A common question, with the another underlying it: how much should an ebook sell for? The second query isn’t one I’m intending to deal with here, but I’ll say this much, what a product sells for is not parallel to the cost of the product. Yes, a company can’t stay in business very long if they are not receiving more money than required to produce a product. Naturally, they need to be aware of the cost to make a profit, if not in the short term, then over the long term. However, what a product sells for is based upon what the market is willing to pay for it. The customer doesn’t care how much it costs to make, they only care whether the perceived value they get is worth the price. If a vendor cannot sell a product above cost over a period of time, then they stop producing/carrying that product. It is called supply and demand. The more demand, the more value a product has. This doesn’t change with books.
But often the complaint is heard among people that ebooks don’t have any cost, so should be really cheap, if not free. As stated, the cost doesn’t factor in what an ebook will sell for other than a minimum price to not go in the red. Rather, if a publisher feels a book sells well enough at a certain price, the cost of an ebook being “free” doesn’t matter. They are going to sell it at the price they believe consumers value the product. Indeed, one of the complaints the traditional publishers have is that many selling ebooks at a lower cost will create the expectation among consumers that the higher prices are not worth the book anymore, and higher priced books will not sell very well as a result of shifting perceived value among consumers.
They have a point, but only because of the following. There is a cost to ebooks. But for traditional publishers, that cost is much higher than it is for indie publishers. If ebook prices get too low, traditional publishers will go into the red while indie publishers will still be able to turn a profit. Consequently, they will end up out of business unless they can accomplish the herculean task of changing their business model enough to adjust.
So how much does it cost to make an ebook? Here is the breakdown and issues behind the differences of traditional publishers and indie publishers.
All books, physical and ebooks, share common setup costs. This includes paying the author, paying the editors and copy editors and graphic designers and marketers and executives who make it possible for the company to obtain and publish a book. Most of that cost is labor, which is the case for most things. But they also share the overhead costs, including office space, utility bills, office equipment for all personnel that need it, like editors and marketing employees, bookkeeping and executives. Although not directly related to the cost of an ebook, most traditional publishers will still expect ebook sales to pick up their share of the warehouse costs of the physical books.
The dollars spent here are by far the biggest costs involved in the production of books, both physical and ebooks.
Physical books cost more than ebooks in their differences. With physical books, you have the cost of printing, including paper and ink and labor to run the printing presses, often included in the outsourced price from the printer the publisher uses. There is typesetting cost (design of the interior) and cover preparation for printing. Once the books are printed, they have to be warehoused and distributed. Sales reps travel to bookstores and distributors to convince them to put their books on the shelves. There is the added cost of end caps at stores, and other advertising.
Ebooks have different warehousing and distribution costs, and are much lower. There is the set up cost to prepare the ebooks themselves, usually for multiple outlets, which is a different process than setup for printing. Then there are the accounts for the various retail outlets who will deduct from sales a certain amount. If they maintain any kind of online store, there are hosting costs and labor costs for setting and maintaining the site with the constant stream of titles that are being published. Depending on volume of sales in an online store run by the publisher, bandwidth could be a factor as well in additional costs. But these ongoing maintenance costs are much smaller than a physical book, and is the place where any savings comes into play.
Micheal Hyatt, former CEO of Thomas Nelson, mentioned in one of his blog posts before resigning, that for them, the cost difference between print and ebooks reduced the cost by no more than 12%, around $2.00 a book. And much of that is offset by the cost of producing the ebook. So if the publisher reduced the price according to cost, it would drop no more than around $1.00 to $2.00 on most books from traditional publishers. As noted above, the bulk of the cost comes not in distribution and printing and returns, but in setting a book up for publishing, where the cost is the same no matter what format the book is sold in.
“But, why are so many indie publishers and self-published authors able to sell their ebooks for so cheap compared to traditional publishers?” There are two main reasons.
One, indie publishers don’t have the same cost as do traditional publishers. They don’t have big, New York office complexes to maintain. No massive electric bills to pay. They don’t have scores of employees working for them. Many of them use volunteer labor for editing and other tasks or do the work themselves. They don’t have vast warehouses and the need for strict climate control to preserve their assets, since they usually use print-on-demand for any physical books they do sell. Many are one-person operations, especially those who are self-publishers.
On top of that, those who self-publish, since they are the content creators, don’t need to expend much, if any, money acquiring content to publish. Traditional publishers spend a minimum of $2000 to $3000 on books, and for big selling authors, those advances can go into the millions. For indie publishers, many work on royalties alone, or very small advances in hundreds, not thousands, if any.
Two, cash flow, cash flow, cash flow. Traditional publishers spend a lot of money to get a book to print long before they ever see any return on their investment. They have a payroll to meet and bills to pay. The author can get the first part of their advance on signing, another upon delivery of the manuscript. After that, it can still take another six months to a year before the book actually hits the shelves and any revenue rolls into the publisher’s bank account. They’ve spent a lot of money on a book before they get the returns, which means there is a big negative cash flow on the front end in this business model.
Compare that to an indie publisher, especially a self-publisher. They write the story themselves, or contract just for royalty payments, with little to no advance. So no cash-flow issues to obtain content. Most self-publishers and small publishers work out of their house, so no extra cost for office space along with the extra utility bills and taxes. Most do the bulk of the work themselves, and what they farm out often uses volunteers or traded edits with other authors. Some will accumulate costs involved for cover art, interior and cover design, or editing. But many handle this themselves as well. Usually the only upfront cost aside from time spent on the publishing of a book is setup cost with the print-on-demand printer, which these days can be as cheap as $25.00 (currently the price at CreateSpace for extended distribution).
Consequently, most of the investment for self and small publishers is time, not dollars. While time is a valid expense in creating a book and should be accounted for in earning out, it doesn’t affect cash flow. Consequently, an indie publisher is able to sell a lot cheaper because they don’t have all those bills staring in them in the face that need paying. The cost they do have to cover before making a “profit” in terms of cash flow is minimal, usually no more than four to five hundred, but often less than one hundred. Compared to the thousands of dollars a traditional publisher has to invest in a book, most of it before they ever see a dime, they can’t afford for ebooks to be sold cheaply. An ebook sold often means no corresponding print book sold—evident in how as ebooks have grown in popularity, print book sales have declined—thus requiring ebooks to make enough profit to offset the loss of paperback sales if the business is to stay afloat.
Therefore, when an indie publisher decides to set the price for their ebook, they conclude that they can set it for as low as $2.99 and still make a nice profit, often as much more more than they’d would get in royalties if it was published by a traditional publisher. Then they look at that ebook on Amazon sold by a traditional publisher going for $12, about the price of a paperback, and they think to themselves, “Why can’t they sell it cheaper? Their cost must be a lot less.” But as we’ve seen, that is not necessarily the case. The savings on distribution and printing and not dealing with returns is only a small fraction of the cost traditional publishers incur on publishing a book.
But there is another factor in the cost of an ebook between the two types. Dean Wesley Smith discusses on his blog, what he calls the “produce” model. Traditional publishers are used to dealing with bookstores, which have limited self space. A book bought by a bookstore will tend to sit on a shelf for one to three months. If it sells, it may stay there six months. If it sells well, it may even last a year. But as soon as a book sits there for four or six months without being bought, it gets returned or sold in the discount bin in an attempt to earn back the cost. At that point, few bookstores continue ordering that book.
The books sit in the warehouse, taking up valuable space. Then the end of year rolls around, and they have to pay taxes on all the assets of books they are holding. So any books that are not selling get trashed to make room for more product. The book goes “out of print” and it is no longer available for anyone to buy anywhere. So unless a book becomes a long term best seller or has continued mass appeal, most books will not last beyond a year.
This has changed some, as more traditional publishers are starting to use print-on-demand to keep titles in print that they no longer stock in their warehouses, in an attempt often to hold onto the rights. But even then, the bookkeeping of publishers still follows the above format. That means for a book to be successful, they have to earn out and make a profit within six months to one year, because chances are, it won’t be for sale within a year. It should be noted, fiction tends to have this happen more than non-fiction. If a non-fiction book sells well, it will often continue to sell well if the information it presents isn’t too dated.
Indie publishers, however, don’t tend to deal with bookstores. All their shelf space is virtual. This means you can put that ebook online, and it stays there until you take it down or the online retailer goes out of business. So their books will sell for many years down the road, some gaining steam as they go. New readers are always coming online and looking for books to read. The approach of an indie publisher is to continue to put out work, have the various income streams growing and building, and over time, they will combine to make a pretty penny for the company. But that means their bookkeeping has to consider this an investment over several years rather than something that will get used up in a matter of months.
It is the difference between treating books as produce that will spoil, and treating the act of publishing a book as the orchard where the produce comes from. For instance, take the investment of a vineyard that makes wine. When they first plant the vines, it may take a few years before the grapes they get are usable. Once they fruit is coming in good and taste good, then they can make wine. But wait, the wine has to ferment for at least a couple of years. One vineyard owner told me from the time they plant the vines to the time they expect to make any kind of profit is around ten years.
While consumers will treat books as something to devour, publishers have to treat books as an investment. The difference between traditional and indie publishing is the harvest. For traditional publishers, the harvest for a book happens in one year. If they are lucky, more, but they can’t bet their business on it. But for an indie publisher, they expect their harvest to last for years and years. Consequently, the amount of profit acceptable to an indie would never fly for a traditional publisher. As their mindset shifts to treating ebooks differently, that may change. But they tend to look at profit not as occurring over ten years on a book, but usually within one year. So the cost of a book doesn’t get spread over years, but months when calculating their bottom-line price they can sell it for without going into the red.
Do ebooks have a cost? Most definitely. Even for the indie publisher, if they are honest, there is a substantial cost in their time. Too many don’t factor that in when they decide at what point the book earns out and is pure profit. Just to give an idea, here is a simple example.
Let’s say you write a 60,000 word novel. Let’s suggest the author writes at a pace of around 1000 words an hour, which is a good pace. So to write the rough draft of that novel, the author would spend 60 hours. Double that to account for editing and typo/grammar corrections: 120 hours. Some would spend much more than that, but we’ll keep it conservative. Then let’s say you’re going to pay yourself at least $15.00/hour. To write the manuscript and get it ready for the publisher to start going through it will cost you $1,800.00. And that is before you add in any time-cost for formatting the interior of the book for printing, designing the cover, finding the art if you don’t have an artist, or creating it yourself. It doesn’t include the administrative tasks or any marketing time you put into it. An author publishing his or her own book could increase that amount to at least $2,500.00 in time-costs of getting a book published.
If you were working for a traditional publisher, that’s all time you’d expect to be paid for your work. But as an author self-publishing it, you are treating it as an investment on future earnings. But the point is, this is $2,500.00 of cash flow you don’t have to worry about, and have years and years to earn back compared to one year with a traditional publisher.
Once again, however, it is an error to assume that cost of a product determines its sale price. Customer demand does. The more value someone attaches to a product, the more they will buy and the higher the price of the item can be set, no matter how little it cost to make it. Even if an ebook actually had no cost, it still doesn’t mean it shouldn’t sell for $10.99.
That said, the myth that ebooks cost nothing is just that, a myth. What people usually mean by that is once an ebook is created, it sits on the server, and when sold, a copy is produced automatically with no outside intervention and delivered to the customer with minimal effort compared to a physical book which has to be printed and shipped. Still, even in that case, there is the cost of the server (warehouse) and the internet bandwidth (distribution). Cheaper than the physical book process, but not cost-free. And the fact is, many ebooks never earn out the time-costs invested in them, even over ten years time.
Ebooks cost more than most indie publisher’s and authors tend to think, mainly because they don’t have the cash outlay of a traditional publisher. If they had to hire employees to format, edit, design covers and layout, and create ebooks and upload to sales outlets, their outlook would be a lot different upon signing paychecks and checks for payroll taxes.
If you added your time investment cost into your self-published book, what is the full cost of writing and publishing your book?