The real cost of returns • 6 November 2008 • The SnowBlog
The real cost of returns
Returns are bad and stupid and pointless: yes, we all understand that. But I got to wondering what the real cost of returns is, when Rob posed the question to me: are returns Snowbooks' main problem? See, returns cost more than just the reversal of the sales value. There are costs associated with processing them. I have calculated that the three main groups of cost (cost of pulping - 6%; cost of some arbitrary charge from our distributor for all returns over 10% - 1.5%; cost of realising the value of the stock once the book is pulped) comes to 1 per book returned. That is a lot of money: more than the cost of printing the thing. Here are some quick Snowbooks' numbers (MAT last 12 months) to put the thing into perspective*:
Average unit cost (how much a book costs to print): 0.83 (this includes 4 colour books)
Average unit sales value 2.55
Average unit gross contribution (sales less cost of print, other title costs and royalties): 0.85
So the cost of 1.00 of a returned book is massive. Last year (our annus horribilis when lots of Xmas 2006 stock came back) the total bill was 42k.
This doesn't include some other, more subtle costs, either. There's the cost of paying royalties on stock you think you've sold, only for it to be returned (and yes, we do include a quite hefty reserve against returns which still isn't sufficient to protect us, oftentimes). There's the distribution cost of shipping the stock for sale in the first place. There are the marketing charges for promotions which are one off charges, not dependent on whether books sell or not. There's the externalities: the cost to the environment of carting books around, of producing them and destroying them a matter of months later. There's the cost to my mental health of trying not to let my brain explode in fury every time I get a returns request.
In summary: our industry is astonishingly backward for being the last bastion of sale or return. And returns are Very Bad. And yes, returns are Snowbooks' main problem (as opposed to low sales, for instance) - sure, we could do with selling more books, as every publisher would believe, but returns have a spectacularly high cost that is much greater than a simple reversal of the original sales value. Thankfully for us our returns rate is much lower than it has been in the past, but that's not the point. Any money spent on returns is money down the drain, and that is unacceptable.
* We don't hold with corporate secrecy, having had our fill of it in previous jobs. You're most welcome to know our figures and stats. What are you going to do with them that could possibly threaten us - somehow use that data to set up an identical company? Go on, I dare you.