Ebook Pricing

The majority of the publishing industry is made of folks who graduated with degrees in English, Journalism, or Literature. I’m sure this is of no surprise and you most likely just mentally said, “duh.”

As publishers and authors talk about what a tough business they’re in, I’m mentally saying, “duh.” It’s a business and their background is in writing. This becomes so apparent when I see the lesser known authors price their ebooks at market levels. This decision generally comes from the publisher not the author unless the author is self published. There are sites that will allow you to compare your book to other similar books and arrive at a market price for yours. This does not mean you should.

When you set your price at what the market can bear, you are setting a price at the maximum the market will pay for your book. This works well if you are well known and/or have a big fan base because demand will drive the market price and sales. But if you are new or unknown to the masses, the market price for you might be much less. Instead of using the market level model for setting your price you should use the Laffer’s Curve.

Rather than bore you with the math and graphs, let me explain with a real life example how this curve works.

Where I live, the art gallery area of town has all their openings on the first Friday of every month. My wife and I like to go there and make a night of it. There are big crowds, wine, music and generally a good time if you like gallery hopping.

Here’s my example: Most of the galleries are not selling very much art even though it is all very good. In one gallery I saw some paintings on the walls that I thought were absolutely fantastic. I really would have loved to have one or several on my walls at home. However, each painting was priced at $10,000. I didn’t like them that much and my art budget said no way. The artist’s name is Ablerto and I overhead a conversation with him and a gallery patron. The patron asked, “Why do you price all your paintings at $10,000?”

Alberto replied, “I used to price them at $25,000 and never sold any. When I lowered the price to $10,000, I started selling one per year. If you look at the other galleries, you will see similar sized paintings priced the same. So this is the market price.”

Ablerto is correct. He has priced his work at the maximum the market will pay for his art.

In another gallery divided by several artists, I entered a room with fantastic paintings on the wall, painted by an artist named Rebecca. Again, I would have loved to have these on my walls at home only Rebecca was not selling the original paintings. Instead she had bins filled with prints of her work already matted and ready for hanging. She priced these prints at $50, well within my art budget and far below the market price. Its clear Rebecca makes much less per unit than Alberto.

I grabbed my favorite print and stood in line to pay for my selection. Let me say that again, I had to stand in line to buy art from Rebecca. As I stood there for ten minutes, I counted the number of prints she sold from the time I entered the line to when I reached the front. She sold $500 in prints just while I waited to give her money and she was working as fast as she could. When I left the room, the line appeared just as long as when I entered the room forty minutes earlier. This leads me to believe Rebecca had a line like this for at least three of the five gallery show hours. Maybe she had a line for more hours but let’s say three.

I promised you no math but I lied. If Rebecca sold $500 every ten minutes, that would be $3,000 an hour. For three hours, that would be $9,000 a night. Working only one Friday night each month Rebecca makes $108,000 a year. Compare that to Alberto’s $10,000. This is the basics of the Laffer’s Curve. You will sell more at a lower price and less at a higher price. This is why Wal-Mart sells more toothpaste per store than the grocery store where you shop.

Because there are variable and fixed costs associated with physical books and that’s a lot more math, let’s stay with ebooks. After conversion costs, you have no variable costs per unit. In the business model world this is the best scenario for your book. You have no costs to cover so you can do like Rebecca and price your product far below the market rate. If similar books by big name authors are selling for $12.99 to $19.99, you should price your ebook at $1.99. If lesser known authors are selling similar books for $7.99 to $9.99, you should price your ebook at $1.99.

Put yourself in the reader’s shoes. Here’s an interesting book by someone I’ve never heard of. Hmmm $8.99, I don’t know, I can get an author I’ve heard of for that money. Wait here’s an interesting book from someone I’ve never heard of before. $1.99, what have got to loose?

I know, you make less royalty at $1.99 but don’t forget the Laffer’s Curve. You will sell more at a lower price and that increase in volume should surpass the smaller royalty per book. As your sales numbers grow, you can slowly increase your price until you see the numbers start to fall. At that point, you will have reached the market price for your individual book.

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