- January 17, 2011
Dave Slusher is a smart guy. He’s a scientist, a computer scientist and a blogger at the Evil Genius Chronicles.
More than that, he still uses math (or maths, depending on where you’re from) in the real world. Yikes! In this case, he’s used it to prove that the optimum price point for ebooks is between $2.99-3.99. And not just optimum in number of sales, or because it looks nice – the best price in terms of total revenue.
Yes – as I said, and Slusher reiterates – the bleating of publishers, many of whom currently set their own prices, that they can’t afford to lower the standard ebook price from the common $9.99 is misguided. It assumes that there is no price sensitivity in ebooks.
That is, publishers claim that if they lowered ebook prices, sales wouldn’t go up enough to cover the shortfall, and revenue would drop.
That, as they say in the classics – is complete balls. In every other retail sector, price is a factor. Sure, consumers are price-sensitive to different degrees in different markets, but price almost always has a bearing on sales. That’s why retailers have “sales” – lower margins, but more buyers.
As Slusher proves, ebook publishers can’t afford not to lower prices.
Slusher used sales figures from J. A. Konrath to try to determine the best price for ebooks to maximise total revenue.
I did this early in 2010, based on then recent data that J. A. Konrath had posted to his blog. He’s a decent test bed for these numbers, as he had a number of ebooks out, some self-published and some published by a major publisher. These were priced all over the board. At the time, he was pricing his self-published books at $1.99, and the major publisher books were as high as the $8 vicinity. The commonality here is that none of them were getting much of a promotional push. There was no book tour, no advertising campaign so these numbers should be a realistic look at how price affects unit sales.
So, in crunching Konrath’s sales numbers vs price, Slusher has come up with what we already suspected – total revenue is a bell curve. You price the ebook too low, you can’t sell enough to maximise your revenue, you price it high, your sales drop sharply.
There must be a happy medium, and there is. Between $2.80 and about $4 is the idea price to sell ebooks – at least for J. A. Konrath.
Slusher also talks about why the other publisher whine – how ebook costs aren’t that much lower than paper books – isn’t really relevant to the discussion.
Since all costs that go into creating the publication ready file are fixed and there are no variable costs associated with providing copies to the market (from the publisher – Amazon et al are paying them) by my understanding the only factor that should be important is total revenue. If you lower the price of the book, you run the risk of pricing lower than a purchaser might have been willing to pay. That is an opportunity cost but not a hard cost. It’s not like in the paper world when publishers sell the remaindered book at less than the hard costs associated with the manufacture and shipping costs of those copies. That’s not possible in the digital world. Instead what is important is pricing the books so that the total revenue is maximized.
I personally can’t see how the costs associated with ebook production and sales – without paper, printing, distribution, shipping and returns – is anywhere near that of pbooks (and I’m not alone) But, as Slusher explains, it’s a moot point anyway. Production costs are fixed, and we’re talking the language of big publishing: total revenue.
He freely admits that the data is imperfect, but when isn’t it?
We can only wait … and wait, for big publishing to come to the same conclusion – because they certainly won’t be told!