In the old days, physically printing a book was a time-intensive, laborious effort. Type had to be laid out. It had to be checked and double checked. Machines had to be set up. Because of all of this, when a book print run began, they would print off hundreds if not thousands of copies all at once. It was the only way to make the process cost effective.
In our modern world, things have changed in a fairly miraculous way. It is now quite cost effective to print one and only one copy of a book. Everything is done electronically and automatically. So instead of having to pay up front for 500 copies of your book, and keep those boxes of books in a warehouse somewhere until you could sell them, you can instead do print on demand.
Print on demand works like this.
Your book is stored electronically by the company you're using. Let's say you're using CreateSpace. CreateSpace has an electronic copy of your book on file. There are no physical copies in the warehouse. Just that electronic file.
Joe Smith sees that book's information online and decides to order a copy. They place their order online.
CreateSpace gets that request for the book. RIGHT THEN they print a copy. Their system kicks out a brand new copy of your book! The book is packaged up and sent off to Joe Smith. CreateSpace keeps their share of the money Joe Smith paid, and sends the author's share off to the author, usually once a month.
So the beauty with print on demand is that there are no up front costs at all. The author loads their book into the target system for free. The book sits there waiting for buyers. Each time a buyer buys a book, a brand new book is printed right then. It springs into being. The printing location takes care of everything. Money simply appears by magic in the author's bank account.
Well, not quite magic, but it can seem like that :).
Note that the terms publishing on demand and print on demand are interchangeable. Both refer to this same process.
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