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As a writer raised by Economists, I have some perspective that others don't have, and maybe don't want. (There's a reason it's called the dismal science after all.) But when approaching the question of how to price an e-book, sound economic theory (not that macroeconomic crap that everybody is currently lying their ass off about) can lend some interesting perspective.
Price vs. Cost
A price is only part of what a good or service costs you. Especially a book. In the economic sense, the true cost of something is what you give up to have or consume it. In the case of the book, you spend some money on the book, but the bulk of the cost is in the time you spend reading it. So book price + time cost = the true cost of the book.
So let's say I buy an e-book for $3 ($2.99) and it takes me 8 hours to read it. Apply some guesstimate for what my time is worth (say $30 an hour) and you get to a true cost of $243 dollars for me to read a book. A little over 1% of which is the actual price of the book.
This is fascinating. And moves me to ask.
Does it matter what the Price of an e-Book is?
If my estimate of the cost is correct, are people really that sensitive to a change in price? Or, more importantly, if I double the price of my ebook (a 1% rise in the true cost of consuming a book) are sales going to change at all?
Economic theory cannot answer this question for us. The only way to know the answer for sure is to try it for a specific book at a specific time. And even that is not a true experiment in the scientific sense because there are too many factors to control. All we can know it what happened with that one book for that one period. So here's what happened when I raised the price of How to Succeed in Evil from $0.99 to $2.99 —
Sales went up. I was averaging about nine copies a day. Now I'm up to seventeen.
It's crazy to think that an increase in price causes and increase in sales. I think if I had left the price at 99 cents I would now also be at 14 e-books a day. I don't think price matters that much. Especially within the accepted range. Economic theory can really say nothing about this particular case, but it can help us understand the forces at work. And before you discount this, please consider, this is really more help than it may first sound. To draw an imperfect analogy, even if you don't know what the gravitational constant is, it is still very helpful to know that gravity sucks.
The Elasticity of Demand.
The Law of Demand states that the lower the price of a good or service, the more of it any one person will buy. For example, When cars are expensive, a family only has one. When cars are cheap, everybody gets their own car.
The question is, how much does the price of something have to rise or fall to make a difference. That's the Elasticity of Demand. For example:
Cigarettes have very inelastic demand curve. They are addictive, so when you want them, you want them. Price goes up, still gonna smoke. Kidney Dialysis is inelastic. Unless you get another kidney, dialysis is perfectly inelastic. You get dialysis or you die.
So what about books?
Fans and the Elasticity of Demand.
By definition a fan is somebody who is addicted to an entertainment product. They have a highly inelastic demand curve for whatever that product is. For example, people who are fans of Game of Thrones or Harry Potter. When the next book comes out, they simply HAVE to have it. Fan is just another word for addict.
Creating Inelasticity
First, you've got to be able to write well. That's price of entry. If you can't do that, no knowledge of economic theory (or any other kind of theory) will make up for lack of talent. But assuming you are a fair hand at pushing a noun against a verb there are a couple of conclusions we can reasonably draw.
Be unique. If there aren't any other good substitutes for what you put out, then people have no alternative but to buy from you. I think that well-written fiction is a pretty inelastic thing. When somebody wants a Stephen King novel, pretty much only a Stephen King novel will do. Because he's the only guy who sees the world the way Stephen King does.
Create rich characters. This is pretty obvious. You can put a character in the most interesting suspenseful situation you like, but if the reader doesn't care what happens to them, why continue? I think this is why mystery is such a popular genre. It lifts a lot of weight off the characters. People can either like the character or need to know how it turns out.
Don't screw up the plot. There's an eternal tension between character and plot. And, in the larger sense, story construction is a gigantic, difficult subject. But the fact remains, if you plot well, you suck the reader in. They want to know what happens next. They need to know what happens in the next book. Which leads us to the last point.
Write a series. When a reader is bought in, they want more. They want more of you as a writer and they want more of the characters they have invested so much time in. It is not a coincidence that the best-selling Kindle authors, the ones that are really putting up some numbers have series. As a personal note, this may be kinda hard for me, as the number of ideas I have are always threatening to draw me off into new challenges. I believe that I, you and everybody needs to follow passion — that's what keeps us working — but, if your bliss allows it, a series is a good way to create that inelasticity which all authors crave.
To sum it up
I can't pretend that common sense won't get you to all of these conclusions. But having names for things allows us to think about them more clearly. The elasticity of demand is no exception.
—
How to Succeed in Evil is the story of Edwin Windsor, Evil Efficiency Consultant. He tries to help supervillains be more villainous. Or at least more profitable and sensible about the business side of Evil.
Along with his very proper and English secretary Agnes and his hench-lawyer Topper, he struggles to make the world of super-powered people make sense. But this is very difficult because, while Edwin’s advice is excellent, all of his clients are too egomaniacal to listen. There is, it must be said, a bit of comedy in this work.
You can learn more about Patrick and his work at http://www.patrickecmclean.com
Image top: Flickr CC Slinky from rhinoneil
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1 2 Next »So much there that is valid, from the elasticty of a series to the probability that some books will sell better if they are not deemed to be "too cheap" (and therefore somehow inferior).
But the true price of a book argument only begins to make sense if you would be spending your earning time reading. I read on a plane, or in bed, or to relax between working for a living. That's the same for most people. It's called leisure time for a reason.
Pricing is befuddling and maybe we are analyzing the cents out of it. That said, I believe a big point I'm getting from Patrick is that an author must find their own successful price point.
Thanks for sharing your experience and adding a bit more insight into this matter.
Would going to $4.99 have increased sales even more? (Or, at least, maintained your current momentum?)
At your current pace, an extra $2 per book is an additional gross of $12,410 a year. Pricing choices are critical and all aspects are worth considering.
Just curious if there are any thoughts at what point the upper end of price would have diminished sales?
Regarding more sales at a higher price: my sister is a glass bead artist who has lots of first hand experience that shows underpricing your work can hurt your sales as much overpricing it. While the discount box stores, online stores, etc., have taught us to go cheap, there is definitely an expectation that certain things have a certain value. I know if I see something priced really cheaply, I often have second thoughts. Just how crappy is this piece of junk anyway? I don't know if this has anything to do with your book sales or not, but it might.
I find your perspective very refreshing. Price is a complicated thing that has as much (or more) to do with psychology than logic.
One factor in the value equation is the time it takes to find and evaluate a book before you buy and read it. So it's more than just price + reading time. I typically scan dozens of reviews and read five or six Kindle Samples before I "buy" a book, and at that point, the actual monetary price is usually irrelevant unless something irritates me (such as the price of the hard copy being less than the price of the ebook, or the "too cheap!" klaxon sounding in my head).
I think we're in a period in which the legacy publishers are doing us a great favor by pricing ebooks too high. That can serve as an upper-limit anchor in the psychology of pricing. It seems to me that any rational pricing strategy by smaller (and indie) publishers would snuggle in beneath legacy publisher prices. Unfortunately, small and indie publishers seem to embrace the "nearly free" pricing mentality.
I find it interesting than an argument for 99-cent ebooks is that it's below the resistance threshold of an impulse buy. I can only speak for myself, but the impulse I get from a 99-cent price is "super-low quality," and I don't buy.
As a reader if I truly am addicted to books by a certain author, or even more addictive - a series, price almost doesn't matter to me because I will them right when they come out. I have been picking up mostly Kindle books when they go on sale for 99cents on holidays or what not, but if I was addicted to these books or authors I would've bought a full price hard copy on release day without a thought to price.
What is the psychology of a sale on potential customers? What happens when we say we will be reducing the price of a $2.99 book to $.99 for a couple days? Does it retain its original "value" in the eyes of the customer? Just a thought.
Enjoyed your article - I had to smile when I came to your point about writing a series. I am a voracious reader and as I look around at my bookshelves I see some of my favorite authors all of whom write series - James Rollins, David Baldacci, C.J. Box and Jonathan Kellerman ... and in each case when I got hooked on the character(s) I went back and bought each in the series. Valuable lesson.
Another tip you might want to share with writers: Accompany your novel with intelligent, helpful pieces like this one, and they will be more likely to believe your book is worth their money and time as well. (Now I'm headed off to buy your book, so don't hike the price again anytime soon.)
In digital music, most everything you said doesn't hold true, especially the price elasticity. I'm also leery of any claim I see that says something like "quality" is a key to creating demand. If you really want to tackle the bugbear of quality, then say rather "the perception of quality". Locke sold a million e-books, but is "quality" a main reason for that? Ask ten readers, you'll get diverse answers. Locke has as much as said that he competes on quantity, not quality.