Ok, *cracks knuckles*, let’s do this. Here’s where things are going to enter a territory that intimidates a lot of writers… math. Buckle up, because this is going to be a long one.
In Part 3 of my series on distilling self-pub research, we’re going to talk all about money. How to price your book, what factors to consider, and why your pricing structure can affect your book’s availability in brick-and-mortar stores.
For this article, I’ll be explaining third-party distribution pricing structures, such as selling your book through Amazon or IngramSpark. We’ll also mostly be discussing the pricing structure of printed books in this article, as the math is most complicated for hard copies. There will be a short section at the end about ebook royalties and pricing, however.
I’ll also be referring to my experiences as an author in the United States, since that’s my personal experience and I can’t speak to other countries’ processes.
First off, we’ll explain:
Who gets the money?
Book profits essentially break down into three parts:
- The publishing/printing service
(Amazon or IngramSpark)
- The retailer
(Amazon is its own retailer, but Ingram distributes to other sellers like Barnes and Noble, IndieBound, and more)
- The author
How much money do those recipients make?
For simplicity’s sake, I’m going to use an example of a paperback book that retails for $10, to keep the math nice and clean.
The pricing of the book’s printing is set by Amazon or IngramSpark, and they both have calculators to help you figure out what your book will cost. (Amazon’s here as a downloadable spreadsheet. IngramSpark’s here).
For this book, let’s say the distributor’s printing cost is an even $5.00, for a book around 300-350 pages. In reality, the prices won’t be the same on both distributors, but for this example, we’re going to pretend they match.
So that’s the printer’s chunk of the cost: $5, or 50%.
Next, the retailer royalty.
This is how much of the book’s cost goes to the retail seller, such as Amazon’s storefront, an indie bookstore, or Barnes and Noble.
At Amazon, this royalty price is set by their site. I haven’t quite parsed out their algorithm, but it’ll be listed as “Amazon Royalty” on the price calculator linked above. It’s usually between $1-3, depending on your book’s page count and price. In reality, for our example book, the Amazon royalty would actually be lower than shown in the pie chart below, but I’m leveling out the numbers just to illustrate the price structure more clearly.
For IngramSpark, you get to choose the percentage of the retailer royalty (listed as the “wholesale discount” on their profit calculator), with a minimum of 30% in the US. Most online retailers, including Barnes & Noble’s website, will sell your book at the 30% discount.
Using our example of a $10 book, that means your retailer is going to get 30% of that retail price, or $3.
So now our chart looks like this:
Here’s the catch…
Most brick-and-mortar retailers, including Barnes & Noble and many indie bookstores, require a 55% wholesale discount in order to stock your book on the shelves.
This means if you’re angling for brick-and-mortars, you might have to price your book higher to see a profit. In our example, in order to maintain a $1.75 profit, the price has to bump up to $15.00.
Here’s how that math breaks down:
- 55% of $15.00 = $8.25. That’s your wholesale discount.
- So $15.00 – $8.25 – $5.00 (print cost) = $1.75 for the author.
So here’s our “brick-and-mortar” pie chart:
The other problem with brick-and-mortar (and the reason you won’t be seeing my book at a bookstore near you) is that they require books to be returnable. This is an option you can turn on or off when you set up your book at IngramSpark.
“Returnable” means that any bookstore can order books, then return any that don’t sell. Then IngramSpark will charge you for the unsold books. That could result in a sudden charge of a few hundred dollars at any time. If you’re lucky, you can pay to have them shipped to you and you can try to sell them to recoup your loss. Depending on a number of factors, the books may be destroyed instead.
I was unable to make this concession, so I stuck with online retail for my book.
If you do choose not to make your books returnable, there’s no real reason to stick with the 55% royalty – you’re better off going with the lower 30% and maintaining a higher profit margin.
Now once you know your minimum price…
Should I price high for maximum profits, or lower for increased sales?
This one is a tricky, personal decision. You want to build in at least a couple dollars for wiggle room in case your distributor increases the printing cost at some point, or for market fluctuation if you choose to distribute globally.
I chose to go toward the lower end for mine, since it’s a debut and print books can be a harder sell. Similar traditionally-published books in my genre tend to sell for around $15-17 in paperback. Since mine is self-published and therefore considered with a bit more skepticism by the general reader, I priced at $12.95 to make it a bit more enticing.
This means I’ll only make a small profit per book, but most of my profit will come from ebooks; print books are a smaller wedge of my sales pie.
I hope all that math didn’t make your head spin, but we’ll cool down with some easier number-crunching and…
Since there’s no printing cost for ebooks, the math on this is much simpler.
At Amazon in the United States, there are two royalty tiers:
- On any ebooks under $2.99, you will receive 35% of the cost. So if you have a book set at $.99, you’ll get about $.35 per sale.
- If you price your ebook at $2.99 or higher, you receive 70% of the cost. That means on a $2.99 book, you’ll make about $2.09.
There is a small “file delivery fee” charged at Amazon based on your ebook’s file size, so those numbers might be a fraction lower, but that’s a pretty solid ballpark.
At IngramSpark, you receive a set 40% of your ebook’s price. So on that $.99 book, it’ll be $.40, or for the $2.99 book, $1.20.
For ebook pricing, there’s also perceived value to consider. Amazon has a lot of $.99 ebooks, and while some of them are great books, a majority of them are not. Pricing your book at $.99 can garner a lot more quick buys from bargain hunters, but some readers can be dubious of the quality of books at that price tier.
Pricing your book a little bit higher can add to the perceived value. If it’s a few dollars and still has a number of good reviews (that’s another topic for another day), people are more likely to assume it’s a worthwhile purchase. The sales you lose from the bargain-hunters can be offset by the higher royalty per sale.
This is why I priced my ebook a little bit higher at $3.99. I poured a few years of my life into this book, and my pricing shows confidence in its quality. I like to think it’s well worth the cost of a kids’ meal at a fast-food drive-thru.
To look at it in hard numbers, one sale of my book at $3.99 nets me about $2.70 or so. I’d have to sell eight books at a $.99 price point to make the same profit.
The higher price means I might be narrowing my reader base, but I will be selling to readers who are (hopefully) more likely to actually read and enjoy my book. (Be honest, how many unread $.99 or free books do you have languishing on your e-reader?)
However, Amazon does also have the option to sell your ebook at a lower price (or free) as a bundle with the print book. I chose to sell mine as a $.99 add-on if a reader buys the paperback.
Setting a $3.99 price also allows me to run future sales at a temporary discount if I choose to do so. For example, when the second book in the series is released, I may decide to sell the first book at $.99 for a limited time to build up interest for the sequel.
However, you may choose the broader scope of a full-time lower price instead. Both have pros and cons to consider.
Whew, that was a lot of info to pack into one article! I hope this helped lay out pricing structure a little more clearly, and tune in for the next (much shorter) article on publishing imprints: What are they, and should you create one?