Are Publishers Making a Killing on E-Books? Part 2

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This is the second and concluding installment of an article about how publishers arrive at the prices of ebooks. It’s written in response to consumer criticisms that “Publishers are making a killing on e-books because they cost nothing to produce, distribute and sell and are almost 100% pure profit,” as one reporter phrased it.

In the first installment of this article we took you through the processes that at least one publisher – my own, E-Reads – performs to convert a previously published book into an e-book distributed in all formats, plus a print on demand paperback. We calculated what it would cost an individual to replicate those processes, including hard costs, labor and overhead. We concluded it would take about 31 hours for a person whose time is worth $40.00 an hour (adjust that number if your time is worth more or less).

Adding some incidental charges, we figured the total cost for you to convert a previously published book to an e-book and print on demand paperback was $1,600.00, not counting the cost of marketing, advertising or publicity. How should you price your book to recover that investment and make a profit to boot? And how many copies must you sell to hit that number?

E-book retailers take commissions that roughly range between 30% and 50% of the list price. For sake of argument let’s say the average discount is 40%, meaning 60% of the list price will be paid to you. If you charge $.99 you’ll have to sell over 2600 units just to break even on that $1600 investment. In order to make a 25% profit, you have to sell another 650 copies.

If you don’t think you’ll be able to sell 2600 copies of your $.99 e-book, try charging $2.99. You will then have to sell only 900 units to break even. Add 225 units to make a 25% profit. Think you will sell that many?

If you don’t think so, raise your price again. If you raise it to $6.99 you’ll make a 25% profit on less than 500 sales. But you may also incur the wrath of consumers who think you “are making a killing on e-books because they cost nothing to produce, distribute and sell and are almost 100% pure profit.”

Of course, if you can’t or don’t want to do this yourself you may want to hire an outside party do do it. Let’s call that party a publisher, a publisher whose labor costs and overhead are considerably more than $40.00 per hour. More like several hundred. A publisher that must make a profit in order to stay in business. Since it costs a publisher more to produce a book than it costs an individual author, you will realize that if you have to sell, say, 2000 units of your book to make a profit, your publisher will have to sell two or three times that many – or raise the list price to double or triple yours.

Still think publishers are making a killing?

If this commonly held belief were mere ignorance we’d continue biting our tongues. But it is a pernicious supposition that has been responsible for driving down fair profit margins for authors and publishers and for sending consumers to pirate sites in protest against what they consider to be overpriced e-books.

We understand that E-Reads’ business model – the reprinting of previously published books – is atypical for authors who simply want to upload their books down and dirty. There are many options for them to do so at a fraction of the costs that E-Reads incurs.

But hopefully, some consumers who complain about e-book prices will take a more benign view of the challenges confronting publishers.
Richard Curtis

Read part 1: Are Publishers Making a Killing on E-Books?

Richard Curtis

About Richard Curtis

Richard Curtis is a leading New York literary agent (www.curtisagency.com) who foresaw the Digital Book Revolution and launched an e-book publishing company early in 2000. E-Reads (www.ereads.com) is one of the foremost independent e-book publishers in the industry, specializing in reprints of genre fiction by leading authors in their fields. Curtis is also a well-known authors advocate, author of numerous works of fiction and nonfiction including several books about the publishing industry, and prolific blogger – see his hundreds of other blog posts here.

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11 thoughts on “Are Publishers Making a Killing on E-Books? Part 2

  1. It is a pity thisand the previous article is written like a \stream of conciousness\. For instance:

    \If you don’t think you’ll be able to sell 2600 copies of your $.99 e-book, try charging $2.99. You will then have to sell only 900 units to break even. Add 225 units to make a 25% profit. Think you will sell that many?\

    What is missing is a kind of baseline figure. How many books are sold on average? How do you measure bestsellers like \50 shades of grey\ against this? (Which is an exception)

    How many books are sold on average on one author? When does he/she become profitable? How many books in a portfolio make loss on average? How many just break even? How many of a bestseller are required to compensate the loss of books that do below average?

    How much does a publisher spend on a book in total: just production (proofreading, editing, layout, cover. You give ballpark figures in the previous article, but they are not backed up by experience data like the quote I give above)

    What is an average good selling price? Sure marketing has this nice graph of cost/benefit but there is also reality. Is there something like a break-through price / runaway price where a product becomes a runaway success? For instance: \if I sell coffee for 3.00 I have to sell 100 cups per day. If I sell coffee for 1.50 I have to sell double. If I sell it for 6.00 I only have to sell 50 cups per day.\ tells me nothing about the cut-off point of the consumer (which is about 3.00 for a cup, meaning that coffee for 5.00 will probably \not sell\ unless it is awesome)

    • One major problem with the industry is that we don’t really have DATA on most of the things you’re asking about. Not for the whole industry, anyway. Individual publishers have data on their books. But unlike print, where Bookscan tracks about 2/3 or so of print sales, there is no central tracking of ebook sales.

      So anyone who says anything about ebook sales in general is either a) extrapolating from their own set of data, which may or may not be an accurate overall picture b) operating from a limited data set sourced elsewhere (for example, my own industry research stems from careful analysis of the top 100 bestsellers on Amazon by fiction genre), or c) using erroneous data.

      I’m not sure averages would be useful anyway, because the variance is too high. The average books sold for a trade ebook is probably in the hundreds somewhere. But the top 1% (of about a million existing trade ebooks) sell tens or even hundreds of thousands of copies.

  2. Let’s start by supposing that we’re talking about trade books (the types you’d see in an ordinary bookstore). They’re less than half of the total revenue of the book industry, but they’re all that the general public thinks about, when they discuss books.

    If the book is published in print, by an author using a pay-to-publish company, the average sale runs under 100 copies.

    If it’s published in print in paperback, by a mainstream house, you’ll be looking at more like 5,000 to 10,000. But ebooks aren’t selling that many copies per title, much less per format (epub or kindle) yet. At the end of 2011, publishers were getting about 10 to 25% of their sales from ebooks, depending upon whom you asked.

    So a middle of the road ebook of a new release would be selling something like 500 to 2500 copies.

    And the re-release of an older book would be lucky to do 10% of that.

    As for how much it costs to produce an average trade book: I see $3500 to $10,000 in fixed costs (like editorial, design, copyediting, proofreading, etc. Then you add the costs that vary with the number of sales, like royalties, marketing, distribution, and on and on.

    The average trade book costs more than $20,000 to launch, in my experience.

    Publishing is a high-stakes game.

  3. I am astounded by this statement:

    Since it costs a publisher more to produce a book than it costs an individual author…

    If publishers can’t get economies of scale, they will go out of business. It boggles my mind that specialized companies can be less efficient than an untrained person. I’m not doubting that you are correct, just wondering if you’ve thought about the implications of your statement.

    • Publishing is a lot like gambling. Publishing houses rely on their bestsellers to try to launch their next bestseller. They’ll lose money on almost every author they support. But all it takes is that author that ends up selling millions of copies to make up for losing likely thousands of dollars at a time to other ventures.

  4. In this case \less efficient\ means more overhead — office space that must be rented, employees who require not just a salary but benefits, a warehouse for storing product, outlays for printing and binding and accepting returns, and so on. These costs inevitably make a publisher less efficient, as you put it.

    But I’ve been following the war on printed books long enough to know that those who understand that the high price of ebooks effectively subsidizes the cost of printing and distributing printed books don’t care about this distinction. They feel that if publishers must waste funds on the \less efficient\ business of selling printed books they should simply stop selling them and just distribute ebooks.

    That the vast majority of books sold (and presumably read) continue to be printed books would appear not to matter.

    Ebook pricing evangelists are all in favor of the tail wagging the dog.

    • @Dick Hartzell

      Producing printed books is horribly inefficient and distributing them (on a returnable basis) is even moreso. Yet the book remains one of civilization’s most glorious artifacts.

      As I’ve often said, there’s nothing wrong with printed books. But everything is wrong with the way they are distributed. If that problem can be fixed we will see a lower price structure for print books and commensurately for e-books. And the distribution problem IS on the way to being solved through print on demand.

      • Print on demand is an ingenious (and probably inevitable) solution for selling
        books on the web, but not a very good one for selling books in a store — unless
        the store buys one of those pricey Espresso Book Machines. Even so, I doubt
        someone who wants to buy a novel on the Times bestseller list is going to wait
        for 5 or 10 minutes (maybe more, depending on how long the queue is) for it to
        be printed and bound.

        Of course, I think Mike Shatzkin believes book stores are doomed as a model for
        selling printed books — and perhaps you feel the same way.

        Somehow I thought when you began your reply you were going to mention
        publishers doing away with returns. Short term that seems like the best solution
        for saving bookstores. Long term maybe they’re not savable … or any more
        savable than record stores.

  5. I would like to comment in another direction. I established my own publishing company and brought my books to print under that umbrella. When it came time to establish the price for my e-books I looked at other bestselling authors and the prices being charged for those e-books. Was my value less then theirs? Did I consider my work worthy of the same pricing? When I decided yes, I established a price of $9.99. The printed book sells for $15.00. Amazon is discounting my printed book, and I have no control over that. The previous article talked of the money it costs to bring an E-book into production. How about the thousands of hours it takes to write the book? For that alone I believe I deserve compensation. It is a new world in publishing. It is an exciting time and I applaud all of you and want to remind you that only when we value ourselves and our work will others value us.

  6. Ms. Brazer —

    I don’t blame you a bit for wanting to be compensated for the time you spend writing.

    However, let me tell you a true story about compensation for writing. I’m trying to make a go of it as a copywriter — something I did when I began in publishing decades ago. Recently I had a phone interview with a woman who runs a web-based travel business in the Midwest. She asked me how much I’d charge to write a 600 to 800 word blog post for her. I swallowed hard (I dislike being asked to provide pricing on the spot) and said I could do it for $250. Matter of factly she announced she’d never paid more than $25 for such a piece.

    You see, she’d found me on a freelancer site called oDesk that attracts bidders from all over the planet. Bidders in developing countries who write passable English and consider $25 a handsome sum for a day’s work.

    Not that you face quite the problem I do. Nonetheless your market is largely just as price conscious as that travel agent I spoke to. And just as unforgiving about what they’re *willing* to pay.

    Which is a longwinded way of saying that in the Internet era it’s a buyer’s market.

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