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How to Price Ebooks for Maximum Profit (Part 2)

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How to price ebooks may result in maximum sales and profit or squash both at the same time. The best ebook pricing strategy finds a balance between price and volume.

Ebook sales follow a fundamental rule of economics. The higher the price, the more likely the sales volume will slow or even decline. The lower the price, the more likely sales volume will increase.

It’s another way of saying, low prices usually result in higher volume and high prices result in lower volume.

Prices that are too high will naturally squash sales. Imagine an ebook that costs $100. It’s highly unlikely that such a book will generate even a few sales or any sales at all. But a book with a price that is too low will lead to lost profit and revenue opportunities.

These beginning rules for an ebook pricing strategy are just guidelines. In reality, some brands have such a powerful impact that they can command higher prices. Imagine a John Grisham novel having an ebook price of $1.99 or $2.99, which are common prices among average ebooks, instead of several recent prices that were $14.99. His name attracts a high volume of sales, and so he gets a high price on his ebooks.

In reality, the average ebook author has to choose an ebook price somewhere between free and John Grisham. A few simple tips about how to price ebooks will make it easier to find that right price.

Starting Point for Ebook Pricing

Tip: Start at 1 cent per 100 words.

A simple starting point for pricing an ebook is 1 cent for every 100 words. Ebooks often come close to that pricing level. For example, an ebook with 30,000 words would have a price of $2.99. A book with 40,000 words would have a price of $3.99 and so forth.

Price indicates value. If the author puts a great deal of work into a book, the author should get a fair wage for the effort.

Unfortunately, that’s not always the case. An author may write an ebook with massive competition. Consider the number of crime, mystery and suspect books that are available in addition to books by major authors such as John Grisham. Excessive competition squashes sales volume.

For that reason, authors may take advantage of certain programs available through Amazon Kindle and other online retailers to give away their books for free. They don’t get any money, but they do get publicity in the form of reviews as well as potential word of mouth. If the response is strong enough, they may resume trying to sell the book or reprice it at a lower level that attracts at least some sales.

Keep in mind that a book that is either free or has an unusually low price may make the author look a bit desperate.

Price Versus Volume

Tip: Experiment with price and volume to find maximum profit.

This leads to a basic choice of price versus volume. It is better to start at a conservative price and raise it at a future date if volume is strong enough. Starting lower creates a baseline by which to judge how much the market likes the book.

More importantly, it’s critical to track total profit to see which combination of price and volume produces the most net income.

Consider an ebook with a price of $4.99 and a 70 percent royalty share from Amazon. That gives the author a profit of $3.50 per book. The author sells 20 books a month for a total of $70 in royalties.

Then the author drops the price to $3.99, again with the 70 percent royalty share for a net of $2.80. The average number of monthly sales goes up to 35 a month for a total of $98.

A decrease in price reduces the total royalties per book but more than makes up the difference with an increase in sales volume.

Because there are no other costs, the profit margin for organic sales of the book is the same as the royalty share, which is 70 percent.

Advertising Changes Ebook Profit Margin

Tip: Accept lower profits with ad campaigns.

The author decides to advertise the book at the $3.99 price. She manages to achieve a 50 percent average cost of sale for each book.

That means Amazon takes 30 percent of the book price out of royalties and advertising takes another 50 percent, leaving only 20 percent of the remaining royalties or $0.80 per book.

A 20 percent profit margin from the ad campaign looks terrible compared to a 70 percent margin with organic sales. If both efforts sell the same number of books, the average margin is now only 35 percent.

Why bother with the ad campaign if it makes the margin is so much smaller? The answer is, because total profit is higher with the campaign than without.

If organic sales result in 35 total books sold during a month, the net profit is $98. If the ad campaign results in another 35 book sales, the net profit is only $28. But an extra $28 is better than nothing if there is no ad campaign at all.

The only real consideration at that point is whether the work that goes into building and maintaining the campaign is worth $28 a month.

So profit margin and total profit are both important guidelines in learning how to price ebooks for maximum profit.

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