject catalogs, placement of book information with sales representatives, press releases and sample covers/jackets/books sent to appropriate customers and reviewers, and books displayed at appropriate scholarly/trade meetings during the year." If the press feels it is necessary, it should add to the terms of the agreement the free books to be distributed as either a number or as a percentage of units stocked. Adding this information can be a plus (there will be no misunderstanding about how many free books are at issue) or a minus (if not enough free copies are made available, promotional efforts may be ineffective).

The issue of setting list prices should be addressed in the agreement. If the books are imports, the press's marketing department is generally the most informed about the U.S. market and best equipped to set prices. As long as the books are not perceived as being either under- or over-priced, the client will most likely be comfortable if the press sets list prices. For books that are published domestically, the list price may already be set. Nonprofit companies and organizations may need to review prices to insure that a book is not under-priced when it may more appropriately carry a higher price. This is a problem that may occur when a client is not familiar with discounting into the trade. Prices are low because there are no discounted sales.

The information the press and the client expect from each other should also be included in the agreement. A sentence such as this one may be all that is necessary to define what the press needs: "In order for the press to perform its obligations under this agreement, the client will provide the press with copies of its catalogs, brochures, advance book information, and page proofs for new books as soon as available. The client will also provide production schedules for its titles and any reviews." Information that the client expects may include marketing plans and production information, when relevant.

The fourth and last part of the arrangement makes provisions for the termination of the agreement, including the disposition of inventory. This part of the agreement indicates who will pay for the packing and shipping of remaining stock and how long stock can remain in the warehouse if the arrangement is terminated. A separate payment schedule for the termination of the agreement holds back portions of the payments due to the client to cover not only returns and adjustments but packing, shipping, and any other expense that might be incurred.

Also, the press may want to add a standard disclaimer paragraph as well as a paragraph indicating which state's laws govern the contract.

When the proposed agreement is drafted to suit the press and the client, you have defined your expectation for the distribution arrangement.

Risks and Benefits

The following benefits and strengths of the distributed titles have been assessed: they are quality books that can be reasonably priced, they have good units sales potential, and they are compatible with the press's list of books. With a strong list of distributed titles, opportunities exist to increase the sales of the press's own books, to attract new authors, and to attract other distribution clients.

Yet some concerns remain, such as maintaining good sales over extended periods, producing high-quality books on a timely basis by the client, and continuing to expend time and money in the marketing and sales departments on non-press books. Such concerns need to be reviewed frequently.

The most significant financial benefits of distributed books include the following: no investment to develop and produce books, no freight-in cost, no author royalties, and margins that are known. The press can protect itself from the risks of bad debt or from having to pay an expense on behalf of the client by writing an agreement that covers these elements. The greatest risk that remains is the cost and time to market and warehouse books that fall below sales expectations or that don't sell at all.

Whether a press is large or small, distribution arrangements, especially if executed in a collaborative manner within the departments of the press, can provide solid rewards. By revisiting the strengths and concerns that the press initially considered, risk can be minimized and opportunities expanded.

The AAUP Business Handbook >> Part Two: Accounting, Budgeting, and Financial Management >> Miscellaneous Topics

Personal tools