Elasticity of e-book Prices


Kindle e-book Prices

Here are three important considerations that go into e-book prices:

  • What list price to set
  • What the per-book royalty will be
  • What the net royalty will be

These three figures are related by price elasticity.

The general trend is that a lower list price will attract more readers. But more readers doesn’t necessarily translate into a greater net royalty. It depends.

Suppose you price an e-book for $5.99 and would sell 500 copies at Amazon. Assuming a negligible delivery cost, the royalty would be $4.19 per book, and the net royalty would be $2095.

Pricing the e-book instead at $3.99 may reach more readers. The per-book royalty would be $2.79.

  • If you sell 1000 copies at $3.99, the net royalty would be $2793. In this case, the lower price is worth it.
  • But if you sell 600 copies at $3.99, the net royalty would be $1674. In this case, the higher price earns more.

Sometimes, the lower price may still be advantageous, even if the higher price earns more. That is, the larger reader base may pay off in other ways, e.g. more add-on sales of other books, building a following faster to help sell future books, etc.

A lower price doesn’t always attract more readers. Occasionally, an author raises the price from $2.99 to $3.99 and sales actually improve. At the lower end of the price spectrum, the perception that you get what you pay for can have a significant impact on price. Of course, the book has to appear to be higher quality (and have ample content) to command the higher price, but if it does, the $3.99 to $5.99 price range may actually be more profitable for some books than $2.99 or less.

$2.99 is often more profitable than 99 cents for books that would earn 70% at $2.99, since any book price $2.98 and under earns a 35% royalty. You would have to sell 6 times as many books at 99 cents to earn the same royalty as you would at $2.99. Very short books don’t have much choice; they might not sell at all for a higher price. Series authors sometimes use the 99-cent price point to attract new readers into a series. For authors with numerous books, 99 cents can create some impulse buys of several titles at once.

Predicting Elasticity

Kindle Direct Publishing (KDP) actually has a new beta pricing tool to help authors see some actual data.

You can find the new KDP Pricing Support tool on page 2 of the publishing process at KDP. Check it out.

What you see is a graph. There is usually an abrupt change in curvature at $2.99, where the royalty changes from 35% to 70%. Sometimes there are a couple of price points where the net royalty is predicted to be about the same. For example, I’ve seen cases where 99 cents and $2.99 have the same net royalty, or where there is scarcely any difference between $2.99 and $3.99. But other times one price really stands out, like $3.99.

What we don’t know is how reliable the data will be for any specific new title, or precisely how Amazon is determining which titles are similar to your book.

But any data is better than none at all, right? At least it gives you something to go on.

Well, you can always get your own data. Try experimenting with your price and you can see the impact first-hand.

I like the new KDP Pricing Support tool. When I’ve used it, the graph has seemed reasonable; i.e. the data resembled my experience and expectations.

Of course, each book is unique, and won’t necessarily follow the trend.

The Amazon Book Team recently offered some fascinating insight into Kindle e-book price elasticity regarding the famous Amazon-Hachette dispute.

You can check that out by clicking here (it’s an Amazon page).

Keep in mind that the change in price from $9.99 to $14.99 is probably much more sensitive than a change in price from $3.99 to $5.99 or from $2.99 to $3.99. At the lower end of the price spectrum, a lower price doesn’t always result in more sales, let alone more profits. But in the higher bracket, like $6.99 and above, lower e-book prices usually draw in many more customers.

I must admit, some of my favorite traditionally published authors have e-books selling for $7.99 and up, not too different in price from mass market paperbacks I’ve read in the past by the same authors, and there are dozens of such books that I ordinarily would have read in the past, which I’ve declined to read in the last couple of years because I felt that they were unfairly priced. They could have had much more of my business, and probably millions of other customers, with lower prices. But some of my favorite authors’ e-books have been priced $6.99 or less, and I’ve read many of those books.

Note that print books are understandably different, where the publisher invested in materials, distribution, etc. I expect to pay more for print books. In the case of print-on-demand paperbacks, the $6.99 to $9.99 price range is often less sensitive to price changes, while much higher prices, like $25, tend to be more sensitive.

Chris McMullen

Copyright © 2014 Chris McMullen, Author of A Detailed Guide to Self-Publishing with Amazon and Other Online Booksellers

  • Volume 1 on formatting and publishing
  • Volume 2 on marketability and marketing

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2 comments on “Elasticity of e-book Prices

  1. After seeing the KDP price tool for my book, I thought seriously about uping my price from $3.99 to their suggested $6.99, just to see what would happen. It is 445 pages. I do think being a debut it is fairly priced at $3.99 though.

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