Heidi Thorne is a self-publishing advocate and author of nonfiction books, eBooks, and audiobooks. She is a former trade newspaper editor.
"Do you think $9.95 [or whatever price] is okay for my book?"
When I get asked this question by author clients and colleagues, I tell them that it might be okay (comparing to similar works on the market) or that I don't know. I'm sure they're confused by my answer since I market myself as a self publishing expert.
Why do I answer with such a lack of commitment and confidence? Because selecting a price for a self published book must take into account several factors.
So if you're facing the pricing question for your book or eBook, here's what you need to consider...
Book Pricing for Royalties When Using Self Publishing Platforms
If you're merely collecting royalties from sales of your books through self publishing programs such as Amazon’s Kindle Direct Publishing (KDP), there are a couple royalty structures you'll need to consider when setting a price.
Royalty as Percentage Example. Especially for eBooks on programs such as Kindle Direct Publishing (KDP), you may encounter royalty payouts that are a straight percentage of your retail price. This is the easiest to calculate with this formula:
Royalty Earned per Book = Retail Price X % Royalty Rate
Solving for Retail Price (dust off those algebra skills!):
Retail Price = Royalty Earned per Book ÷ % Royalty Rate
For example, say you want to earn a $2.00 royalty per eBook. Also, you anticipate your royalty rate will be 35% for most of your eBook sales. Plug those amounts into the equation:
Retail Price = $2.00 ÷ 0.35 = $5.71
Some programs may also deduct a delivery or handling cost (or other costs) from the final royalty. In these cases, the calculation of what you’ll actually receive gets a little more complicated. We’ll use $2.00 desired royalty per eBook and royalty rate of 70%, plus a delivery and handling cost of $0.15 per eBook sold.
Royalty Earned per Book = (Retail Price X % Royalty Rate) – Delivery or Handling Cost
Solving for Retail Price again:
Retail Price = (Royalty Earned + Delivery or Handling Cost) ÷ % Royalty Rate
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Retail Price = ($2.00 + $0.15) ÷ 0.70 = $2.15 ÷ 0.70 = $3.07
If you are collecting royalties as part of your business income... the equation gets a bit more complex. In this case your Royalty Earned per Book is your profit margin. You'll also need to account for overhead business expenses when figuring a price.
For example, say you still want to earn $2.00 royalty (your profit margin) per eBook you sell through your business. You anticipate your royalty rate will be 70% for most of your eBook sales. As well, you have overhead expenses which are 25% of your gross revenues; in other words, you would multiply your Retail Price times 25% to figure out the overhead contribution per book. And there will be a $0.15 delivery and handling cost per eBook sold.
Retail Price X Royalty Rate = Royalty Earned per Book + Overhead + Delivery and Handling Cost
Clarifying the Overhead factor…
Retail Price X Royalty Rate = Royalty Earned per Book + (% Overhead X Retail Price) + Delivery and Handling Cost
Plugging in the figures from the example and solving for Retail Price...
Retail Price X 0.70 = $2.00 + 0.25 Retail Price + $0.15
0.70 Retail Price - 0.25 Retail Price = $2.15
0.45 Retail Price = $2.15
Retail Price = $2.15 ÷ 0.45 = $4.78
As you can see, when you run a business, you must charge higher prices so that you do not run your book or business at a loss.
Royalty After Fees Example: For print books on platforms such as KDP, your royalty might be calculated after all fees are paid for distribution channels, handling costs and printing. This is a more complex calculation. Fees may be a percentage of the retail price, a fixed fee or may depend on the printing specifications for your book. Your royalty, then, is the remainder after all fees are paid.
For example, let's say that for your print book there is a distribution channel fee which is 40 percent of the retail price, a fixed handling fee of $1.00 per book, and $0.02 per page charge for your 200-page book. Let's also say that you want to make $2.00 royalty minimum per print book sold. Because our example has a percentage distribution channel fee, a fixed handling fee per book, a per-page fee and a minimum desired royalty, the equation would be:
Retail Price = (% Distribution Channel Fee X Retail Price) + Handling Fee per Book + (Per Page Fee X Number of Pages) + Desired Royalty per Book
Plugging in the details for this example:
Retail Price = (40% Distribution Channel Fee X Retail Price) + $1.00 per Handling Fee per Book + ($0.02 Per Page Fee X 200 Pages) + $2.00 Desired Royalty per Book
Simplifying and solving for Retail Price:
Retail Price = 0.40 Retail Price + $1.00 Handling Fee per Book + $4.00 Per Page Fee + $2.00 Desired Royalty
Retail Price - 0.40 Retail Price = $7.00 Fees and Royalty Total
0.60 Retail Price = $7.00
Retail Price = $7.00 ÷ 0.60
Retail Price = $11.67
If you are collecting royalties as part of your business income AND you have fees to pay... the equation even gets more complex! As in the above discussion on royalty income for businesses, your Royalty Earned per Book is your profit margin and you'll need to account for overhead business expenses when figuring a price.
Let's also say that for your print book there is a distribution channel fee which is 40 percent of the retail price, a fixed handling fee of $1.00 per book, and $0.02 per page charge for your 200-page book. Let's also say that you still want to make $2.00 royalty minimum per print book sold. As well, you have overhead expenses which are 25% of your gross revenues; in other words, you would multiply your Retail Price times 25% to figure out the overhead contribution per book. Because our example has a percentage distribution channel fee, a fixed handling fee per book, a per-page fee and a minimum desired royalty, the equation would be:
Retail Price = Royalty Earned per Book + Overhead + (% Distribution Channel Fee X Retail Price) + Handling Fee per Book + (Per Page Fee X Number of Pages)
Plugging in the figures from the example...
Retail Price = $2.00 Royalty Earned per Book + 0.25 Retail Price + (40% Distribution Channel Fee X Retail Price) + $1.00 Handling Fee per Book + ($0.02 Per Page Fee X 200 Pages)
Retail Price = $2.00 + 0.25 Retail Price + 0.40 Retail Price + $1.00 + $4.00
Retail Price = $7.00 + 0.65 Retail Price
Retail Price - 0.65 Retail Price = $7.00
0.35 Retail Price = $7.00
Retail Price = $7.00 ÷ 0.35 = $20.00
Whoa! And this price is for the same darn book as before. Granted, the Royalty After Fees scenario is more common with print books and print can go for much higher prices. But this is what you'll need to figure out if you want to be profitable when selling books as part of your business.
(Did I lose you? Hope not. See, those high school algebra classes were good for something!)
Making Cents. Even though on many self publishing platforms you can price your book or ebook whatever you want, you may want to round up or down to match common price points in retail. Book prices observed in U.S. retail bookstores often end in one of the following cents amounts (US Dollars): .00, .50, .95 or .99. For example, in the above price which ended up at $11.67, you could choose to round that retail price up to $11.95, $11.99 or even $12.00.
Royalty Variations. For various Expanded Distribution Channel and international sales though sites such KDP, you may not earn the same royalty across the board. You may wish to figure what you'd like to earn as a minimum royalty for the lowest paying outlet and adjust your retail price upward if you wish to make a certain minimum from EVERY sale.
Taxes. Keep in mind, too, that you will have to pay income taxes on your royalties earned. The self publishing platform or distributor paying you will report your royalty earnings to the appropriate taxing authorities. Consult a CPA or tax professional to determine your income tax rate and any additional or local taxes that will apply to you. Adjust pricing if your after tax earnings are not what you'd prefer. But don't price yourself out of your market! (See discussion on competitive pricing below.)
Book Pricing Issues When Self Publishing and Selling Direct to Customers
The instant you decide to produce your book yourself and/or sell copies of book/ebook direct to customers—as opposed to letting a self publishing platform or distributor help you handle these functions—you instantly complicate your book pricing model exponentially. Even more than the previous examples!
In this scenario, your retail price will be determined by your cost to produce, ship, sell and deliver it. These production factors are commonly known as Cost of Goods Sold (COGS). If you're writing as a business, you'll also have overhead business operating costs to consider in any price calculation. And don't forget to add a profit margin and consider tax ramifications or you will be losing money!
Figuring each COGS cost, overhead, profit margin and applicable taxes can be a project in itself and is way beyond the scope of this article. Hiring a CPA or accounting professional to assist you is highly recommended.
But in theory, here's what you need to do to calculate your Retail Price when producing and selling direct to customers. Let's bring algebra back into action:
Minimum Retail Price = COGS per Book + (% Overhead X Retail Price) + (% Desired Gross Profit Margin X Retail Price)
Example: Say it costs $3.25 to print and ship each copy of your book. Your business overhead costs are 25 percent of your gross revenues. You want to get at least a 50 percent BEFORE tax gross profit margin on each book sale. Plugging these factors into the equation, simplifying and solving for Retail Price:
Retail Price = $3.25 COGS + 0.25 Retail Price + 0.50 Retail Price
Retail Price = $3.25 + 0.75 Retail Price
Retail Price - 0.75 Retail Price = $3.25
0.25 Retail Price = $3.25
Retail Price = $13.00
This example came out to a nice round figure that would be acceptable as a retail price. If it didn't, as discussed above, you may wish to round your calculated Retail Price up or down to a common retail book price point that ends in .00, .50, .95 or .99.
Income Taxes. If you are not set up as a business, you will not be able to claim business deductions for overhead costs or even COGS. This is a more costly proposition than simply accepting royalties. So carefully evaluate, with professional guidance from a CPA and business attorney, whether selling direct is appropriate for you and your situation.
Sales Taxes. In addition to income taxes on book revenues and profits, in many states you'll also need to collect and report sales taxes on direct sales of physical books to customers. Some states also require collection of sales taxes on digital goods such as ebooks. Contact a CPA and your local taxing authorities for sales taxes that you will need to report and pay when selling direct.
Is Your Self Published Book Overpriced?
Comparing Your Book Price to the Competition
This should not be a news flash to anyone. Your perspective and treatment of your topic will be unique, but your book will be one of many in the publishing marketplace. And you need to be aware of what those other books in your market are charging.
As more and more unprofessional and hobby authors flood the market, there will be a growing glut of cheap self published works available for sale. Sadly, some of these will be your competition, regardless of how good your work is.
This is where knowledge of what's out there from other authors and the big traditional publishers is critical. (You only get this from reading extensively in your market. Click here to discover ways to find time to read.) You will want to price your work competitively with similar works in terms of professionalism and end product.
Tip: Make a list of books that are similar to yours and note non-discounted retail price for each. Compare your projected book price to the list of retail book prices you just created. You may need to adjust your price and profit expectations up or down in order to compete.
Attention Kindle eBook Authors: KDP Pricing Support Tool Available
Amazon's Kindle Direct Publishing (KDP) platform introduced the KDP Pricing Support tool to help Kindle eBook authors set an optimal price. As of this writing (5/5/2017), the tool is in beta mode. But I have found it to be very helpful so far!
One of the problems with competitive pricing research is that it could be impossible to select and analyze all available titles that could compete with any particular eBook. With Amazon's vast data handling capability, this tool compares the author's eBook with titles that their system identifies as competitive works. It then shows a bell curve type graph with the price point at which the author could maximize his earnings. If the author agrees with that price, all he has to do is click a button agreeing to use it.
The tool is available to authors during the eBook upload and publishing process on KDP. See KDP's documentation for more and current details.
This is a godsend for Kindle eBook authors! Worth checking out for your next eBook project. But you always have the option to price your eBook at whatever you choose, as long as it meets KDP’s pricing guidelines.
Pricing for Print Books versus eBooks
The information in an eBook version of a manuscript is usually exactly the same as that in a print book. Though readers say they value "knowledge" or "entertainment" or whatever a book offers, they will rarely pay as much for an eBook as for a print edition.
Part of readers' refusal to spend the same money for an eBook edition stems from readers' awareness that it costs less to produce eBooks than print books. This is just a market reality and you should be prepared to have different prices for each format. The good news is that some authors may make MORE money with their eBooks than print books, even though their print books have higher prices.
However, as discussed above, you will want to do a competitive analysis of other eBooks in your market before setting your eBook price.
Tip: Select an eBook price point that is lower than your print edition, but competitive compared to other similar eBooks. Also, be aware that, as of this writing, Amazon KDP (Kindle Direct Publishing) requires that the digital eBook edition of any print book is at least 20 percent lower than the print edition price. See KDP pricing documentation for more and current details.
Is There a Case for Cheap or Free Books?
You might be thinking, "I'll price my book on the cheap (even free!) just to get my book into the hands of potential reviewers and customers." You might also be inclined to set a cheap book price as an introductory offer.
On some self publishing platforms such as Amazon's KDP, it can be relatively easy to make book price changes for special offers or when the market changes. But if you're producing and selling direct, special offers and freebies can be a significant expense.
Tip: Make sure that your self publishing platform can accommodate price changing for special offers or to flip from free to fee... or you'll get stuck in the book price bargain basement!
Carefully consider all the costs that discounts and giveaways will have on your bottom line and assess what results you hope to achieve by doing it. Realize you'll need a way to track results from any promotional offers; this can sometimes be challenging.
Considering Book ROI
You may have also invested some cash into developing the book (editing, proofreading, graphic design, etc.) BEFORE you even published it. So your return on investment (ROI) should also be considered.
The point at which all development costs are covered by AFTER tax royalties or profits is referred to as break even. Your ROI is a loss until after you've achieved break even.
Tax Issues. Book development costs may or may not be tax deductible on your business and/or personal income tax returns. Consult a CPA or tax professional to determine if you are eligible to claim as a business deduction.
Tip: Realize that you truly will not make money on your book or eBook until after you achieve break even and your book development costs have been covered. Adjust your book's pricing upward to accelerate your ROI. But, again, don't price your work so high that you are not competitive and won't make sales.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2016 Heidi Thorne
Heidi Thorne (author) from Chicago Area on August 16, 2016:
Hi Glenn! I can relate to the "didn't know what I was doing." We all go through that stage at first. Then, as you did, we create our algorithms that help us get paid for what we really do.
As you note, it does certainly help when you have an idea of the volume of books that will be sold. In the online publishing world, it's so often a gamble.
Thank you, as always, for adding your experience and insight to the conversation! Have a great week!
Glenn Stok from Long Island, NY on August 16, 2016:
Great tips with extensive examples that are useful for making pricing decisions.
I actually didn't know what I was doing when I self-published my first book back in 2005. But when I created a user's guide for my business clients years later, I calculated the retail price by making an algorithm that included how much I wanted to make per hour writing the book.
Of course I had the advantage of knowing roughly how many people would be buying the book. It's an interesting extra piece of the puzzle for these types of pricing algorithms.
You definitely covered an important aspect of self-publishing that many people overlook.
Heidi Thorne (author) from Chicago Area on August 15, 2016:
Hi Lawrence! It is quite a complex calculation, eh? :) As you've observed, sales of print books are holding their own against eBooks in the market. I think that trend will continue for a while to come. So hope you can make some good revenues while print books are still strong.
Thanks so much for adding your experience to the conversation! Have a great week!
Lawrence Hebb on August 15, 2016:
I'd often wondered how CreateSpace came up with the royalty price for their paperbacks, so this was interesting to read and give me some idea of how it works.
Of course all these depend on one thing, you actually have to sell the book! Just having it on 'Kindle and CreateSpace' is only half the battle!
For me that's an interesting thing as I'm finding that my sales of paperbacks are almost as good as the sales of the Kindle (which would be great if they were greater numbers, as it is they're still nice to see) as I make more on the paperback than on the Kindle!
Heidi Thorne (author) from Chicago Area on July 25, 2016:
Aw, thanks, AliciaC! I hope I'm able to help our writer friends here on HP and elsewhere. Thanks so much for stopping by and commenting!
Linda Crampton from British Columbia, Canada on July 24, 2016:
Thank you so much for sharing your knowledge and experience, Heidi. Your articles are a wonderful reference source for writers.
Heidi Thorne (author) from Chicago Area on July 24, 2016:
Thanks, Larry, for the kind words and for stopping by! Happy Sunday!
Larry Rankin from Oklahoma on July 24, 2016:
Heidi Thorne (author) from Chicago Area on July 24, 2016:
If only it were so easy, Billybuc! :) Glad you found it helpful, even with your level of education and experience. Thanks for stopping by. Happy Sunny Sunday!
Bill Holland from Olympia, WA on July 24, 2016:
You make marketing seem so easy. LOL Actually, with your explanations, it is much easier to understand, and for that I thank you...even though I have a degree in Marketing, I see great value in your articles....so....carry on and Happy Sunday to you.
Heidi Thorne (author) from Chicago Area on July 23, 2016:
So glad to hear your novel is now becoming reality, Flourish! You have all the ability in the world to write anything you wish. Keep us posted on your self publishing adventures and have a great weekend!
FlourishAnyway from USA on July 23, 2016:
Great advice with concrete examples that should help authors. I'm finally writing my novel. I figured that if my mentally ill uncle who is running for President (no, not Trump) can do it I can manage too. He self-published a creative memoir (I'm being generous) and has both hard copies and an ebook version with a follow-up on the way.