Ebook Pricing Discussion: Picking a Price to Break Even

The other posts in this discussion are about buying an ereader before you start selling ebooks (especially if you’re going to give some out for free) and calculating how much you invested in your ebook.  If you want to know where I’m getting the figures for how much your book costs, look at the second.

—

I have three suggested methods for picking a price on your ebook, by basing it on:

1. How much money you need to make in order to pay for your time (breaking even).
2. Comparable sales.
3. Maximumizing profit.

Probably the answer is a combination of all three.  You can also try to calculate how much your book is worth to your customer, but I have no clue how to approach that, other than to say, “This book generates X hours of pleasurable reading time,” which just means that longer books should cost more.

A fun article on pricing that I read while researching the topic (imagine, as a kid, an adulthood where you could possibly say something like that!) is by Erik Sink at SourceGear, here.

After seven years of running a small ISV, I have come to the following conclusion: No matter how low we set the price, someone will complain.

• If I lowered the price, I would merely attract the attention of someone for whom it is not low enough.
• If I gave the product away, someone would complain that I am making them buy more disk space to install it.
• If I paid each user a hundred bucks to use my product and sent Salma Hayek in a bikini to personally install it for them, someone would complain that they prefer blondes.

I would have to say that my experience is that trying to price books at rock-bottom prices doesn’t sell any more books than pricing them in non-rock-bottom prices.

Breaking Even

In the previous post, I talked about how to find out how much you invested in your book–that’s how much money you need to break even on a book.  I used a hypothetical example of an 85,000-word novel that worked out to $2710 of my time and expenses invested in it (see the caveats and calculations back on the other page).

So if you want to find out how much to charge for your book from a breaking-even standpoint, you’ll need to find the per-copy profit at each of your possible prices.

I’m using Amazon royalty rates, as (probably) most people’s indie sales will be here.  This excludes any fees for file sizes.

$.99 = $.35 profit (35% royalties)
$1.99 = $.70 profit
$2.99 = $2.07 profit (at 70% royalties between $2.99/$9.99)
$3.99 = $2.77 profit
$4.99 = $3.47 profit
$5.99 = $4.17 profit
$6.99 = $4.87 profit
$7.99 = $5.57 profit
$8.99 = $6.27 profit
$9.99 = $6.97 profit
$10.99 = $3.85 profit (back to 35% royalties)

And so on.  At $14.99 ebook, by that structure, makes $5.25, which makes me wonder what structure the big publishers are running under that makes it better to sell ebooks at $14.99 than $7.99.

The other numbers you need are:

• How many books per month you think you can sell.
• How soon you want to break even.

I guesstimate my average book will sell 25 copies per month (book-length book, not short story).  Not every book, but my average book.  I want to break even within five years.

That means my formula is like this:

12 months * 5 years * 25 copies = Number of copies I want to break even by (1500)

Break-even money / break even copies = Profit needed per copy.

So my example book:

$2710 / 1500 = $1.8 profit for copy.

For the example book, I need to charge at least $2.99.

However, in real-world land (unlike in my example), I freelance–this isn’t a hobby anymore–and need to make over twice as much as that, or charge somewhere between $4.99-$5.99 to break even on an 85K book.

The problem with this method is that it’s all about you and has nothing to do with your customers.  It can tell you when you’re charging unreasonably small amounts for your book, but it won’t say anything about charging so much that people don’t buy the book.

Next time: Picking  a price based on comparable sales.

(Psst – I have a new book up, Alien Blue. It’s available via Amazon for now but will come out on non-Amazon formats May 20.)