Elasticity of e-book Prices

Elastic

Kindle e-book Prices

Here are three important considerations that go into e-book prices:

  • What list price to set
  • What the per-book royalty will be
  • What the net royalty will be

These three figures are related by price elasticity.

The general trend is that a lower list price will attract more readers. But more readers doesn’t necessarily translate into a greater net royalty. It depends.

Suppose you price an e-book for $5.99 and would sell 500 copies at Amazon. Assuming a negligible delivery cost, the royalty would be $4.19 per book, and the net royalty would be $2095.

Pricing the e-book instead at $3.99 may reach more readers. The per-book royalty would be $2.79.

  • If you sell 1000 copies at $3.99, the net royalty would be $2793. In this case, the lower price is worth it.
  • But if you sell 600 copies at $3.99, the net royalty would be $1674. In this case, the higher price earns more.

Sometimes, the lower price may still be advantageous, even if the higher price earns more. That is, the larger reader base may pay off in other ways, e.g. more add-on sales of other books, building a following faster to help sell future books, etc.

A lower price doesn’t always attract more readers. Occasionally, an author raises the price from $2.99 to $3.99 and sales actually improve. At the lower end of the price spectrum, the perception that you get what you pay for can have a significant impact on price. Of course, the book has to appear to be higher quality (and have ample content) to command the higher price, but if it does, the $3.99 to $5.99 price range may actually be more profitable for some books than $2.99 or less.

$2.99 is often more profitable than 99 cents for books that would earn 70% at $2.99, since any book price $2.98 and under earns a 35% royalty. You would have to sell 6 times as many books at 99 cents to earn the same royalty as you would at $2.99. Very short books don’t have much choice; they might not sell at all for a higher price. Series authors sometimes use the 99-cent price point to attract new readers into a series. For authors with numerous books, 99 cents can create some impulse buys of several titles at once.

Predicting Elasticity

Kindle Direct Publishing (KDP) actually has a new beta pricing tool to help authors see some actual data.

You can find the new KDP Pricing Support tool on page 2 of the publishing process at KDP. Check it out.

What you see is a graph. There is usually an abrupt change in curvature at $2.99, where the royalty changes from 35% to 70%. Sometimes there are a couple of price points where the net royalty is predicted to be about the same. For example, I’ve seen cases where 99 cents and $2.99 have the same net royalty, or where there is scarcely any difference between $2.99 and $3.99. But other times one price really stands out, like $3.99.

What we don’t know is how reliable the data will be for any specific new title, or precisely how Amazon is determining which titles are similar to your book.

But any data is better than none at all, right? At least it gives you something to go on.

Well, you can always get your own data. Try experimenting with your price and you can see the impact first-hand.

I like the new KDP Pricing Support tool. When I’ve used it, the graph has seemed reasonable; i.e. the data resembled my experience and expectations.

Of course, each book is unique, and won’t necessarily follow the trend.

The Amazon Book Team recently offered some fascinating insight into Kindle e-book price elasticity regarding the famous Amazon-Hachette dispute.

You can check that out by clicking here (it’s an Amazon page).

Keep in mind that the change in price from $9.99 to $14.99 is probably much more sensitive than a change in price from $3.99 to $5.99 or from $2.99 to $3.99. At the lower end of the price spectrum, a lower price doesn’t always result in more sales, let alone more profits. But in the higher bracket, like $6.99 and above, lower e-book prices usually draw in many more customers.

I must admit, some of my favorite traditionally published authors have e-books selling for $7.99 and up, not too different in price from mass market paperbacks I’ve read in the past by the same authors, and there are dozens of such books that I ordinarily would have read in the past, which I’ve declined to read in the last couple of years because I felt that they were unfairly priced. They could have had much more of my business, and probably millions of other customers, with lower prices. But some of my favorite authors’ e-books have been priced $6.99 or less, and I’ve read many of those books.

Note that print books are understandably different, where the publisher invested in materials, distribution, etc. I expect to pay more for print books. In the case of print-on-demand paperbacks, the $6.99 to $9.99 price range is often less sensitive to price changes, while much higher prices, like $25, tend to be more sensitive.

Chris McMullen

Copyright © 2014 Chris McMullen, Author of A Detailed Guide to Self-Publishing with Amazon and Other Online Booksellers

  • Volume 1 on formatting and publishing
  • Volume 2 on marketability and marketing

Follow me at WordPress, find my author page on Facebook, or connect with me through Twitter.

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Will $5.99 be the new FREE?

Free Reading

Book Pricing Strategies

Amazon recently launched Kindle Unlimited, which allows customers to download multiple books all for just $9.99 per month. The selection includes all 500,000 KDP Select books plus an additional 100,000 books, including Harry Potter. (Read more about Kindle Unlimited by clicking here.)

If Kindle Unlimited really catches on—it looks quite promising for readers—it could be a game-changer for pricing Kindle e-books.

Many customers are indeed trying Kindle Unlimited out, and as more customers do this, it will surely impact sales ranks of Amazon e-books.

Let’s look at a little history:

  • 99-cents has often been a popular price-point. It’s cheap enough that customers can buy on impulse and not worry too much if it doesn’t work out. But many also believe that you get what you pay for, and believe this more strongly after a few books don’t work out.
  • When KDP Select first launched, FREE was a popular promotional strategy that worked for many authors. But then FREE lost its luster.
  • $2.99 has been a popular price point. You have to sell 6 times as many books at 99 cents to make the same royalty at $2.99, plus the higher price suggests higher quality than 99 cents.
  • Recent studies have shown that $3.99 to $5.99 is a profitable price-point. Indeed, many customers shop this slightly higher price range, expecting to find better quality here. (The study also showed that $9.99 was highly profitable, but nonfiction and big-name authors have lent popularity to that range.)

In the past, many books have sold in the free to $2.99 price range because many customers have been thinking about saving money—and about the risk of a higher-priced book not turning out well.

Kindle Unlimited customers are likely to have a different mindset:

  • Kindle Unlimited customers aren’t asking, “What’s affordable?” Once you spend $9.99 for the month, every book you want to read is essentially free.
  • So they are instead asking, “What’s the best book I can read?” They are looking for the best book, not the best price. If they do look at price, it’s as a guide to value.

The value of e-books may be changing. It is, at least, for Kindle Unlimited subscribers:

  • Cheap price-points have no value to Kindle Unlimited readers. Free isn’t a good deal to them. Instead, low prices may suggest low quality.
  • Higher-priced books may have more value to Kindle Unlimited readers. You have to read ten 99-cent books to get your $9.99’s worth for the month, but if you read ten $5.99 books, that’s a $60 value.

Since Kindle Unlimited has just launched, it still remains to be seen how much Kindle Unlimited customers will impact book pricing strategies and Amazon sales ranks.

Here are some things to look for:

  • Will 99-cent thru $2.99 books slip in the Amazon rankings?
  • Will $3.99 thru $9.99 Kindle Select books rise in the Amazon rankings?
  • If higher-priced Kindle Select books do rise in rankings, will that improve their sales, too?
  • Will KDP Select freebies and Countdown Deals become less effective?
  • Will BookBub and other promotions become less effective?

Even if $2.99 and lower books are enrolled in KDP Select and receive downloads, if other books—such as $5.99 books—are receiving even more downloads than they are, then those $2.99 and lower books will still fall in the rankings despite the downloads. There may be a lot of books that used to have sales ranks in the 100,000’s moving up to the top and pushing other books down in the ranks.

The effect may not be immediate. Customers also look at reviews. Covers, blurbs, and great beginnings will always matter. Books at the top probably have good packaging and many reviews, and books at the bottom may still need to build reviews. But as more readers try out higher-priced books, their popularity may grow and they may gain more reviews. Many Kindle Unlimited readers will approach the book-buying process differently, and it will eventually have some discernible effects. If the cover, blurb, or Look Inside have problems, this will deter sales regardless of the price-point.

Either way, the book must command the price it has. If you simply take a 99-cent short story and reprice it at $5.99, it’s probably not going to be perceived as a better value suddenly. Plus, if customers think the book is worth much less than the list price, it’s likely to show up in a review.

Rather, if a book really is worth $5.99, but has been priced lower based on how the market had been prior to Kindle Unlimited, if that book is enrolled in KDP Select, it might be a good time to reconsider its list price.

It depends on two things. First, will Kindle Unlimited customers favor higher-priced books? Second, how popular will Kindle Unlimited be? Time will tell.

If sales ranks of lower-priced books slip over the next two weeks, this will become food for thought.

The other side of the coin is that KDP Select borrows pay the same regardless of the list price. Books priced $3.99 and up would earn higher royalties for sales than the KDP Select borrows have historically paid (about $2 per borrow). But if their inclusion in KDP Select generates additional sales because of the perceived value, it may well be worth enrolling those books in KDP Select.

It remains to be seen how popular Kindle Unlimited will become and how much (and what kind of) impact it will have. But authors need to decide which side of the fence to stand on, and how to best plan their marketing strategies around the introduction of Kindle Unlimited, and so authors must make many decisions, such as whether or not to enroll in KDP Select and whether or not to change the list price. These decisions won’t be easy, but they may have a significant impact on a book’s sales in the coming months.

Chris McMullen

Copyright © 2014 Chris McMullen, Author of A Detailed Guide to Self-Publishing with Amazon and Other Online Booksellers

  • Volume 1 on formatting and publishing
  • Volume 2 on marketability and marketing

Follow me at WordPress, find my author page on Facebook, or connect with me through Twitter.

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