Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.
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
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.