How to Price Ebooks for Maximum Profit (Part 1)

How to price ebooks is easy, but pricing it for profit is not.

An ebook is easy to price because its costs are simple. Most importantly, it doesn’t have a printing cost, which is one of the most expensive costs in any form of print publishing.

It has a soft cost in the form of labor. In simple versions, authors who write the book and publish them on their own can value or not value their time anyway they want.

Then it’s a matter of whether to pay for advertising to promote the book, which is a hard cost (in other words, actual out-of-pocket cost). Advertising has the advantage of bringing more potential buyers to the book. But it also brings more cost to the author who buys the advertising.

Because an ebook has no printing cost, the author may price it as low as $1.99 and still make money from the royalty commissions IF he or she doesn’t advertise it. At a 70 percent royalty, the author will pocket about $1.40. But again, that assumes no advertising.

Advertising may cost, for example, the equal of $2 per book. So now assume the $1.99 ebook has a price of $3.99 to pay for the advertising. Advertising eats up 50 percent of the total price.

The author who gets a 70 percent royalty in this case makes $2.80. But $2 for advertising leaves the author with only $0.80 instead of the $1.20 without advertising.

Pricing for Profit

In this situation, the author has one of two choices or a combination of both. The first choice requires increasing the price of the book even more. The second choice requires forcing down the advertising costs, if there are any.

The first choice is easier than the second. In the same scenario, the author increases the ebook price to $4.99 and gets $3.50 in royalty payments. Subtracting $2 for advertising leaves a profit of $1.50. It’s almost the same as the $1.40 in the first scenario. But it’s easy to assume that advertising will bring more customers and sell more ebooks.

If the author can drive down the advertising cost from $2 per book to $1.80, the profit grows even higher. But is it realistic to decrease the cost of sale?

Amazon uses a metric called ACoS, which means Average Cost of Sale. It is the percentage that divides the total advertising cost by the total revenue from sales.

One site that tracks ACoS for a number of customers said the average was about 30 to 40 percent. In other words, for every $10 in sales, the seller spent $3 to $4 on advertising.

In the case of the $4.99 ebook, a 70 percent royalty and 40 percent cost of sale leaves the author with $1.50. A 70 percent royalty and 30 percent ACoS gives the author $2.00. Much better.

A publisher can somewhat decrease the ACoS through effort. But the average over time depends on uncontrollable factors such as the competition, time of year and available inventory.

So it’s best to focus on proper pricing first and expense management second.

What About Competition?

It’s clear from tests by this company that competition also is an important factor in pricing.

Publishers who price a book at $14.95 should expect a low volume of sales when another book on the same topic is priced at only $9.95.

If the publisher is determined to maintain $14.95, then it becomes a matter of offering more quantity and better quality for the higher price.