Unless you've been living under a pile of archaic dead tree books, you know Amazon has raised the royalty rate for self-published Kindle authors to 70%.
This rate only applies to ebooks priced between $2.99 and $9.99. If your ebooks are with another etailer (mine are also with Sony, Kobo, iPad, and B&N) and that etailer discounts them, Amazon will also discount them to match prices. Which is why some of my $2.99 ebooks are selling for $1.59 on Kindle (and I'm only earning 70% from the lower price.)
I'm sure it will all get sorted out eventually, and I'm not concerned about making a smaller profit on the lower-priced books. Past evidence shows me the lower the price, the more copies an ebook sells.
Even so, I am losing money. In June, thanks to being part of the beta program (which allowed my to release my ebooks at 70% for a week), coupled with the release of two new ebooks, ENDURANCE and TRAPPED, I made over $10k in a single month. I expect subsequent months to earn the same, matching my earlier predictions.
So I'm not sweating the sale ebooks for now. I can weather some temporary discounting, trading more sales for less money.
But can you? And more to the point, should you?
While some authors raised their prices to $2.99 in order to take advantage of the new royalty rate, others stayed at lower prices. Some even dropped their prices, in a misguided attempt to sell more books and widen their fanbases.
Big mistake. Here's why.
(At this point, I encourage anyone who has self-confidence issues to STOP READING RIGHT NOW. I'm warning you. If you don't have a thick skin, this is going to really irk you.)
Let's look at two kinds of business models.
The first is an author who wants to sell as many books as they can, so they list them at a low price. This encourages impulse buys, but the royalty is low. I don't see how any author can make a living doing this, at least at this point in time. Even selling 3000 ebooks a month will only earn $12,000 a year, which is way below poverty level.
An author confident in their prose, however, knows the writing is an even bigger lure than the low price. Because if a reader likes your writing, they will pay more. A lot more. I know this for a fact, because fans have bought my ebooks for $12.99 and print books for as much as $50.
At a $2.99 price point, selling 1000 ebooks a month earns $24,000 a year.
Selling fewer copies makes you more money. But it's more than that.
There's a difference between making sales and gaining fans. It's tough to differentiate between the two, and there is some overlap, but I'd break it down like this:
People who buy your work may become readers.
Readers who like your work will probably become fans.
Of the two (buyers and fans) you want to have fans. Fans are willing to pay more. Fans buy everything you write. Fans write reviews. Fans talk about you. Fans get really excited when you have a new release.
At this point in the ebook market, it is possible to keep finding new buyers by hooking them with a low-low price, because the market is growing so fast. But is this the business model you want to follow?
Consider X-Ray Specs.
For the younger among you, comic books of the 70s always had an ad for Johnson Smith Co, which sold gag gifts like joy buzzers, fake vomit, and X-ray glasses, which claimed you could see through things.
Of course, they didn't work. And any kid who shelled out $1.99 for them was very disappointed.
My point? X-Ray Specs sold to new customers... once. No one ever bought them again (once bitten twice shy.) But they didn't have to, because there was an ever-growing audience of suckers who would give them a try.
Compare this to Ben and Jerry's ice cream. Many people who try B&J get hooked on it. They seek it out. They become repeat buyers.
In short, they become fans.
X-Ray specs have no fans.
Now, a low price point can attract both first time buyers, and potential fans. But once you have the potential fans, shouldn't your goal be to make a living as a writer?
Walk into any Ben & Jerry's parlor, and they're happy to give you free samples.
Johnson Smith would never give X-ray specs away for free, because they know it won't lead to other X-ray specs purchases.
I know, for a fact, that readers are willing to pay good money for good stories. If they get a good story for a great price, it's a bargain, and makes them happy.
Right now, you can give readers a bargain, and still make a living. But giving readers too much of a bargain is selling yourself short, because it seems you aren't expecting repeat buyers.
So when you worry about raising your price, what's your real worry? That no one will think you're worth the higher price? That you won't have repeat business?
Now I'm going to say something to completely alienate myself from 99% of self-pubbed authors (if I haven't already.)
The reason I've sold so many books is because I have repeat buyers. And these repeat buyers are willing to pay $3, $7, $12, $25 for my books.
If you don't seem to be getting repeat buyers, it isn't the price that's keeping them away. It's probably the writing.
I wrote a million words before I sold anything. I've been honing my craft for 20 years. At this point, I'm pretty confident I can write a decent book. And I price my work accordingly.
So what does all of this ultimately mean?
If you're selling all of your books for 99 cents or less, you probably aren't going to make a living. And if you are making fans, you're losing money, because they'd pay more. Much more. $2.99 is still a huge bargain, compared to any other book format.
If you're selling all of your books at $2.99 and aren't seeing sales, consider dropping the price of one or two. The low price will attract more buyers, and if your writing is good, some of those buyers will become fans.
Right now, my two bestsellers are $2.99, even though I have several ebooks for $1.59.
What does that say about price, fans, and my writing?
Now, if you're selling poorly, it doesn't automatically mean your books suck. But it is something you should check, if you haven't already. I've said many times the secret to ebook success is a low price, a great cover, a good book description, and a great book. If you have all four of these, you should be able to find fans. And those fans will pay three bucks.
I've spoken to a few authors who are annoyed that I've released ebooks at low prices, thereby undercutting the current price publisher want to sell ebooks for.
But let's look at the math. At the current royalty rate, an author earns $1.75 on a $9.99 ebook through traditional publishers, 64 cents on a $7.99 paperback, and $2.50 on a $25.00 hardcover.
I earn $2.04 on a $2.99 ebook.
I'm making a better living selling ebooks on my own than I do with print publishers.
The key here is "making a living."
If you want to earn $10,000 a month on ebook sales, like I did, you need to sell about 5000 ebooks at $2.99. Or you need to sell 30,000 ebooks at 99 cents.
I'm not going to tell everyone to raise their prices, even though it would be better for authors across the board if everyone did.
But I do encourage you to experiment with price. You can be selling fewer copies, and earning more money, with a lower price. This seems like a smarter way to do business. Because if readers like you, they'll buy more, and they'll pay more. Three bucks is nothing to a reader. But the difference between 33 cents in royalties and $2.04 in royalties is a huge amount for a writer.
Sales ranking is great for ego and bragging rights, but it doesn't mean much if you aren't earning a decent wage.