There seem to be four schools of thought in the pricing of ebooks these days. (And I'm talking about fiction here. Non-fiction has it's own issues in terms of costs and updating and research.)
1.) Sky's The Limit - Or No School Like and Old School.
The Big Six publishers are so horrified by Amazon's "low" pricing of books at 9.99 that they revolted and took back control. The pricing philosophy of this group, especially Penguin, seems to be set prices as high as they can. $14.99 is common. They seem to be intent on slowing the advance of ebooks, to please their brick and mortar partners, or to give themselves a chance to adjust their business model for Le Deluge (i.e. the end of the world, revolution, blood shed, collapse of reason, and the supremacy of ebooks).
IMHO, these people are insane, but if they can get customers at their high prices, okay, more power to 'em. But they are irrelevant to me. They can get away with these prices for a while because of the popularity of their authors - but if they don't start paying those authors a higher percentage, they'll lose them. And I sure won't pay those prices. I'll read their books at the library or get them used, thank you very much.
2.) How Low Can You Go? - Or I Don't Get No Respect.
This group largely started through the efforts of Joe Konrath, who has since changed his mind on the extreme low pricing. (Although, imho, he still hangs around on the upper edges of this group.) There are a lot of different reasons for adhering to ultra low prices, and it's a varied group, so don't think they all believe the same thing. This is just a summary overall:
This group believes in using the lowest practical price, given Amazon's policies. That means you have a goal that once you are established you might price a full novel at 2.99 (the minimum price which will get you a 70 percent royalty), but that you should set your price to 99 cents (the lowest list price Amazon will allow at all) while you establish yourself. And once established, you still might use 99 cents as the price for the first book in a series.
There are two ideas of why you should do this, both based on the idea that a cheaper price will get more readers. One group is all about the math. Amazon's policies mean that a $2.99 book gets six times the roylaties of a 99 cent book - so a cheaper book has to sell six times the number of copies to make the same amount as the higher priced book. The math whizzes feel that if you can increase your audience by more than six times, you're better off with the lower price. The problem is that very few actually make that magic 6x sales point. And of those that do seem to sell that much better, it's hard to tell if it's really because of the price.
I can't find more than anecdotal evidence for any side of this debate, but generally in the forums, when writers report on the results of a price change, it seems as though some do better, some do worse - and about the same percentage do each no matter if they are raising or lowering their prices.
The other group doesn't care how much money they make. They just want more readers. They feel they are beginners and have to win people over, and the best way to do that is a 99 cent price point. SOME of these people are depressed and desperate and just want to do anything to move books. Others are looking at the long term.
I agree with many of the reasons and feelings behind this cheaper model. I think, though, that the majority of this group has overshot their target.
A little bit of business knowledge is a dangerous thing. Most writers believe that you can sell a million ebooks or just one at the same cost to the writer/publisher. And they would be right, except that they don't seem to realize that cost is not "zero." There may be no cost of materials, but it takes time to write a book. It takes time and/or money to edit and create a cover and do layout. There is a fixed overhead cost that must be met.
In any business, beginners always think: "Oh, but I enjoy doing this, so I won't charge myself for my time. I'll donate it to get my career started..." That is a deadly trap. Because that time isn't free. You can't multiply it, or expand it. It's sunk time that you'll never get back.
Furthermore, those millions of unlimited sales over time? They aren't really unlimited. You only have so many customers. Those customers have to cover your overhead, or you're out of business.
When I was in the button business, I did pretty well as science fiction conventions. Buttons tended to sell for 1.50 each, 4 for $5 or 10 for $10, or 22 for $20. Would people buy 22 buttons? Heck yeah! SF fans love clever sayings. If you had enough inventory, you might have a customer who bought 50 or a hundred buttons. Most went for at least 10.
And I had this bright idea one time. The cost of making buttons kept the prices pretty much where they were. Plus, buttons took a lot of table space, which had to be rented, and it was a lot of work lugging them around. So I thought, you know, people weren't buying the buttons, they were buying the sayings. What if I made bookmarks that had the same sayings on them? They cost almost nothing to make, and were easier to lug around. People could buy more of them. And I could sell them for a quarter each and have, like, a one thousand percent markup! Lots more margin/profit.
I did great business at that con, and those bookmarks sold really well. The thing I didn't take into consideration was that you don't really change a customer's buying habits much, even with a lower price. And there was not an unlimited number of customers. So I sold bookmarks instead of buttons. And while the buttons had a lower percentage of profit, they actually did give me a higher return per item.
Upshot, I made less money. And strange but true: my competitors did NOT make less money. The fact that I had cheapies only influenced what people bought at my table and left them with more money to spend elsewhere. I thought I would out-compete them (which I normally did on the strength of my catalog) but this time, I only out-competed myself. Whoops. I ended up not making my expenses for that con. And I certainly didn't pay for my time designing those bookmarks.
If I had been a beginner, who couldn't read the crowds and tell how well I should be doing, I would have thought I'd done pretty well. I might even have convinced myself that, since the bookmarks did so well, I should get rid of the buttons altogether. Heck I could put just as many of them on one table instead of three, and save money on the dealer fees! Which would have been a disaster, because the thing that sells buttons (and bookmarks) is the amount of time people spend browsing at your table. If you don't have room for much browsing, you don't sell anything.
I do believe in keeping prices low - near the cost of production, even - but that the cost of production is a lot higher than people think it is! You put yourself out of business if you go below that. If you over-estimate the "unlimited possibilities" then you'll be disappointed at best. Don't do that.
Further more, you must value your time, or you won't be able to sustain the level of work you need to succeed. Which I'll talk about more in eBook Prices Part 2, when I get to the other two schools of thought on pricing ebooks. These are both moderate but with a big difference in the pricing of short stories.
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