Monday, November 16, 2015

What We Don't Know About eBook Pricing by Mit Sandru

My guest, Mit, is a true Renaissance man. He was born in the greater area of Transylvania in the last century. He wrote 11 books in YA Fantasy, Sci-fi, Paranormal, Thrillers and Vampire genre. He is an artist and composers and painted hundreds of canvases, and composed dozens of tunes. Want to see and read more? Visit him at sandru.com

See Mit's Author Page and Books on Amazon

Visit Mit on Facebook

e-mail Mit at mit@sandru.com

 
  eBook Pricing

 In a free economy the market, meaning the suppliers and the buyers, establish the prices of goods. Suppliers want to sell high, the buyers want to pay low, the competition heats up, and in the end the prices settle at the optimum level based on supply and demand. What should the right price be for eBooks then?  

To understand better what an eBook price should be let’s decompose the book costs.  But what is the book in the first place? We think of a book as its content, but in reality the book is the content-delivery-device, CDD. It can be in the form of a paper book, a CD for Audio, iTunes download, or an electronic device like Kindle. From this point of view the book is made of two components: content and the content-delivery-device, CDD.

1 – The writer creates the content, then it is taken over by editors, designers and other specialists and they polish it for insertion in a CDD, be that for print on paper, audio, or e-ware. The writer gets paid, along with everyone else, and that is the fixed cost for the content, which is paid in full for before a book becomes a book. The content is software.

2 - For hundreds of years the CDD was the paper book, the hardware. The p-Books cost is made of paper, print, binding, packaging, transportation, warehousing, and eventually the destruction of the unsold p-books. Bottom line, the p-Book without content has a price determined by the pound(s) of paper it uses. Imagine what the cost would be for clay tablets.

3 - The third cost element of a book’s cost is the marketing and advertising. Without them who will know if the book even exists?

4 - The retailing, the actual selling to readers, is the fourth element of the cost. The bookstores get as much as 50% off the list price.

5 - The last cost added to the book is the publisher’s profit, which is necessary to continue in business. An accountant may say that I forgot other expenses like overhead, burden, taxes and many others. I considered all these extra costs as part of each element mentioned above.

Therefore, a book’s price is made of five cost elements: content, delivery-device, marketing, retailing, and profit. 

The p-Book uses all five cost elements, and therefore has the highest price. Audio has a high price as well because of the additional production costs. The eBook makes use of an e-Reader, the CDD, but this device is paid for only once as a Kindle reader, or tablets and smart phones to read eBooks on them. In theory the price difference between a p-Book and eBook is the cost of producing the CDD, the p-Book. Only the publishers know exactly the cost of CDD. As an educated guess I would say it is 25% of the retail price. In this case a $20 p-Book would cost $15 as an eBook. 

However, the eBook price should be lower still. When a publisher sets up to publish a new book, the process is to produce a paper book and price it accordingly, as if eBook doesn’t even exist. (They say otherwise, but I don’t believe that.) In other words the cost of the content and marketing is already accounted for under the cost of p-Books. The e-Book’s cost is really zero, if we ignore more royalty for the author in case of higher unit sales. But the publisher needs to make a profit and the retailer as well. Amazon takes 30% off the listed prices for eBooks priced between $2.99 and $9.99. Based on these prices the profits would be between $2.09 and $6.99, give or take a few pennies. Considering that the publishers make about $3 from a $20 p-Book, an eBook priced at $4.29 would bring in the same profit. Above that price the profits would be pure gravy. 

So, why don’t the Trad-Pubs sell eBooks for less than p-Books? The entire publishing industry, the Trad-Pubs, the distributors and the bookstores among others are in the business to make money, as they should. Commerce is based on demand and supply. If the demand for books is known, the supply should be equal. Too many books –higher supply– and competition forces the prices of p-Books to come down. This means lower profits for everyone in the publishing industry.

Contrary to their propaganda, the Trad-Pubs are not the gatekeepers of the high literature bastion. They are the Gatekeepers of p-Books Supply. Another factor to take into account is if eBooks are cheaper it will cannibalize the sales of p-Books. Trad-Pubs have control over p-Books, but not eBooks. Relinquishing that control will spell disaster for the Trad-Pubs and bookstores. Not a good thing for them.

All writers, without a paying job, write without pay, at least in the beginning or perhaps ever, and there are many people who want to become writers and they write a lot. The Indie Authors can publish their books without Trad-Pubs and more commonly the content is published as eBooks. Since the gatekeepers can be bypassed the Indie Authors publish a lot and flooded the book market. The carefully monitored supply of p-Books had been upset by plentiful supply of eBooks. Darn it. If this situation continues the Trad-Pubs could be put out of business, and already thousands of bookstores closed. The eBook technology is making the gatekeepers guard a gate without a fence. And that’s why the eBooks are priced as high as the p-Books to restore some order in the supply equation, discourage readers to buy eBooks, and prolong the p-Books as long as possible. The ultimate solution for them would be the disappearance of the cheap eBooks. Forever.
 
Knowing why the Trad-Pubs price eBooks artificially high, how much should be the eBook prices published by Indie Authors? Amazon takes the least commission for eBooks priced from $2.99 to $9.99. Right there is the optimum price range. It is well known that the lower the prices the higher the sales. The decision has to be made about what an Indie Author wants to achieve, maximize market share or profits. For example, as an Indie Author if I want market share, I’d price all my eBooks at $0.99. Amazon’s commission is 70% at this low price and I’d get only $0.30 per eBook. But, theoretically, I’ll sell more books and more readers will know about me. On the other hand I could set the prices at $9.99 and receive a maximum profit of $6.99 per eBook. Will I sell a lot of eBooks at this price? Not likely. The sweet spot between the optimum price, profits, and unit sales is claimed to be $2.99 to $3.99. Still these prices will not produce results if you are an unknown Indie Author. Not enough people will be looking for your books and buy them when they see lower prices, unless you advertise.  

But how about pricing the eBook to recover your investment? I’ll use one of my eBooks as an example to price the eBook based on cost. I don’t rent an office in Manhattan, I don’t have shareholders, and I don’t pay myself for writing the novels. (If the Department of Labor finds out that I don’t get paid they’ll sue my employer, and that would be me.) However, it doesn’t mean that I publish my books for free. I may write and do the illustrations for free (I’m an artist as well,) but I pay for editing, and no book should be published without it. As an example: to publish a book of 50k words/200 pages it costs me $1,535. ($1,500 for editing, $35 for the copyright.) The time I invested – the equivalent labor cost – I consider it sunk cost. What then would the price be for this book? If I want to recover my cash investment and forecast to sell 100 eBooks, the price would be $22, list price. Even my mother wouldn’t pay that much for her son’s eBook. If I would sell 1,000 units the price would be $2.99. A better price, but would I sell 1,000 eBooks? My dilemma is, do I recover my cost or expand my market share. If I sell low and make no profit, my market will expand and more readers will know about me, and hopefully they’ll buy more of my books in the future. In time I may make a profit. Hopefully before I die. 

Another way to look at pricing is matching the competition’s pricing. I do surveys and gage what other comparable books sell for and the quality level of those books. High sales always reflect the quality of those books, and not necessarily because of the lower prices. Then, when needed I adjust my prices accordingly. 

How about zero pricing? Unlike p-Books zero pricing ($0.00) for eBooks is possible with no cost to the publisher. However, from what I found out the readers value them as much as they pay for them. Near zero. That doesn’t mean the zero pricing used strategically is not beneficial. Zero prices should be considered lost leaders to generate sales for other books. I have a series, Vlad V, which so far contains five novels. The first book, “Vampire Vlad V,” I offer for free as an enticement to buy the rest of the books in the series. My advice as an Indie Author: don’t give anything away without the potential of receiving some future benefit. 

In conclusion, what is the right price for the eBooks? Any price that sells your eBook and advances your career as a writer. And remember, the readers are smart and will not overpay.


 


 

 

 


 

 

No comments:

Post a Comment