On a number of different email lists over the last four or five months there have been discussions on ebook pricing. Joe Konrath is a defender of the $2.99 novel price, while traditional publishers are keeping their prices in the $7.99 to $15.99 range depending on how new the book is.

And on these lists what we all read over and over is personal examples of how it worked for that person, or that person’s sister, or mother.

So I thought I would try to just lay out some facts and where we stand on this subject right now in the fall of 2010.

FACTS

1) We have no real sales facts over any length of time with any price structure. EVERYONE is just guessing, including the fine folks who set the prices of traditionally published ebooks.

2) Even though Konrath and other self-published authors get all the press, the vast, vast majority of all ebooks published are done by major traditional publishers under contracts signed by the authors. No actual number, however.

3) This new world is changing so fast, nothing that I say here could be valid by this time in 2011.

That’s it for the actual facts. In other words, no one yet knows where this is going or where it will land.

SETTING PRICES

In print publishing, the price of the book was (and still is) set by the real costs involved. Even for smaller publishers using the POD system, the costs are set by shipping, paper costs, percentages taken along the way, and so on.  And for traditional publishers, part of the costs of each book are overhead, meaning property costs, employees, and so on.

Referred to by different names in different accounting programs, these “overhead” costs are figured in this basic way.

1) Add up all your set business costs for a monthly book list, including editor and publisher and sales and art department salaries, utilities, land and building costs, and so on. This is very, very basic, but you end up with a number per month that it takes to keep the doors open, lights on, and the employees paid.

2) Take how many titles you publish through that list per month and divide that number into the overhead costs per month and each title must carry that cost. (Of course I am being frighteningly simplistic, since larger titles carry more of the overhead than smaller and so on, and every house includes some items other houses don’t include, And many houses just approach the number as a percentage of projected sales instead of an actually cost calculation, but you get the idea.) Every title carries overhead. Every copy of every book carries overhead.

So, I hate to burst a lot of writer’s balloons on the myth that producing an e-book is cheaper, but the truth is that every novel leaves the traditional publishing house these days the same way: Electronically.

That’s right, every novel done by a traditional publisher has the exact same cost until it leaves the publisher’s office. Same overhead, same author costs, everything.

The publisher either ships the book to an electronic distributor such as Kindle, or the publisher ships the book electronically to a web press publisher to print the book.  So the costs of every book a traditional publisher does (up to the point it leaves the offices of the publisher) are the same. (Maybe slightly more for electronic since it takes more office time of an employee to do all the uploading and servicing of various electronic sales sights.)

And no, you cannot put all the overhead costs on the paper editions and just figure the electronic editions are free. Business and accounting does not work that way, no matter how much someone who doesn’t know business wants it to. A book has a projected sales figure and the electronic sales are figured right into the projected numbers.

Then add in author percentages, interest on the money spent on the project, and other factors including how much each electronic distributor (such as Kindle) takes and traditional publishers have a bottom line in pricing e-books they have to stay above. It is just flat economics, folks, and no matter how much Joe Konrath and other self-publishers shout, the economics are just there for traditional publishers and e-book pricing has a floor for them they just cannot go below.

Self-Publishers and Small-Publishers Have Different Rules

Those of us who only have to worry about small overhead costs in getting a novel up electronically are very lucky. We have the freedom economically to price our books at any level we see fit. We only have used our own time, maybe a little money for cover art, maybe some minor money to have someone proof the book, but the costs are minor compared to the overhead of a traditional fiction publisher. We can set the prices anywhere from free to the same as traditional publisher’s prices.

And that’s where the real confusion comes in. Thousands of authors with backlists are starting to put up their fiction on their own or through a small company. And the authors have control over setting the pricing.

But what to set the price at? Is Joe Konrath right about the $2.99 price for a full novel? But I heard another author got great sales on a full novel at 99 cents. And yet another getting great sales at over $6.00 prices. Authors are confused because up until this time in history, setting a book price was never a question they had to face.

And the two questions authors logically ask are:

How much can I make at that price?

How many copies can I sell at that price?

Okay, both valid questions. And a third area that you hear lots of talk on lists and blogs about is “personal resistance price points.”  “My brother has a kindle and he won’t buy anything over $5.00.”  Or… “My sister thinks that anything priced at 99 cents must be bad.”

I’m not going to talk about that third point because to put it simply, it’s not valid. There are always going to be certain people who have issues with prices in one fashion or another and if an author or small-publisher worries too much about a few hearsay reports and switches prices all the time, they will be in trouble.

The problem with the first two very logical business questions is that there are no real answers at this point. No facts, no real data. I have a hunch how much money Kris and I will make every year if we get up all 500 of our sold short stories at 99 cents each. But it is just a hunch. And I have no idea how many copies will sell at any price because first off, no one does.

A quick moment on sampling. Readers when buying a book in a store sample the book before carrying it to the check-out counter. In electronic publishing, readers also sample. And that seems to be the one point that so many writers just forget when thinking about this pricing problem.

A book WILL NOT SELL at $2.99 or even 99 cents if it sucks. Readers have taste that won’t be overpowered by simple low prices.

And if a book is great and the reader likes and wants it and other readers are telling him about it, the book WILL SELL at $5.99 or $10.99 or up because it is great.

So let me give my opinion of a pricing structure for small publishers for electronic publishing. Then over the next few years as things settle and we get real data, it will be interesting to look back at this and see how well my pricing structure held up.

I think electronic fiction pricing for small publishers and authors should be like this:

Short stories. 99 cents. Author gets about 35 cents per sale.

Short novels and short collections (Anything from 15,000 words to 45,000 words)  $2.99. Author gets around 65% or about $1.95 per sale.

Novels or long collections (45,000 words and up)  $4.99-$5.99 range. Author gets around 65% or about $3.25-$4.50 per sale.

My Basic Reasons at this Moment in Time for this Pricing Structure:

1) Short stories at 99 cents are great for phone reading and when someone only has a short time to read. Also short stories will allow a reader to sample your writing cheaply.

2) Short collections and short novels at $2.99 are deals and still into the impulse buy range these days.

3) Novels at $4.99-$5.99 allow the writer to make more per copy than selling it to a traditional publisher and also keeps the price way under anything a traditional publisher with overhead can match. And around that $5.00 price is still impulse for most readers.

Three simple prices: 99 cents, $2.99, and $4.99-$5.99.

Now, I have floated my suggestions out on the world so we can have a discussion here in the comments section about this and I can look back at this in a few years and shake my head at my own silliness. As fast as things are changing in publishing, I might look back at this in six months and delete all this. Or who knows, I might end up hitting the right points now.  Time will answer that question.