Are Kindle Owner’s Lending Library (KOLL) Borrows Cannibalizing Your Book Sales?

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KOLL Cannibals?I always find it amazing when researching marketing strategies how incredibly superstitious and eager some authors are to not just believe, but also truly embrace urban myths.

Especially if it might impact their careers.

The Kindle Owners’ Lending Library (KOLL) borrowing system is a prime example.

So rather than relying upon your cousin’s friend’s blog to terrify you that KOLL is killing your book sales, let’s return to a trusted friend.

Math. Good, old-fashioned math. Let’s calculate how KOLL is affecting your book sales rather than running around the room waving our hands over our heads. :-)

I am going to use examples from my platform; however, you can calculate your numbers using your own data. Drilling down into your sales numbers is the only way for anyone to determine if any advertising venture is worthwhile or not.

Indie authors, or even small/trade publishers can perform this series of calculations to see if KOLL is a cost-effective option for their book titles.

Let’s look at those titles priced between 99¢ and $2.98. These 35 percent royalty books generate 35¢ to $1.04 royalty-per-sale.

Since the current KOLL Payout is approximately $1.60/borrow, any title in this 99¢-$2.98 price range is actually making money from each borrow.

In the case of 99¢ titles, you are actually quadrupling your royalties versus a sale. #sweet

The next price bandwidth we want to look at is the $2.99 titles. If we simply looked at raw numbers, it would appear that these books were losing money on KOLL.

The $2.99 price point at 70 percent royalty = $2.09 – KOLL royalty of approximately $1.60 = a net loss of 50¢/borrow versus purchase.

But not all sales at $2.99 are paid out at 70 percent royalty. A subset of your sales is always calculated at 35 percent royalty if the sales originate outside the territories covered by the 70 percent royalty contract.

On average, you can expect about 7 to 8 percent of your sales are going to fall under the 35 percent royalty rule. This brings down your $2.09 average royalty at 70 percent down to a combined 70 percent + 35 percent royalty of $2.00/book.

Now, we must subtract the delivery charge of 8¢, which brings our average royalty per book down to $1.92/book.

Average net royalty $1.92 – $1.60 KOLL average royalty = 32¢

That brings your net loss down to 32¢/borrow versus purchase.

However, we must now factor in a more human component. The question becomes: “Would each of the KOLL borrowers have actually bought your book?”

The answer is clearly “no.” People love bargains, and people really love free.

So the more difficult question to answer is… how many of the borrowers would have bought your book if they had no free option?

This number is more difficult to nail down. But still, I persist!

First, I look at my borrow/purchase ratio. For my books, my borrow/purchase ratio averages about 15 percent, which means that approximately 15 percent of my “would-be” purchases have been diverted into borrows.

Even if you assumed that an extremely conservative figure, such as 50 percent of all borrowers would have bought your book if they did not have the free KOLL option, that brings your “lost” sales down to 7.5 percent of your total sales.

A more realistic number is something like 25 percent of those who borrowed your book would have bought your book without the free option. This brings your “lost” sales down to about 3.75 percent of your overall royalties.

Let’s say you had combined Sales and Borrows of 100. You can estimate your “loss” of revenue by multiplying 100 x 3.75 percent (the amount of borrows that would have been purchases in that pool) = about 4 sales diverted to borrowing.

4 sales total x 32¢ net loss per borrow  = $1.28¢/100 sales.

And given some of the woo1ly nature of my math, I think we can say your loss is negligible, at worst. Even doubling this number means that for every 100 sales, you are “losing” $2.56 to borrows.

For every 100 sales at $2.99 your paid royalties would be 96 Paid x $1.92 = $184.32 + 4 Borrows at $1.60 ($6.40) = Total royalties = $190.72

Versus 100 sales at $2.99 = 192.00

Either way you calculate it you have “lost” less than $2 per 100 sales.

That is a number I can easily accept as the cost of doing business.

Now let’s move on to the titles in the $3.99 category.

The “raw” royalty ($3.99 x 70 percent royalty) is $2.80/sale

Factor in the 8 percent of books sold at the 35 percent royalty rate ($3.99 x 35 percent royalty = $1.40)

92 books at $2.80 = $258

+ 8 books at $1.40 = $11

= $2.69/sale

Minus the 8¢ delivery fee = $2.61/sale

$2.61/sale – $1.60 KOLL royalty = $1.01/book loss.

So for every 100 sales/borrows, you are losing about 4 sales x $1.01 = $4.04 loss per 100 books.

Okay, that is a little more. However, it is well within an acceptable bandwidth of loss given the exposure of KOLL.

For $4.99, the amount rises…

Raw royalty ($4.99 x 70 percent royalty) = $3.49.

Factoring in the 8 percent of books sold at the 35 percent royalty = $3.35

Minus delivery cost of 8¢ = $3.27.

$3.27 royalty/book – $1.60 KOLL royalty/borrow = Net loss of $1.67

So, for every 100 sales/borrows, you are losing 4 sales x $1.67 = $6.68 loss per 100 books.

Even at the full rate of 15 percent borrows (assuming each would have been a sale) you are, at maximum, losing $25/100 books (total paid royalty = $277.95). For an approximate loss of 10% of “paid” income.

All right. So that number is a chunk of change.

At the $4.99 price tag and above, you might be able to make the case that your KOLL borrows are cannibalizing your sales.

For books $3.99 or below? Not so much.

But wait! There are several more layers to this puzzle!

In the next blog entry, we are going to drill down even deeper to see what other benefits a KOLL borrow offers along with assessing KOLL + Free giveaways together to see the full benefit package of KDP Select.

Stay tuned for next week!

Cannibal image via Shutterstock.

Carolyn McCray

About Carolyn McCray

Carolyn McCray is a social media and sales consultant to writers and publishing houses alike. Her own "marquee" title, 30 Pieces of Silver sat at #1 in Men's Adventure and War sub-genres for most of the 2011 Holiday season selling over 20,000 copies and landed her in the Top 10 Kindle Owner's Lending Library authors. Carolyn was one of the featured authors in Amazon's official press release regarding the success of KDP Select. Carolyn is also the founder of the Indie Book Collective, an organization dedicated to helping writers utilize social media to market their books.

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8 thoughts on “Are Kindle Owner’s Lending Library (KOLL) Borrows Cannibalizing Your Book Sales?

  1. Of course, to participate in KOLL you have to grant Amazon a retail exclusive, which means you’re turning your back on a large chunk of the total eBook market. I think it is, at best, shortsighted to grant any retailer an exclusive. Since you cannot factor in those other sales that you are ignoring, thanks to that exclusive deal with Amazon, you cannot really know the total for your true lost sales. For our titles, some 35% of our eBook sales are non-Amazon (and that percentage is growing).

  2. Hi Walt :)

    Thanks for swinging by. Clearly you have a very strong opinion regarding KOLL however many of your suppositions feel more emotional than mathematical in origin.

    Let’s take your first which is “you’re turning your back on a large chunk of the total eBook market.”

    Your book is only as successful as its discoverability. So yes, I could be on all platforms however if I am not visible due to white noise and have low to non-existant sales there, why should I stay on those platforms?

    “A decision to join KOLL/KDP Select is an individual one based on each author’s sales history.
    shortsighted to grant any retailer an exclusive.”

    Exclusivity to a retailer in exchange for more promotion is a tried and true marketing strategy. As long as you gain something tangible (such as 26% higher overall royalties) for your exclusivity, then it is a win-win.

    “Since you cannot factor in those other sales that you are ignoring, thanks to that exclusive deal with Amazon, you cannot really know the total for your true lost sales.”

    For a brand new author that might be true, however for anyone who has been selling longer than six months or certainly a year, you DO have a sales history on these other platforms. I have less than 2% of my total revenue come from non-Amazon sources. Therefore it was an easy decision to let those sales go to take advantage of the increased visibility of KDP Select and KOLL.

    But as I said this is a decision for each author. I wrote a blog detailing how any author can decide if KDP Select is for them…http://indiebookcollective.wordpress.com/2012/02/13/to-kdp-select-or-not-to-kdp-select-that-is-the-question/

    As you say you have >35% of your royalties coming from non-Amazon sources so of course it makes not sense for you to join. However for any making <30% of their royalties from non-Amazon sources, KDP Select is a marketing avenue worth investigating :-)

    Again. thanks for stopping by and commenting :-)

  3. That was kind of a low blow, accusing an engineer of not doing the math. In fact, I spend a great deal of time crunching the numbers…and have even published much of the results on my website, most recently at One Micro-Publisher’s Book Sales Updated and But What About Revenues?.

    While I agree that the answer for each author is different, you cannot know for sure how many sales you would get through non-Amazon outlets if you decide to give Amazon an exclusive. One thing is absolutely certain pertaining to publishing in general and eBook publishing specifically — things are constantly changing. What is true today is likely not to be true tomorrow.

    • No low blow. I see that you have done your own statistics, however there is a larger landscape out there that needs to be viewed :-0

      Also this line of your argument…”While I agree that the answer for each author is different, you cannot know for sure how many sales you would get through non-Amazon outlets if you decide to give Amazon an exclusive.”

      I could counter thgat you have no idea how much MORE you would have made with KDP Select :-)

      By this logic we could never make a marketing decision or change our strategies because we do not have a 100% proof crystal ball to see into the future.

      Everything in marketing is about ROI and taking risks. There is no “safe” bet.

      However I can say with pretty much mathematical certainty that I could not have made as much on the other platforms as I did on Amazon.

      For 2011 I made $363 on all the other platforms. On Amazon I made over $100,000, $43,000 of that in December. So somehow I do not think that I could have gone from $363 for 11 months then pulled out $99,637 from SW, B&N etc in 1 month :-)

      And yes, things change which means we must seize opportunities as they come along rather than cling to the status quo :-)

      If tomorrow KDP Select stops earning me money, I will opt out. It is only a 90 day commitment remember :-)

  4. Excellent article! I assume readers on Amazon treat KOLL the way they would treat the physical library — they borrow books in which they have an interest. If they were already a fan of the author and/or series, they might buy the book. Therefore, library borrows are a way to encourage people to try your product for “free”.

    I think you could argue that KOLL borrowers are actually “spending” something to read your book — they only get 12 borrows a year! That’s a number that covers the average # of books an American reads in a year, apparently, but it’s nothing to a voracious reader. Therefore, when someone borrows my book, I feel like they have spent their token, as it were, on me and I’m quite chuffed.

  5. Great article! I just released my book through KDP and was struggling whether or not to enroll in KDP select. It seems like $5 – $6 or less per 100 books is a really good deal from a marketing perspective. If even one of those buyers recommends the book to a friend, you’ve basically broken even.

    Plus, I suspect if someone is borrowing your book for free, they are more likely to write a positive review vs. someone that paid $5 for it. I’m guessing their expectations may be a little less. This would also help to boost your ratings and sell more books.

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