Friday, March 4, 2011

e-Book Pricing: Are You Chasing Readers or Money?

Of course, writers who publish books probably would like both more money and readers. However, some recent pieces I've read online has me wondering about what the best pricing strategy might be for e-Books.

The first piece was brought to my attention by @JaneFriedman: "The rise of the 99-cent Kindle e-book," by David Carnoy. In the article, Carnoy looks at some case studies of how some authors have lowered their e-book prices to 99 cents, despite the fact that the optimal royalty from Amazon is for books that are priced at $2.99 or higher.

The lower price points sell better, but they also de-value the product. But if that's what a writer needs to do to sell books, then that might be the only way to build a readership. More on that below.


The second piece was brought to my attention by @ChuckWendig: "The $0.99 Sale: Results Are In," which is a post by Chuck on his Terrible Minds blog. In the post, Chuck breaks down the results of lowering the price point on one of his novels. Basically, the book was selling 40 copies per week. Then, Chuck dropped the price to 99 cents, and the sales jumped to 124 copies in 4 days (on pace to sell 200+ copies in one week).

Chuck's post also tackles some questions that I think are rather interesting concerning how to price e-books: Are you chasing readers or money?


In both the first piece and the second piece, case studies indicate that sales jump when the price is lowered from $2.99 to 99 cents. However, is the lower price actually benefitting the writer? That's a more difficult question to untangle. Let's look at some numbers.

From the first piece, it sounds like a writer receives 35 cents per sale for a 99-cent e-book; the same writer would receive $2 per $2.99 e-book. At the same time, Chuck's numbers indicate that he sold roughly 5 times as many 99-cent e-books as $2.99 e-books.

So, let's say that an author sells 1,000 copies at $2.99. That would equal $2,000.

If the same author could sell 5 times as many copies at 99 cents, they might sell 5,000 copies at the 99-cent price point. That would equal $1,750.

Less money, but more readers. But there are other strategies a writer could try. For instance...

Start high, then discount
An author could decide to take advantage of the initial excitement for a release to use the higher $2.99 price point. Maybe 600 copies of the 1,000 copies sell over the first 6 months of a year. At $2.99, that would equal $1,200.

After that initial explosion of sales, the author could drop the price to 99 cents and collect the other 4,400 readers that rounds out the 5,000 at the lower price point. This would equal an additional $1,540.

Total take: $2,740.

Plus, the author still has the opportunity to reach 5,000 readers. Of course, this is all hypothetical. Would 5,000 people still pay 99 cents for a discounted $2.99 book? It starts to feel like the author is trying to time the stock market. But there are other strategies...

Sell low for new books, high for backlist
Maybe an author decides that he or she just wants to build readership with new books, especially if the author is writing a series of novels. The author just wants readership numbers to increase for the new books. As a hypothetical, let's say that the author's sales numbers increase 100% with each new book and that interest in the previous books (at the higher price point) increases by a smaller percentage.

Book 1 sells 5,000 copies at 99 cents = $1,750

Book 2 sells 10,000 copies at 99 cents = $3,500
+ Book 1 sells 1,000 copies at $2.99 = $2,000
Grand Total = $5,500

Book 3 sells 20,000 copies at 99 cents = $7,000
+ Book 2 sells 2,000 copies at $2.99 = $4,000
+ Book 1 sells 2,000 copies at $2.99 = $4,000
Grand Total = $15,000


After a while, such a hypothetical situation makes it so that you're generating more volume on new sales, but more revenue from those back list titles at the higher price points. And then, maybe you hit a point at which...

The new titles are at a higher price point
Maybe you write books that readers can't wait to read. And you're moving from 20,000 readers to 40,000 readers, and you decide it's time to start charging $2.99 per book, which really isn't a bad price for readers who are frothing at the mouth for your latest work. Maybe 25% of your estimated readers are scared away by the higher price point. That still means 30,000 stick around to pay $2.99, and you receive $60,000 in sales. Woo-hoo!

But do you need to be pinched? Or have water splashed in your face? Is this type of reader-money ratio scenario just a pipe dream? I'll be honest: I don't know.

However, these are some pricing strategies to consider, especially when it appears that 99 cents may be the best way to build a readership this side of free. At the end of the day, e-book authors and publishers will need to make a decision, stick with it, hope for the best, and be willing to change if they're not seeing the results they wanted.


Follow me on Twitter @robertleebrewer


By coincidence, I posted on chasing numbers or readers earlier this week in relation to platform building for writers. Click here to check out that post.


Speaking of e-Books, check out the top e-readers for writers on the market:
  • Kindle from Amazon (the top dog for book e-readers)
  • Nook from Barnes and Noble (which I hear will soon be the 2nd best e-reader for books)
  • iPad from Apple (which is kind of targeting magazines more than books, it seems)


Siddhartha Herdegen said...

This is an interesting analysis. As an economist I like the way you think.

I think your numbers are pretty optimistic but the concept of optimizing revenue is worth considering. Tinkering with prices can have dramatic affects on overall profitability and income.

What I thought you were going to talk about, and what I think would be an interesting analysis, is how price affects whether people actually read the book and how much they enjoy it.

Behavioral economist have been studying the correlation between price and enjoyment for some time and most economists concede there is a strong relationship between how much you pay for something and how much you enjoy it.

Books that cost less are more likely to produce lackluster fans.

But that’s assuming they read the book in the first place. Again, the work of behavioral economists would predict that people who paid less for a book are less likely to read it. I suspect there are many $0.99 books which never get read. The opportunity cost of not reading them is very small.

A close proxy for this would be to ask, How many free ebooks have you downloaded and never read? $0.99 is pretty close to free. I don’t feel any particular obligation to read a book I paid $0.99 for, whereas I’d feel guilty if I paid $24.95 and didn’t at least give it a try.

So, beyond revenue optimization I think there are a lot of subtle things going on with pricing and readership.

Robert Lee Brewer said...

Thanks for sharing your thoughts and experiences, Siddhartha!

I agree. There are even more subtle things happening in relation to the pricing and readership equation. (And yes, my numbers were overly optimistic.)

I know in my own situations as a consumer, I'm usually more likely to spend more time on things (including books) for which I spend more money. That said, I'm thrifty enough that I usually only spend more money on things for which I plan to use.

And I also love hunting for deals. So it's definitely complicated.

Also, there's the question that if you train readers to pay 99 cents for your titles, can you raise your prices 300% (to $2.99) and still expect readers to stick with you and not move to another author?

I don't know the answer, but it makes me wonder if authors should early on decide if they're going to be "faceless" content producers or "branded" content producers. And this is just a guess, but I would think "branded" content producers would dare to charge more for their content--just as companies charge more for "branded" products.

J. R. McLemore said...

Thnaks for this post, Robert. I've recently been pondering the idea of going the traditional publishing route or trying my hand at self publishing an eBook after reading about the success of Amanda Hocking. Her story sounded inspiring and made me rethink the eBook option. I have yet to finish editing my novel, but I want to start weighing my options now and your blog post gave me more information to consider. In addition to that, Siddhartha's comment was very thought provoking. There's so many variables to consider that it makes my head hurt. Still, the eBook path is looking like a viable way to gain readers and build a platform from which I hope to springboard my writing career.

Robert Lee Brewer said...

I know, J.R. This crazy publishing/media business is changing so fast that it's easy to get dizzy thinking about it all.