Tuesday, November 07, 2006

Cooperative Advertising Allowances

I'd like to address an issue today that gets very little attention from writers: cooperative advertising allowances, often abbreviated as co-op.

When writers complain about a lack of support from their publisher, they often forget things like the co-op allowances.

The major publishers provide money for advertising and for prime promotional space to wholesalers and retailers based on the amount of purchases they've made.

If you enter "cooperative advertising allowance" into Google, you can pull up the co-op agreements for almost every large publisher. After less than ten minutes searching the Net, I had copies of the agreements for Random House, Simon & Schuster, Hachette Books (Warner, Hyperion and Little, Brown), Holtzbrinck (St. Martin's and Tor) and Harcourt.

The percentages varied, but generally each publisher provides rebates between 1% and 4% of the NET purchases (gross cost less the returns) for promotional purposes. Random House just updated their terms in June, and it's is a nice example. I'm copying selected portions of it below:

Random House, Inc. COOP Advertising and Consumer Value Allowances for US Retailers

The allowance is based on the appropriate percentage of previous year's (January 1 to December 31) net purchases of RH titles directly from RH
and indirectly through a distributor. All coop (sic) expenditures must be approved in advance by a RH sales representative. All promotional/events must be approved in writing by a RH sales representative and documentation of the actual cost of the promotion and proof of ad must be furnished for reimbursement. Random House reserves the right to review the compliance and effectiveness of the expenditure prior to reimbursement. Reimbursements for co-op claims will be made by credits issued to the accounts. Accounts must be in good credit standing to receive co-op reimbursement. All claims must be made within 90 days subsequent to the end of the calendar year. Pools for allowances are calculated separately by publisher and are based on the following pool percentage:

3.00% HC/Tradepaper
2.00% Audio
4.00% Children's (all formats including Golden & Disney)
1.25% Mass Mkt/Digest

To keep it easy, let's say Bookstore A spent $100,000 purchasing Random House (RH) titles in 2006. Let's break it down into $50K HC/Trade, $30K Mass Market and $20K Children's. For further simplicity's sake, let's say that these numbers are net, meaning this is the amount the bookstore paid for its actual purchases after all the unsold books were returned to RH.

When we apply the percentages to the dollars spent, we find that Bookstore A earned $2,675 in co-op dollars to be used for promotional purposes. We arrive at that number this way:

$50,000 HC/Trade = $1,500 (3% x $50,000)
$30,000 Mass Mkt = $375 (1.25% x $30,000)
$20,000 Children = $800 (4% x $20,000)
Total Co-op $ = $2,675

Bookstore A could take out a newspaper ad for RH books, do a radio spot or devote an area near the cash register at the front of their store for a display of books by a single RH author. They could also host an author signing by a RH writer who is popular locally. Their expenses related to the signing (posters, flyers announcing the event, ads and refreshments) could all come under the co-op rubric.

You'll note the RH terms include a provision that the bookstore must get prior approval from RH for the promotional expenditures.

You'll also note that no real dollars exchange hands between Bookstore A and RH. Bookstore A pays for the ads and then gets a credit for the amount spent, which will be applied against future sales. Alternatively, RH could request co-op space (prime space at the front of the store) to promote an up-and-coming author. Bookstore A charges RH for the space to set up a display and gets a credit against their next book order.

Back when I was in business, we called these "soft" dollars, a paper credit, as opposed to "hard" dollars, physical money that actually changes hands.

However it's done, co-op dollars help the bookstore (or the wholesale distributor) and the publisher with their promotional needs. It's also a subtle encouragement to Bookstore A to order RH books instead of some other, smaller publisher's books.

Co-op dollars at work.

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