How Does Ebook Pricing Work?

Ebook pricing has evolved since Amazon introduced the first Kindle device in 2007. While they were not the first retailer of ebooks, they were the first company to provide an end-to-end solution for reading ebooks. You can buy ebooks from Amazon and read them almost immediately on Amazon devices or on Amazon apps. You don't have to download and transfer books; all of that is automatic.

In the early days of kindle books, Amazon said that they would sell the majority of books for $9.99. Obviously, that has changed over the years, and inflation has increased the price of books. At the time of this writing, hardcover best sellers on Amazon, whose retail prices are $25 to $30, sell for about half that price in Kindle format. Some new trade paperback books are more expensive in Kindle format, because of the discounts Amazon applies to the retail price of print books. On the other hand, a lot of back catalog books cost much less than $10.

But these prices only apply to bestsellers. For self-published ebooks, it's up to authors to choose the price.

The cost and value of ebooks

Since ebooks are digital files, it only costs money to make the first copy. After that, you can deliver thousands or even millions of e-books at no extra cost, except for minor costs for bandwidth. This means that you can spend a lot to create that first book, but that all the subsequent copies are free.

Print books are very different. Not only is it more expensive to produce each copy of a print book, but shipping costs also factor into their retail cost. The larger and heavier the book, the more it costs to ship, both in cartons to booksellers, and individual books to readers. With many purchasers wanting free shipping, this means that the cost of shipping print books eat into the profits of retailers. In addition, print book runs are such that there are often unsold copies that get shipped to bookstores, then returned, and which are often pulped.

The cost to produce a print book depends on the number of pages in a book, the type of paper used, the type of binding, whether there are illustrations, and more. It costs a few dollars per copy to print the average hardcover book without illustration, which sells for $20 to $30. For large print runs, such as for best-selling novels, the cost can be as low as a dollar, or even less. Books with four-color printing and coated paper can cost $15 to $20 or more per copy, and also weigh more, leading to even more expensive shipping.

E-books have always been considered to be worth less than print books, because they are not tangible objects. You can't give them away after you've read them, you can't lend them to a friend, you can't sell them used. Many people feel that e-books should be much less expensive than print books.

However, there are advantages to ebooks. They are very portable, taking up no space (other than the device you read them on) when you want to go away on vacation, or even during your daily commute. You can read the longest of books on a smartphone, and not have to lug around weighty tomes. And if you're an avid reader, you may like the fact that they don't take up space on your shelves.

The wholesale model vs. the agency model of book pricing

There are two ways to price books. In the wholesale model, publishers sell books to retailers at a fixed price. Booksellers can then set the price at which they sell books, and can offer promotions whenever they want. In the agency model, the publisher sets the retail price of the book, and the distributor — in the case of ebooks — pays the publisher a fixed percentage, usually around 30%. Retailers cannot offer promotions on their own, though Amazon's Kindle daily deals, and other similar promotions, are loss leaders, where retailers lose money in order to increase sales and get people to visit their websites frequently.

Psychological elements of ebook pricing

Everyone knows that pricing an item with .99 is a psychological trick to make us think that it is cheaper than it really is. Ebooks are rarely priced in whole currency units, such as $4, £3, or €5: you see them sold for $3.99, £2.99, and €4.99. Once you get above 9.99, another psychological element comes into play: with two digit before the decimal point, books look much more expensive. This is why Amazon initially launched most kindle books at $9.99.

Times have changed, book prices have risen, and new ebooks are often priced in the double digits. The actual prices obviously depend on different currencies, local market rates, and the relative cost of living in different countries, but there is always an attempt to maintain prices below psychological barriers.

People like cheap ebooks, and cheap sells. On the day I am writing this article, I looked on Amazon UK to see the prices of their best selling Kindle books. The top 20 best-selling books were priced between £0.99 and £11.99. Only one book is at that top price, one at £5.99, one at £7.99, a couple at £2.99, but the majority costing £0.99. These are books that feature in Amazon's monthly and daily deals, most of which are priced at £0.99.

There is almost no overlap between the list of best selling e-books and the list of best selling hardcover and paperback books on Amazon. For example, Prince Harry's memoir, which retails at £28, is currently sold at £14 in hardcover, and it is the #29 best selling book on Amazon. The ebook, priced at £13.99, is only #242 in the Kindle store. It is almost as if they are two entirely different markets.

It's important to take all of these elements into account when choosing what price to sell your ebooks. In a forthcoming article, we will discuss how to choose the price of your ebooks.