The Hidden Cost of Higher Book Prices

One of the hardest decisions to make as a self-published author is what price to put on your completed work. As quickly as possible, you want to pay for the editing, cover, and three months of electricity and health insurance you just incurred. However, you also know that lower prices can mean higher volume. With the advent of KDP Select, this decision got much easier. Earning 30 percent of 99 cents per book outside the program pales in comparison to the 70 percent of 2.99 inside the program. Sales go down by less than a factor of two and you earnings go up by a factor of seven! Given user psychology about the desirability of cheap books, you may actually see a slight increase in demand for a higher price point.

Now Amazon is sharing some of its incredible sales data with the author in a beta program. They offer this service at the touch of a button as step 9 of publishing your e-book.

9. Set Your Pricing and Royalty

KDP Pricing Support (Beta)

See the relationship between price and past sales and author earnings for KDP books like yours.

View Service 

This sounds amazing. It shows you for books like yours (length, genre, your popularity as an author)  how much increasing the price should affect the demand for the produce. This is know as "elasticity of demand." Then they multiply the sales by volume for each price point to find the best spot on the profit curve. In terms of ECON 101, the example where adding more fertilizer on the field stops being profitable is called the point of diminishing returns. I can't show you the curve for one of my books because Amazon may view this as a breach of sales data, and for books that have a low sales history, the curve recommendation changes every hour. But the upshot is clear: for a strong book, you can take a hit of 30-45 percent on the volume, raise the price to 5 to 8 dollars a book, and make a lot more money. On my highest seller, if I sell 100 books a month today at $3 each, I earn $300. If I bumped the price to $8 and sold only 55, I could make $440. Why wouldn't I?

In my genres and experience, a series tends to attract ten times the readers of a stand-alone.  I like series because 70 percent of the buyers of book one spring for book two, and those loyal readers generally purchase all the books I have out in the series. I refer to this as "follow" or drag. That's a huge incentive for an author. However, the graph results from Amazon comes with an explicit warning that "You indicated this is the first book in a series. This case may be different." Because if you constrict the volume on book one by even a little, you hurt every book in your series.

While ever case is different, here is an illustration where doubling the price and profit of book one restricts volume of sales by x percent. Note that I've never seen a restriction of less than 30 percent on a recommended price increase. You can see by the chart that any decrease in volume costs you more as the length of the series increases. Even for a typical fantasy trilogy, the net effect is money out of your pocket if you follow the recommendation for book one. This drag effect is why some authors with a long series are willing to give away the first novel for 99 cents or free to hook people (the heroin model of marketing). For a short series, you can locate the acceptable audience loss level on their curve and try a partial increase. Be conservative, though. This is still a dark art, not an exact science.

% volume	% earnings	% follow	Books in series
lost	book one	lost	2	3	4	5	6	7	8
5	190	3.5	186.5	183	179.5	176	172.5	169	165.5
10	180	7	173	166	159	152	145	138	131
15	170	10.5	159.5	149	138.5	128	117.5	107	96.5
20	160	14	146	132	118	104	90	76	62
25	150	17.5	132.5	115	97.5	80	62.5	45	27.5
30	140	21	119	98	77	56	35	14	-7
35	130	24.5	105.5	81	56.5	32	7.5	-17	-41.5
40	120	28	92	64	36	8	-20	-48	-76
45	110	31.5	78.5	47	15.5	-16	-47.5	-79	-110.5
50	100	35	65	30	-5	-40	-75	-110	-145

In conclusion, while an excellent resource for an author with a long, stable sales history and a stand-alone book, Indies who want to attract as many new customers as possible will have to modify Amazon's suggestions to balance our needs.