On Amazon, Publishers, and Book Prices
I'm an avid book buyer, book reader, and published book author. Amazon is one of my favorite places to shop, not just for books. I first bought a book from Amazon back in 1997 before I went to MIT.
There has been a lot of controversy over Amazon fighting with Hachette, a major publisher. Hachette accuses of Amazon of being a bully and Amazon accuses Hachette of charging too much for eBooks. Amazon wants publishers to price their Kindle books at $9.99, not $14,99 or $19.99.
Unlike some authors, I tend to side with Amazon in this fight. I'd love to see lower prices for eBooks, including my own.
eBooks vs. Paper Books
Why does Amazon want publishers to charge $9.99 for a Kindle book? There are many good reasons, as articulated by Amazon in an email I received from them.
While I believe prices are set by the market (not as a function of your production costs), Amazon raises good points about profit margins and price sensitivity. Margins are different on eBooks than paper books, as Amazon says:
With an e-book, there's no printing, no over-printing, no need to forecast, no returns, no lost sales due to out of stock, no warehousing costs, no transportation costs, and there is no secondary market – e-books cannot be resold as used books. E-books can and should be less expensive.
There's so much waste in the production of paper books. There's a fixed cost to produce a book – the cost of editing, cover design, marketing, etc. – whether you sell one copy or a million. The variable costs for a paper book include the cost of paper, printing, and shipping. That variable cost doesn't exist for an eBook (there's a cost of storing and transmitting the book, which is borne by Amazon). Because paper books are normally produced in large batches, they are produced to a forecast – and that forecast is usually wrong. It's said that 40% of the books ever printed have their covers torn off and then get destroyed because they didn't sell.
In the Lean “Profit = Price – Cost” equation… you can have the same profit margin at a lower price if your costs are lower… which they are with an eBook.
The challenge is determining the market price. It's easy to know your costs and then tack on some profit margin… but you might then be charging too much or too little.
Amazon points out that eBooks don't just compete against paper books, they compete against other forms of entertainment, which are often priced lower.
Many inside the echo-chamber of the industry often draw the box too small. They think books only compete against books. But in reality, books compete against mobile games, television, movies, Facebook, blogs, free news sites and more. If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive.
This broader competition for time and attention drives the market price for eBooks down and publishers should realize that. Even books like might compete with podcasts, webinars, blogs and other free or inexpensive content.
Lower Prices Can Actually Benefit Everybody
I've studied economics and I have an MBA, so I understand a bit about “price elasticity” and “price sensitivity.” Sometimes you maximize your profit (the absolute number of dollars, not just the percentage margin) by charging a lower price.
Amazon explains why:
We've quantified the price elasticity of e-books from repeated measurements across many titles.
For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000.
The important thing to note here is that the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that's 74% larger. The pie is simply bigger.
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Because the production of an eBook is just about 100% fixed cost, any book you sell at any price is pure profit compared to the variable cost (which is just about zero).
Authors don't just write books to make money. We write books to help spread ideas. Having 74% more readers is awesome. Now, my books aren't “entertainment” reading – they are practical and useful books. I make money from speaking and consulting, really. Books spread ideas and help create opportunities for me that far exceed book royalties (remember that traditional publishers only pay 15% royalties to authors like me). Yup, my books might cost $50 or $60, but I only get 15% of that (and the royalty is split 50/50 with my co-author for the Healthcare Kaizen books).
My publisher chooses even higher prices than $14.99 or $19.99.
My three books and their current list prices (set by the publisher):
- Lean Hospitals: Improving Quality, Patient Safety, and Employee Engagement, Second Edition ($55.95 paperback, $37.69 Kindle)
- Healthcare Kaizen: Engaging Front-Line Staff in Sustainable Continuous Improvements ($62.95 paperback, $47.96 Kindle)
- The Executive Guide to Healthcare Kaizen: Leadership for a Continuously Learning and Improving Organization ($29.95 paperback, $26.96 Kindle)
Because Amazon sometimes chooses to discount books, you can buy the paperback of The Executive Guide to Healthcare Kaizen for $24.95 in paperback form and the Kindle version costs $2 more. That's insane. I wish I publisher would set a $9.99 price for that book.
Yes, there are less expensive options for “renting” my Kindle books, since they are classified as textbooks by Amazon. I'm happy people can take advantage of that option (although I have NO IDEA how my publisher or I get paid off of that).
My Publisher Jacks Up Prices Each Year
I've battled, privately, with Productivity Press, over the annual inflation in paperback book prices.
Healthcare Kaizen was released in June 2012 at a $59.95 price. The book is not inexpensive to produce. It has over 200+ full color images and examples, so it's printed on a thick, glossy paper. The book weighs 4.5 pounds. I hope people get far more than $60 of value out of the book.
The price was increased to $62.95 for 2014. Why? Old habits in the publishing industry, I guess. Is the book more popular than it was before? Is the market price higher? Or, are they just jacking up the price? Maybe a book like mine isn't as price sensitive as a mass market fiction thriller. Maybe the people who pay $60 for my book would also be willing to pay $100 if that's what the market bears. Maybe I wouldn't sell more copies if it was priced at $40.
I don't know the formula the publisher uses. I don't know what the cost to print each copy is. I bet they set their prices more on the “old” non-Lean formula of Price = Actual Cost + Desired Profit.
Lean Hospitals has seen even more inflation (ironic, consider the cost inflation. It was originally released in 2008 at a list price of $45. The price has been raised $2 or $3 each year it seems… to $47.95, $49.95, $52.95, and now $55.95. The second edition, released in 2011, has more content, but the print is smaller, so the page count and production costs should be the same as before. Yet, the price keeps going up. The publisher is thankfully discounting it 20% currently, to just under… $45.
If the price is based on the production cost… the price for Lean Hospitals should be FAR lower than Healthcare Kaizen since it's a black and white book with fewer pages. I think the publisher has just gotten in the habit of increasing the price each year. As an author, I'm not involved in those discussions.
I hope the publisher is analyzing the data to see how sales are affected over time. If the price increases hurts sales and overall profits, they should stop increasing the price. I only get data from the publisher twice a year along with a royalty payment. Amazon provide nice charts that show trends over time… but only for the books that they sell. The publisher sends dense thick tables that almost obscure the overall data more than providing clarity.
If I were self publishing (paper books and Kindle books), I'd see the costs… I'd get to make pricing decisions that might make more sense (and I'd keep more than 15%). You can see why self publishing is an increasingly popular option for people.
What do you think about book prices in general? The prices for my books? Would your organization buy a bunch of them if the price was lower? Maybe everybody wins. Please leave a comment.