Think Like a Literary Investor: 3 Questions to Answer Before Pricing Your Book

“Only in our dreams are we free. The rest of the time we need wages.” 

-Terry Pratchett, English author of the 40 volume book series “Discworld”

An investor does not spend money, they invest in things that will multiply and return the money. In the role of the literary investor, you receive your return through book sales.

So your investment cycle looks like this:

1) You spend money on editing, producing, distributing, and promoting your new title/book (this is your investment)
2) Buyers give you money in exchange for the book and book related products/services (this is your gross profit)
3) Distributors and other commissioned based sales team members take their cut of the sales (these are your expenses.)
3) You take the money that is left (this is your net profit or income)

So when you set the price for your book, it is best to keep this entire cycle in mind.

3 QUESTIONS TO ANSWER BEFORE PRICING YOUR BOOK

Question #1: How much is your cost per book? 

As an investor and your goal is to multiply your money. So let’s say you spent the following to produce your book:

  • Professional Editing ($500)
  • ISBN ($125)
  • Custom Cover Design ($400)
  • Custom Book Layout ($500)
  • Printing ($2500 for 1000 books) NOTE: Even with a POD like CreateSpace, you may not be paying this upfront but because the fee will come out with each sale I’m including it upfront for planning purposes.

TOTAL: $4,025

Now let’s add the promotion expenses:

  • Contact list of key book reviewers to submit to ($27 from Danielle)
  • Print Bound Galley’s to Submit to at Least 10 Reviewers in case they don’t accept electronic submissions ($400)
  • Mailing of Bound Galleys ($80)
  • Virtual Book Tour ($599)
  • Contact list for Newspapers, TV & Radio Stations in all 50 states PLUS contact list for over 5,000 national magazines- ($125 from Danielle)
  • 4 Month RTIR Advertisement that attracts TV & Radio producers – ($1500)

TOTAL PROMOTION EXPENSES: $2,731

(Production cost + Promotion cost) / Quantity available* = Cost per book
*Remember that with POD you have an unlimited number of books available, but we are using 1,000 for planning purposes

($4,025 + $2,731) / 1,000 = $6.76 cost per book

Now that we know how much it costs to produce each book, we know how much you need to earn from each book sale just to break even.

Before you start thinking about how much of a profit you want to make, there are still other things to consider like…

Question #2: How much money are you paying to distributors in discounts?

This is the part that is often overlooked. We’ve already discussed the printing cost, but now it’s time to focus on the distribution costs.

Distribution Cost Examples-

  • Amazon takes 40%  of each sale, plus the printing cost, out of each book sold.
  • Your average book distributor will want a 65% discount on the title price so they can make a profit when they resell it.
  • Library wholesalers want a 55% discount so they can make money selling it to libraries.
  • Discount stores and book clubs may want as much as 70% off the listing price to cover the discount they have to give and still allow them to make money.

Using the previous base price example of $8.06, if we want to make sure we are earning this much even after the distributors take their cut, you’ll have to use the following formula:

(Cost per book x Distributor discount) + Cost per book = Minimum List Price

So because our example already assumes that you’re using Amazon as a distributor (because it comes with being a CreateSpace POD client) your ideal book price is as follows:

($6.76 x .40) + $6.76= $9.46

This means that your Amazon book will have to sell for $9.46 just to break even and cover your expenses.

Even with this number in mind, there is still something else to consider before setting your price…

Question #3: How much are your readers willing to pay?

This is key. If readers think that your price is higher than the value they place on the information in the book, they will not buy it. For example, why would a college student pay $20 for a book about how to prepare for an interview when they have access to a career center that probably offers one-on-one live or computer based mock interviews for free?

Another element to consider when determining how much your readers are willing to pay is the price of other books like yours. Why pay $20 for your book when there is another one for $10 that meets the same need?

On Amazon, you can gauge how much people are willing to pay by changing your price two weeks after your initial release to see how it affects your sales. If you sell more at the lower price, then you may want to keep it there. If the sales volume doesn’t change when you change the price, keep the higher price. You may also want to consider volume discounts to those who buy directly from you (this just means that you pay CreateSpace to print them and ship directly to you so you won’t pay the 40% fee.)

 The Take Away

  • When you set your price, keep in mind that your goal is to not only make money on the sale of each book, but to replenish and multiply the funds invested into the book.
  • Consider the discounts required by your chosen distribution option(s) to make sure that you will still have a profit.
  • Balance your desire for returns with the perceived value your readers will have for your book contents.

-BONUS –
The sale of book related products and services will allow you to get a faster return with more money on a more consistent basis.

For example, if you offer coaching sessions or you are willing to do paid speaking engagements related to your book, you will be able to charge much more for these services and get your money back quicker while also ensuring that more people will be able to access and apply your message (especially through the coaching).

What advice would you give to someone who is trying to set a price for their book? 

Image by: Ardfern (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons

Danielle Fetherson

Danielle helps aspiring authors become published authors. She believes that everyone has at least one book on the inside of them that can make a positive impact on someone else's life. If you have been thinking about writing a book, learn how to start your book today with the free resources at DanielleFetherson.com.

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