Are Publishers Making a Killing on E-Books? Part 2
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.
Read part 1: Are Publishers Making a Killing on E-Books?