In the book industry, reserves against returns (RAR) is an accounting practice whereby a publisher sets aside a percentage of the revenue from the sale of a book in anticipation of returns. The purpose of this reserve is to protect the publisher against the financial loss that can occur when books are returned by retailers.
In order to calculate the RAR, a publisher will typically take the total revenue from book sales and multiply it by the expected return rate. For example, if a publisher expects that 10% of books will be returned, they will set aside 10% of the revenue from book sales as a reserve.
Reserves are typically used for new titles that are likely to be in high demand, but there is no guarantee that the retailer will actually sell all the copies they have ordered. If the book does not sell as well as anticipated, the retailer may return some or all of the copies to the publisher. The number of copies that a retailer can return is typically capped at a certain percentage of the total number of copies ordered.
The RAR is an important tool for publishers because it allows them to manage the financial risk associated with returns. Returns are a fact of life in the book industry, and publishers need to be prepared for them. By setting aside a portion of revenue in a reserve, publishers can ensure that they will not lose money if books are returned.
In the book publishing industry, it is important for a company to have strong reserves against returns. This is because returns are a major source of revenue for book publishers. By having strong reserves against returns, book publishers can ensure that they have the funds available to cover the costs associated with returns. This includes the cost of shipping the books back to the publisher, as well as the cost of restocking the books. In addition, strong reserves against returns can help book publishers avoid financial difficulties in the event that returns exceed expectations.