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There are huge debates going on in the eBook world about the appropriate price points for online books, and the opinions differ, so it gets a bit messy given that books now range from free and up, with 99 cents and $2.99 becoming very common both for fiction and nonfiction, but if you check the top 100 of both categories you will see that pricing is all over the map with some very strange price points, like $7.40. There’s a lot of experimenting going on with some authors thinking 99 cents is the Holy Grail toward profit while others pick a price like $17.54 for books that aren’t really differentiated to explain the price differential.

In essence, what the eBook market will eventually come up against is something called pricing anchors; these are the prices that consumers normally associate with any product or service. In paper books, readers have long been conditioned to prices in the range of $15.95-$19.95 for paperbacks and $28.95 and up for hardcover books.

For decades, if publishers priced books significantly higher than the expected anchor prices, they had to be able to convince buyers that the books were something special. Conversely, if the price on a hardcover dropped below $20, or if you found a paperback at $9.95, they were seen as being truly “on sale” and thus good deals. Everyone knew what the price anchors were.

That’s all out the window now with some eBook prices being “free!” We’re in the first inning of a process of book pricing that will take some time to work through.

So, the game has changed; what is the best price for an eBook: 99 cents, $2.99, $4.99 or $9.99? People say to experiment with different prices to see what works best, but if you intend to experiment, you have to start high and work down because chances are you won’t be able to increase your price. It’s smart to charge as much as possible, of course.

On a personal note, I hate to see hard-working authors being valued below $3. We now function as researchers, writers, marketers, and administrators—there’s a lot to know and a lot to do to self publish.

We still get what we pay for

I’ve talked to several dozen people about pricing, and there’s a general feeling that something is still worth what you pay for it. Most people think free or 99-cent books have little or no value and must be written by amateurs or desperate people. Sure, the John Locke’s and Amanda Hocking’s can make money because they have established names and can take a small chunk of a million books and still do fine. But too cheap can work against you, too.

There’s a ton of research available on price theory that is instructive. For example, we’ve all seen products priced at what are called “charm prices” or numbers slightly below an even number: $2.59, $2.79, $2.95, $2.98, or $2.99. Perhaps you’ve wondered what the psychological underpinnings were for the different decisions.

Kaushik Basu, chief economist to the government of India, performed game theory research which revealed that buyers’ decisions are not materially affected by the “cents” part of any purchase. He found that since people read numbers from left to right, a left-digit blindness effect causes us to not read the last two digits, so we mentally see $4.99 as $4.00. So, according to Basu, you might as well charge the maximum cents, i.e. $4.99 instead of $4.29 because there won’t be noticeably more buyers at the lower price anyway.

If something is priced below $10, people round downward between $1-$10, but as soon as the price tops $10, the rounding moves to $10-$20, and a whole different attitude sets in about relative value. With prices of $26.99 or $29.99, you’ll see no real difference in sales. Pop the price to $30.29 and suddenly the rounding is $30-$40, and there will be buyer resistance.

When I worked with the educational publishing house, EduServ Inc., we priced books from $29.95 to $99.95 and justified the difference based on perceived life or death value—really. For example, a book offering advice to teachers on how to get better results in the classroom would warrant the $29.95 price, but one on school bus driver training, or another on how to draft AIDS policies in school districts sold extremely well at $99.95 because of the perceptions among school district administrators and elected officials that there was information that was badly needed and that literally affected people’s lives (or deaths). We never had one of those returned!

The big royalty debate

The standard royalty levels, as set by Amazon and Barnes & Noble (and they are the determiners), dictate that e-authors are paid different royalties based on retail prices. If your book sells for $3-$9.99 you receive 65% from B&N and 70% from Kindle, if it sells for less than $3 or more than $9.99, you receive 35%.

There’s a lot of support now for works of fiction priced from 99 cents to $2.99, but this price point puts you in the 35% royalty range, whereas $2.99-$9.99 warrants royalties of 65-70%. Yes there are some deductions from those high percentages, territory restrictions, download fees, etc., but even if those fees erode the 65-70% down to 35%, I’ll take 35% of $4.99 any day over 35% of $2.99. I believe that reader psychology is important here, i.e. if you market your book properly, i.e. position it well so it’s seen as truly valuable, and more so than your competitors, you can charge more.

If you use an aggregator to get your eBook into the format required by Amazon or B&N, then you will be subject to upfront charges, plus other fees as may be applicable for the work they perform on your behalf, often 10%-15% of the author’s portion. So, if you sell a book at $4.99 and get 65% from B&N = $3.24, less the aggregator’s 15% cut = $2.76 to you.

I don’t have a problem with eBooks being less expensive than paper, after all there is no physical product to print, ship, or warehouse, so pricing from $4.99-$9.99 as compared to $15.95-$19.95 for a print book seems reasonable. And, you stand to make far more than you would with the old legacy publisher system where you received 10% on retail.

I have to think that the entertainment value of a good fiction read, or the practical advice received from a work on nonfiction is worth the price of a cocktail. The ease of being able to upload books for free to Amazon, B&N and others may actually be encouraging a lot of people who aren’t really writers at all and who can then afford to just stroke their vanity. I’d have no problem paying a fee to upload. Serious writers would only benefit if some way can be found to discourage some of the awful hacks that upload material so badly written and conceived that it reflects badly on all self pubbers…I may regret having written that!

[Via the Ebook Author blog]