Supply-Side Agenting

So as we continue with the never-ending presidential election in the United States, the issue of tax cuts is certainly going to be one of those that's on the table. Do you soak the rich? Do you reduce taxes to increase revenue? An article in the NY Times on this subject a couple days ago, more to come I'm sure. Let us look at some of these questions through the prism of the profession of literary agent.

Agents such as myself used to be called ten-percenters, because we took a 10% commission on the income we earned for our clients. That is no longer the case. In the book business, agents are now fifteen-percenters. The move toward a 15% commission started in the early 1990s. The move was not without its logic. It is safe to say that major bestselling authors are now paid far more than they were in the 1960s. Same in publishing as in movies or TV or sports or any profession. It is equally safe to say that the same cannot be said at the bottom end of the scale. Unlike sports, where minimum salaries for professional players are much larger than they were decades ago, the typical advance for a first novel has not increased much at all. Most authors start at the bottom. But if postage keeps going up, and rent, and starting salaries for the assistant, and you still have 75% of your deals in an advance structure that hasn't changed in 40 years...

But I think it is also safe to say that the move to higher commissions would never have gotten off the ground if a lot of authors had said "well, I like my agent fine, but if I like some other agent only 10% less but would be paying 33% less commission, this is a trade-off I can and should make..." it would have been very difficult for the increased commission to stick. But authors did not do that. They did not, one-by-one through the actions of a significant few, reverse the increase or scale it back to 12.5% or anything of the sort. Over the next ten years, the 15% commission became the established norm. People do not do things solely for the money. It does not follow as the night the day that if tax rates are lower that people will work harder to take advantage of those lower tax rates. If it were that simple, agency commissions would not have increased by 50%. A caveat: that 50% increase in agent commissions is only a 5.555% reduction in earnings to the author who makes 85 cents on the dollar instead of 90 cents. Hence, the argument could be made that the increase stuck because it was only a 5.555% increase. So if you want to take a supply-side approach to taxation, you need to lower taxes by well more than 5.555% to see the benefits flow. Statistics are such interesting things.

So be it; commissions are at 15%. What would happen to revenue at JABberwocky if I followed a kind of supply-side approach and lowered my commission. The evidence on that is crystal clear: my revenue would drop. I was one of the last agents in the world to raise my commission to 15%; I had decided not to raise when I left a bigger company to start my own agency in the mid-1990s, when there were still a significant # of agents who had not yet gone up. It seemed risky, and I was going to have a low-overhead me-in-my-apartment operation. It was hard to detect any competitive advantage as the years progressed from having a lower commission than anyone else. Thus, it seems unlikely that I would gain an advantage today if I decided to reverse course and again be the low-cost literary agent.

But let's say it were otherwise. Let's say that I could raise revenue if I dropped my commission to 12.5%. Maybe I would have paved the way, even, by getting some or another major author to whisper in my ear "hey, you do that, and I'm yours." What if that went so well that I lowered my commission to 10%. And then to 7.5%. And then to 5%.

Well, at some point, I would have lowered my commission so much that it would be impossible to keep raising my income by lowering my commission rate. There is no way -- NO WAY -- that I could have a 2.5% commission rate, and a much larger client list, and be making more money. All those extra clients would start to put pressure on my overhead. Just like, in the real world, rising population in the US puts pressure on overhead. More people need more schools and more roads and more fire trucks, more clients at JABberwocky mean more staff and more postage. I could pare some costs by "driving out waste" and "making JABberwocky more efficient." And I would have a 2.5% commission rate but have a lot of "user fees." I would scour the business for chargeable events: $5 for sending a check to you, $25 for sending out a manuscript, and more. And again, in the real world lowered taxes do not always mean you pay less to the government. You end up paying more to renew your drivers license or to part at the state park or to get a copy of your birth certificate or to buy a pack of cigarettes. The airline industry is also moving to a low base with lots of extra charges. So here, my question for any strict supply-sider is to explain to me when on the path from charging a 15% commission to a 2.5% commission I would in fact start to lose money. The tax cut crowd would probably say that's a ludicrous question when applied to taxes because they are so high right now, So Very Very High, that we are not possibly close to cutting them to a point where that question would have any meaning.