Gary Sullivan's got this on his site:
Reading between the lines: Please don't publish chapbooks, because they don't sell. Or at any rate, don't bother sending them to us. We can't sell them, and we'll charge you for warehousing them.
Here is more from the same SPD e-mail: "The options are to donate one or more of the books to SPD (that allows them to continue to be for sale [Gary's note: "for sale"? you mean you'll actually make them visible in that case?]), to withdraw them and end the relationship, to find another SPD publisher to take on the book or books that you want to continue with us."
In other words: Please pay us the annual fee (which you can't afford), or publish two perfectbound books a year (which only the independently wealthy can afford, or those publishing books with an eye to the academic market), or give the books to us (e.g., cease being a publisher) or give them to another publisher (e.g., lose your autonomy), or end the relationship (e.g., give up any hope of distributing anything you ever publish in the future).
SPD can't sell chapbooks not only because bookstores won't carry them (some do, actually), but because no college courses ever seem to use them, either.
There is simply no distribution mechanism for chapbooks beyond sending them out to people or handing them to people. Which is fine. But, as a publisher, it's probably a good idea to know that in advance.
Note this -- Gary's reading of SPD -- is almost exactly how I feel about chaps -- publish them to give them away, sell them at readings. Don't claim they're books -- they're NOT -- and don't expect to sell them at bookshops, except zine stores & specialty places, don't expect them to be assigned to classes, etc. -- i.e. to be treated as long, serious works of art, because they're not, because bookshops don't stock them, and people buy them mostly at readings, etc.
A chapbook is mostly a vanity or learning excerise, like producing most printed ephemera. The large exception is fine letterpress, but note that no one is buying this stuff at your average bookstore, either.