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Maths Used to Prove $2.99-3.99 is Optimum Ebook Price
  • Posted:
  • January 17, 2011
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    24

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!

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24 Comments
Joel

2011-01-17 12:29:10 Reply

Very interesting. I wonder if this is true for Australian publishing yet. I have no doubt it will soon enough, but sales are still very low.

JA Konrath

2011-01-18 08:04:42 Reply

Email me. I’d love to repost this.

    RM Doyon

    2011-01-28 02:56:06 Reply

    I totally concur, and I think my readers do as well. Personally, an e-book that costs more than five bucks turns me off, and although I can afford to pay more, I hesitate when I see a book at $9.99, or worse, a book I wanted was on Kindle at $14.99! That is why I asked Kindle to drop the price of Upcountry from $4.99 to $3.99.

NoBull Steve

2011-01-28 04:27:56 Reply

What the what??? Using MATH and BUSINESS concepts for the publishing industry?!?!! What are you going to suggest next that they modify their business practices from those of the 19th Century (and yes I mean 1800s) to those of the 20th???

antares

2011-01-28 09:21:42 Reply

If by ‘bell curve’ you mean a normal curve — and that is the common meaning of ‘bell curve’ — then you are mistaken.

It is not a normal curve. It cannot be a normal curve, nor does it approximate a normal curve. The left tail has a limit at 0.

The curve is right-skewed.

For me, the graphic raises more questions than it answers.

    JD

    2011-01-28 09:44:47 Reply

    Well, professor, that’s true, but whether the curve is a perfect bell or not (we all know it isn’t), it certainly ain’t a horizontal line, which is what big publishing would have us believe.

    The main question it answers for me is “Is fixing ebook prices at $9.99 across the board a brilliant and necessary idea that will save the publishing industry, as parts of the publishing industry claim?”

    As they say in the classics, “Nup.”

      antares

      2011-01-29 11:57:14 Reply

      @ JD

      Thank you for addressing me by my proper title: professor.

      @ optimal price point for eBooks

      Jason Davis misquoted Dave Slusher. This often happens when someone who doesn’t know ‘maths’ quotes someone who does.

      Dave Slusher knows the limits of his data; he used sales figures J A Konrath published in a post dated 24 February 2010.

      Dave Slusher wrote “I’m not advocated (sic) for $2.99 as the perfect One True Price for all ebooks forever. That was true for this data set, which is already a year old. This might well change over time, differ from author to author, genre to genre or publisher to publisher. What I do want injected into the thinking is that these numbers are calculable and measurable.” http://www.evilgeniuschronicles.org/

      The purpose of Mr Slusher’s analysis was to test an assumption he believes underlies the behavior of the publishing houses: Demand for books is inelastic. That is, readers will buy any given book in the same quantity no matter the price. His quick-and-dirty analysis showed that assumption does not obtain for J A Konrath’s books.

      It takes a leap of faith to extrapolate from that to the notion that the assumption does not obtain for other writers, but it’s a small leap. To state it says that $2.99-$3.99 is the optimal price for ALL eBooks is just flat out wrong.

      I, too, think that demand is elastic. What is the optimal price point? I do not know. I think it unlikely that we will ever know precisely.

      I believe the optimal price for an eBook changes with time. ‘Optimal price’ means the price that maximizes income. I believe that $9.99 is too high. $5.00 give or take about 3 bucks feels right. Coming up with the stats to support my feeling would require access to data that I do not have.

        JD

        2011-01-30 21:25:57 Reply

        Ok, out here in the real world, we have to make a few generalisations, prof. So his imperfect data beats your no data.

        Alan Baxter

        2011-02-02 13:27:42 Reply

        “I believe that $9.99 is too high. $5.00 give or take about 3 bucks feels right.”

        So you’re arguing with the post while at the same time essentially agreeing with it. What the..?

Robin Sullivan

2011-01-30 01:58:46 Reply

I think the $2.99 – $3.99 price point is too low. I also am aquainted with math (maths) and have done a fair number of tests where I have tried various options (one book free, one book at $0.99, one book at $2.99) and in each case the change resulted in a monthly loss of $7,000 – $9,000. My husband’s Riyria Revelations books are priced at $4.95 (with the most recent at $6.95 and) and they are selling “best” at this price point.

If you want to learn more about the pricing tests and the result – you can visit:
http://write2publish.blogspot.com/2011/01/crunching-some-numbers.html

Justin Alexander

2011-02-04 09:02:31 Reply

Interesting post. One potential factor to explore in future data-crunching: Is Konrath suppressing sales of higher priced books by offering lower-priced alternatives?

For example, if I hear that this Konrath fellow writes nifty books and I go to Amazon to check out his work I’ll see several options at $2.99 and a few other options at $6.99 (or whatever the numbers might actually be). If I’m just looking to sample Konrath, I’m likely to select the $2.99 book over the $6.99 book. But that doesn’t mean I wouldn’t have selected one of the options if they had both been $6.99.

How large is that effect compared to people who DO buy at $2.99 but wouldn’t at $6.99? Impossible to say with the limited pool of data.

    JD

    2011-02-06 15:25:55 Reply

    Hard to say, Justin – but what I do know – actually there are two things (my friends may argue I’m being generosity there). First, lower prices will get you promoted up Amazon’s bestsellers list. Which leads to big sales. And Joe Konrath seems like a straight-up guy (with a family) so I dont think he’s foxing. He wants sales and is in a position to run his own race. So the fact that his books are at that price says a lot – in my opinion.

Kelly

2011-02-06 10:27:28 Reply

As a reader with a Kindle (had it about three months now), I think this is a fair assessment. I will hem and haw at an ebook for $9.99. I have to REALLY want to read that book. However at $2.99? I don’t even question it. I hit “buy” lickety-split.

I’ve bought some great books for $0.99 and some real turds for $5. However, I’ve turned down many an ebook because the publisher is a stingy ass. I know having worked in marketing for books how much the writer actually gets from those royalties. So, again – I’ve turned down many an ebook because the publisher is a stingy ass.

    JD

    2011-02-06 15:18:21 Reply

    Kelly – you know it, I know it – wonder why big publishing doesn’t know it?!

Raisa Simoneavd

2011-02-17 02:00:30 Reply

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Lisa Grace

2011-06-05 13:55:07 Reply

As a reader, I can’t see myself spending more than 7.99 for an ebook. There is just something wrong about charging more for an ebook than a paperback. I know the production costs are much less on an ebook.

As an author, I’m perfectly happy to charge 99 cents for the first ebook then 2.99 for all others. My goal is readers.

    JD

    2011-06-06 13:55:13 Reply

    Yes Lisa, it’s just a more reasonable price point. As you say – no distribution, no paper, no printing. The market just won’t bear $8-12. At least not for anyone who’s not a megaauthor.

Carol Parker

2011-06-07 09:18:24 Reply

Where nnd to whom can one go to learn how to do this? Publish America put my book on Amazon but at the despicable price of $24.99!!! Who in his right mind is going to pay that kind of money for a book by an unknown author? There are many, many people who cannot even afford $6.99. They depend on friends who toss them hand-me-down books, or they borrow them from the library after waiting on a list for months for a best-seller. These people would think they were in book heaven if they could purchaswe their own books at 99 cents and $1.99. I’m speaking from, experience. And now I’m ready to help them out with my low-priced books.
Delora

    JD

    2011-06-07 21:01:01 Reply

    Carol, you can list it at Smashwords or here – Bookbee.net/store – if it’s an ebook. You can set your own price and we will (Smashwords does this too) hos it and you can direct people to your book’s page to by and download it.
    You should always be able to set your own price!
    Send me an email and I can give you more detailed help on the ebook side of things if you like.

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