Monday, December 12, 2011

How Much Should a Kindle Book Cost

How much should a Kindle book cost? Some people have gotten the idea that Kindle books should cost less than print books because the publisher has lower costs. Personally, I think that books should be priced to match demand. This is because publishers work on an 80/20 rule in which 80% of the money comes from 20% of the books. It may even be a 90/10 in which 90% of the money comes from 10% of the books. The 10% are actually making up for losses in the 90%. But one person recently indicated that she didn’t like paying “high” prices for Kindle books because she thought the publishers were charging far above their expenses. She indicated she might be swayed by hard numbers. Publishers don’t reveal much, but I’ve put together as close to what she wanted as I could.
Here are the publishing prices Rachelle Gardner listed some time ago for a Trade Paperback:
Editorial: $5,000
Packaging (cover design & production): $3,500
Typeset & Interior layouts: $500
Printing & binding: $12,000
Marketing: $6,000
Warehousing: $3,000
Sales: $5,000
Total: $40,000 not including the advance

Assuming the publisher puts the same level of effort into an eBook, we can make the claim that the prices for a Kindle book are the same, with the exception that the publisher isn’t paying for Printing & binding or for Warehousing. To simplify the math, let’s assume that the publisher will either print the book or will make it available for Kindle, but not both. In many cases, the publisher will make both available, but the publisher must be concerned with the overall profitability of the book, not with which customer is paying for each of the listed items.

Total for Kindle book: $25,000

If the cover price is $13.99, the publisher receives approximately $6.30 for each trade paperback sold. To break even, the publisher must sell 6,349 books to break even. Some books sell more than this and some sell less, but on average, a successful publisher will sell more than this for the books in his catalogue.

Now, consider the Kindle book which is also set at a price of $13.99. For illustrative purposes, let’s say the author is receiving 8% of that price. So, after the royalties are paid, the publisher will get about $3.78. To break even, the publisher must sell 6,614 copies of the Kindle book, which you will notice is 265 more than what they needed to sell of the trade paperback.

Okay, so if we assume that the same number of customers will buy the Kindle book as would have bought the paperback, no matter what price we set, the breakeven point is 4% higher, so we need the price to be 4% higher. For the publisher to make the same amount of money, the Kindle book should be priced at $14.57. Sadly, very few Kindle owners want to see that.

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