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5% Commissions: The Future of Print-On-Demand?

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Fine Art America is one of the largest online art sites in the world.   We've been helping artists and photographers transform their images into museum-quality prints since 2006, and our ever-expanding network of global domains reaches millions of visitors per month (e.g. Pixels.com, Instaprints.com, FineArtEurope.com, LicensingPixels.com, etc.)

We also hold a unique position in the print-on-demand industry as the only major company that has never accepted money from outside investors.

Fine Art America was built by a single programmer back in 2006 and continues to be run by a small, dedicated staff to this very day.   You can read the full story here:

http://fineartamerica.com/newsletters/history-of-fineartamerica.html

All of the other companies in the industry that you're familiar with (e.g. Art.com, Cafepress, RedBubble, Society6, Imagekind, etc.) have raised millions of dollars from outside investors over the years.

In 2014, several new investor-backed companies have arrived on the scene, as well (e.g. Photos.com, Picture.com, etc.)

As the years go by, the number of print-on-demand sites will continue to grow and grow.

More print-on-demand companies... more companies with investor dollars to spend on advertising... more websites wooing you to upload your images... more opportunities for you to sell your prints... more opportunities for you to make money...

That's good news, right?

If you're a buyer, "more" is good.   More print-on-demand companies will result in increased competition... increased competition will result in lower prices... and lower prices always make buyers happy.

Unfortunately, you're not a buyer.   You're a seller.

For sellers, "more" is not always good.   In fact, it could be devastating.   As all of these new print-on-demand companies compete to attract buyers with lower and lower prices, they'll also exert pressure on their sellers to accept lower payments for their sales, as well.

Right now, in 2014, you're living in the heyday of the print-on-demand industry.   It's a time when you can still earn thousands of dollars per month selling your prints online.   At FAA, our bestselling artists earn $10,000+ per month.   Yes - really!

Unfortunately, there are several market forces currently at work which, over time, are going to drive down payments to sellers.   Within a few years, most print-on-demand websites will be paying out small commissions for each sale (e.g. 5%).

Instead of earning $100+ for the sale of your canvas print, you'll earn just a few dollars.

Is this inevitable?   Maybe...

First of all, don't worry.   FAA is going to be fine.   In fact, as the print-on-demand industry becomes more and more competitive, our lean company with only a handful of employees is perfectly positioned to continue competing (and winning) against bloated, investor-backed corporations with huge payrolls to sustain.   Don't believe us?... read the next section in this article.

If the entire industry moves towards lower commissions for sellers, that's devastating news for the sellers, but it's hugely beneficial to the print-on-demand companies - FAA included.   Instead of paying our sellers hundreds of dollars per sale (as we do on many sales right now), we can just follow the industry trend, lower our payouts, and dramatically increase our own profits.

That's good for FAA... but it's not good for you.

That's exactly why I'm writing this article.   There are forces currently at work in the print-on-demand industry that are going to be very beneficial to the print-on-demand companies... but devastating to artists and photographers.

Don't worry.   It's not all doom-and-gloom.   Please read all the way to the end of the article and join the conversation by adding your comments.

Now... let's take a look at what's happening out there...

Introducing... the 5% Commission

If you're reading this article, then you're probably already a member of FineArtAmerica.com / Pixels.com, and you're probably aware that you can set your prices as high or as low as you want to on all of our sites.   If you want to be earn $100 for the sale of a 24" x 36" canvas print, then all you have to do is login to your account and set your price to be $100 for that print size.   If you want to earn $15, that's fine, too.   Just set your price to be $15.

You can set your prices as high or as low as you want to, and you can change your prices at any time.

It's a fair and simple business model.   Sellers have complete control over their prices.

Other sites don't work that way.   Cafepress.com, for example, doesn't let you control your prices.   Cafepress sets the "buy price" (i.e. the price that a buyer will pay), and then Cafepress pays you (the seller) a percentage of that price.

In the past, the commission percentage was 10%.   So, if you sold a canvas print for $100 on Cafepress, they would pay you $10 as a commission.

In October 2013, Cafepress lowered that commission percentage to 5%.   So now, if you sell a canvas print on Cafepress for $100, they will pay you $5 as a commission.

Here is the official announcement from Cafepress:

http://blog.cafepress.com/?p=12882

Why did Cafepress do this?

Here's the very short answer.   Cafepress is a huge corporation that is running out of money and is on the verge of a) going out of business or b) selling the company.

Since they're a public company that's traded on the NASDAQ (stock symbol = PRSS), anyone can look at their financials.

Let's take a look.

Source: http://www.marketwatch.com/investing/stock/prss/financials/income/quarter

During the first three months of 2014 (i.e. the column labeled 31-Mar-2014), Cafepress generated $48.19 million in sales.   During that same three month period, they had $53.41 million in expenses.

Doing the math:

$48.19 million - $53.41 million = -$5.22 million (negative)

Cafepress lost $5.22 million in the first quarter of 2014.   That section of the financial report is highlighted, above, by the large arrow.

In the first three months of 2014, Cafepress lost $5.22 million.   From October through December of 2013, they lost an additional $4.68 million.   In the three months before that, they lost an additional $3.12 million.

They have been losing almost $1.5 million per month for years.   That's years with an "s"... plural.

Take a look at this page:

http://www.marketwatch.com/investing/stock/prss/financials/balance-sheet/quarter

At the end of March 2014, Cafepress had $22.15 million left "in the bank".   If they continue losing $1.5 million per month, they'll run out of money in 14 months.

So - what do they do?   If they want to avoid going out of business, they have to start generating profits... quickly.   They can either raise their prices... or they can lower their costs.   Either one will work.   If they raise their prices, however, they risk losing sales by driving their buyers to other, less expensive websites.   So - they need to lower their costs.

Q: What's the easiest way to lower their costs?

A: Lower the commissions that they're paying to their sellers.

That's the logic behind the new, 5% commission.   It's that simple.

Cafepress is a huge company with 775 employees.   They're losing money month... after month... after month.   Their investors have watched the stock price decline from $23 per share in 2012 to $5 per share today (see graph on the right).

As their investors pour over Cafepress' financial statements, the first question they ask the Cafepress management team is:

"Why are you paying your sellers 10% of your sales?   Do you think we can get away with paying them only 5%?"

A few months later... lo and behold... Cafepress announces a policy change on their website, and just like that, the commissions drop from 10% to 5%.   Cafepress takes that additional 5% and puts it into their own pockets.

Cafepress Stock Price (Price vs. Year)

Now - why am I picking on Cafepress?

1.   They're a public company, and since their financials are public, it's easy to identify why they're doing what they're doing and illustrate it in a newsletter.

2.   They're an inefficient, over-extended company.   By their own admission, they have 775 employees and 20 million sellers.   In 2014, they're going to generate roughly $200 million in sales.   5% of that will be paid to their sellers.   That's $10 million being distributed to 20 million people... or $0.50 per seller.   Read that last part again.

To put things into perspective:

Fine Art America only has 250,000+ sellers... and we're going to pay out more than $10 million to our sellers this year.

Cafepress is a large corporation that needs to squeeze its sellers in order to survive and satisfy its shareholders' need for growing profits.

FAA doesn't have shareholders.   We don't have 775 salaries to pay each month.   We're a very, very efficient machine with low overhead, and that allows us to pass through a higher percentage of our income to our sellers.

3.   Here's the main reason we're picking on Cafepress.   It's important that everyone understands the Cafepress business model and the motivations behind the business model... because the Cafepress model may eventually take over much of the industry (even if Cafepress no longer exists).   Within a few years, 5% commissions could be standard on most print-on-demand sites, and the days of "set your own prices" may be long gone.

Keep reading to learn why...

Squeezing Sellers is Too Tempting... and Too Easy

All of the print-on-demand businesses that you're familiar with are owned by investors.   All of them.   Cafepress, RedBubble, Art.com, Society6, etc.   There's absolutely nothing wrong with companies that are owned by investors.   The vast majority of the companies that you deal with in your daily life are owned by investors (e.g. Apple, General Motors, Amazon, etc.)

However, in your daily life, you interact with these companies as a buyer.

You're buying what they're selling.

You're buying iPhones from Apple.   You're buying cars from General Motors.   You're buying books and electronics from Amazon.

Corporations that are owned by investors have one mission: maximize profits for their investors.

One way for a corporation to maximize profits is to squeeze price concessions out of their suppliers.   For example, Amazon is constantly squeezing its book sellers for lower prices (http://www.bustle.com/articles/26570-amazon-vs-hachette-everything-you-need-to-know-about-this-feud).   Apple is constantly squeezing its suppliers for lower prices on electronic components.   General Motors is constantly squeezing its suppliers for lower prices on automotive components.   Etc...

As a buyer, you're happy when these corporations squeeze their suppliers... because the squeezing results in lower prices for you at the cash register.   You get to buy cheaper books, cheaper iPhones, and cheaper cars.

However, in the print-on-demand industry, you're not the buyer.

You're the supplier... and you're the one getting squeezed.

And that, right there, is the big issue.   Every major player in the print-on-demand industry (except for FAA) is owned by investors, and at some point, those investors need to see a never-ending stream of increasing profits in order to keep their stock prices rising.

Eventually, in order to maximize profits, the sellers always get squeezed.   It's just too tempting... and too easy.

Let's pretend that you're the owner of a print-on-demand company and that you're currently paying your sellers 25% of each sale.   On a $100 sale, that means that you're paying $25 to the seller.

Suddenly, one of your competitors drops their commissions to 5%, and the sellers seem to be OK with that.   There's no mass exodus of sellers... there's no online protests...

As the owner of the business that pays 25% to your sellers, how would you react to one of your competitors dropping his commission to 5%?

It's very, very tempting to follow suit.   In an instant... you (the business owner) can drop your own commissions from 25% down to 5%, and just like that, you've put an additional 20% of each sale into your own pocket.

That's exactly what's eventually going to happen to the POD industry.   Cafepress is the perfect example.   They have 20 million sellers, and they just convinced all 20 million of them that 5% is an acceptable payment.   There was very little uproar from the sellers.   There was no mass exodus or removal of images.   20 million people just silently accepted their fate.

Other businesses will take note and eventually give it a try, as well.

For some historical perspective, just take a look at the microstock industry.   Years ago, photographers used to be able to license their images for hundreds of dollars per license.   In 2004, a website called Shutterstock.com started selling image licenses for a few dollars each.

Over time, the Shutterstock business model took over and changed the entire industry.   Eventually, more and more photographers just accepted lower payments as their new reality.   Now, all of the major players in the microstock industry (e.g. GettyImages.com, Shutterstock.com, Fotolia.com, etc.) sell image licenses for a few dollars or less.

Unfortunately, there's no going back.   Once an entire industry transitions to low payments, low payments are here to stay.

Joining as Many Sites as Possible

One of the biggest factors that's going to accelerate the switch to 5% commissions is... human nature.

I see this all the time with sellers on FineArtAmerica.com.   A seller will join the site, upload a few images, generate some sales, and then think:

"Hey - if I'm making $500 per month selling on FAA, how much more could I earn if I also joined websites X, Y, and Z?"

The seller then goes and joins X, Y, and Z, without really paying attention to the commission structure on those sites.

Here's a perfect example.   Society6.com only pays out $15 for the sale of a canvas print.   It doesn't matter if the print is 8" x 10" or 40" x 60".   The most that you're going to earn is $15.

So - by joining Society6, you're effectively endorsing $15 as an acceptable payment for the sale of your canvas prints.   You're broadcasting to the entire print-on-demand industry: "I'm OK with $15 payments."

On FAA, you might be selling your canvas prints for $100 and earning a nice income doing so.

However, if you're also selling the same canvas prints for $15 on Society6, here's what's going to happen in the long run.   Buyers will find your prints on both FAA and Society6, and if your prints on Society6 are $85 less than on FAA, buyers are going to buy from you on Society6.

Just like that - you've undercut yourself, lost out on $85, and encouraged the growth of a business model that dictates low prices to you.   Over time, all of the other print-on-demand sites in the industry will realize that $15 is an acceptable price to pay a seller for a canvas print.   Why?   Because you told them that you're OK with it.   Hundreds of thousands of sellers on Society6.com are OK with it, too.

That emboldens the other print-on-demand companies to follow suit and lower their own payments.

Is there anything wrong with selling canvas prints for $15?   Not necessarily.   Just understand that the entire industry will slowly move in that direction as more and more sellers become OK with that price point.

Remember - Cafepress just convinced 20 million sellers to accept 5% commissions.   Cafepress sells 24" x 36" canvas prints for about $150... which means that the sellers will keep $7.50 for each each sale.

$15 for a canvas print is soooo yesterday :)

Something is Better than Nothing

Here's another issue with human nature:

It's very difficult to voluntarily shut off an income stream.

Let's say that you're earning $500 per month on WebsiteXYZ.com, and the investors in WebsiteXYZ.com decide to cut your commissions in half.   Suddenly, your monthly income drops from $500 / month to $250 / month.

Are you going to quit the site and remove all of your images in protest?   Probably not.   $250 / month is a car payment... it's a great night out to dinner with the whole family... and if you save it up for an entire year, it's a nice little vacation.

You may be infuriated that WebsiteXYZ.com cut your commission in half... and you may post some angry messages in various online discussion forums... but you probably won't leave the site.

You'll often hear people say:

"Something is better than nothing."

That sentence is going to seal the deal on low commissions.

Too many artists and photographers don't place any value on their work.   They'll join as many sites as they can, regardless of how much they get paid for their sales on those sites, just to try to generate a little bit of extra income because... "something is better than nothing".

If you follow the mantra that "something is better than nothing" then, eventually, you will end up something that is very, very close to nothing.

Sellers Don't Encourage Sellers to Join the Best websites

There is currently no "household name" in the print-on-demand industry.   FAA / Pixels.com is getting close.   We've got a lot of new features coming out in the next few months that might push us over the edge... and we advertise extensively on TV, radio, and online (see the videos on the right).

But... we're not a household name... yet.

When people think of buying books online, they think of Amazon.

When people think of buying shoes online, they think of Zappos.

When people think of buying art online... no particular business comes to mind.

You are familiar with lots of different companies (e.g. FAA, Cafepress, Zazzle, etc.) because you're an artist / photographer, and you live and breathe this stuff.

To the average person, however, no online art company is a household name.

If FAA succeeds at becoming a household name and the face of the industry, it will be great news for sellers.

Why?

Because other companies have to follow the leader.

Years ago, Apple took over the music industry and convinced every musician on the planet that their songs are only worth $0.99.   If another music business launched today and started selling songs for $2.99, would you give them a try?   No way.   Apple dominates the industry, and any rival company that wants to remain competitive will have to sell their songs for $0.99 or less.

So... who do you want to dominate the print-on-demand industry?

FAA / Pixels.com and our "set your own price" business model... or... Cafepress and their 5% business model.

Hopefully, that's a no-brainer.

Here's the catch, though.   Sellers don't encourage other sellers to join selling websites.   There's a lot of "selling" in that sentence.

Let's look at it this way.   If you belong to a photo "sharing" website like Flickr, you're happy to invite your fellow photographers to join the site because you want to "share" your photos with them and see what they're sharing, as well.

However, if you belong to a photo "selling" website like FAA / Pixels.com, the opposite is true.   On a selling website, you view your fellow photographers as competitors, and you're not likely to invite them to join the site with you.

You might even get angry if the site is actively recruiting additional sellers.   Take a listen to the Howard Stern audio, above.   You can hear Howard encouraging photographers to join Pixels.com and upload their photos.   Does that make you happy that Pixels.com is gaining traction and becoming a household name... or does it make you angry that more photographers will be joining the site?

There's a Catch 22 in there.   In order for FAA / Pixels.com to dominate the print-on-demand industry and have our "set your own price" model become the gold standard that all other companies are forced to compete with, we need millions of sellers to chose our business model and encourage other sellers to chose it, as well.   After all, sellers are the only ones who actually care about the "set your own price" model.

But... sellers don't want other sellers joining the site... and that right there is the Catch 22.

You can't count on buyers to promote our "set your own price" business model because buyers don't care how much you get paid.

Buyers want you to get squeezed down to 5% or less... investors want you to get squeezed down to 5% or less... large corporations want you to get squeezed down to 5% or less...

You, the sellers, are the only ones who benefit from "set your own prices".

Which Model Will Prevail?   5% Commissions vs.   Set Your Own Prices

So - is this all doom and gloom?   Is it inevitable that sellers in the print-on-demand industry will meet the same fate as microstock sellers before them?   Are 5% commissions the future?

A lot of that depends on the sellers.

FAA / Pixels.com is going to be fine, either way.   If the entire industry moves towards lower payouts to sellers, that's hugely beneficial to all print-on-demand companies - FAA included.   Instead of paying our sellers hundreds of dollars per sale, we can just follow the industry trend, lower our payouts, and dramatically increase our own profits.

Buyers want you to get squeezed down to 5% or less... investors want you to get squeezed down to 5% or less... large corporations want you to get squeezed down to 5% or less...

Sellers need to help spread the word to other sellers.   You have to support each other and the companies that support you... or you'll end up in a race to the bottom.   Just ask anyone who's still active in the microstock world, and they'll tell you that it's a slow, relentless decent into lower and lower commissions.

As long as FAA / Pixels.com continues to be a leader in the print-on-demand industry and attract the majority of buyers and sellers around the world, you don't have to accept 5% commissions for your images.   You don't have to let large corporations dictate low prices to you, and you don't have to accept it when a dying company tries to drag you off a cliff into no-profit land.   You've got an alternative.

I love the "set your own price" business model.   That's why we've stuck with it since 2006.   I enjoy seeing our members earn thousands of dollars per month selling through our site.   If we become a household name like Amazon and become the first company that people think of when they think of buying art... then the "set your own price" model will prevail.   If a company like Cafepress becomes a household name, instead, then 5% is the future.

Let's hear what you have to say.   It's very hard to get artist and photographers worked up about something and speaking out in unison.   Let's see if this article did the trick :)   Please write your comments, below, and help us spread the word by sharing this article with anyone you know who's trying to make a living as an artist or photographer... or anyone you know who supports the arts!

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