Business Basics for Authors: Market Forces and Price

How do you place a value on an item? When faced with the prospect of setting the price of a book, many authors (and creators of other products) begin by assessing the amount of time and money they have put into the production of the product, and that is not wrong. It is important to know how much you have invested in your work.

However, where many people go wrong is by trying to pass off the full cost of production onto a limited number of readers or in a given length of time. They say, “Well, it took me X number of hours to write the book, and I should be getting a minimum wage of Y, so if I project 8 sales a day, then I have to charge Y + (the distributors cut and delivery fees) in order to earn what I deserve.” Or they say, “Well, I’d like to earn my money back in 1 year, and if I project X sales in that time, then I have to charge Y in order to make my money back.” It usually ends with something like this: “Therefore, I have determined that the book is worth Z. Period. End of discussion.”

Everyone starts off by doing this, but it is based on flawed logic and it’s an almost certain way of shooting your book in the foot, so to speak.

“Why?” you ask.

Because you are trying to set the value of the book without taking the market (YOUR READERS) into consideration. The market determines the value of a book, not the author or publisher.

What does that mean? It means that every individual reader looks at your book and then decides if the cost of it is worth it to them. They assess the risk (the purchase price) versus the potential reward (the potential joy or knowledge they’ll get from the book). Then, they’ll either buy it or they won’t. Or they’ll defer the purchase until the price comes down.

This is where that chart from the previous post comes in. Instead of calculating a price based on the faulty premise of trying to pass off the entire cost of production on a few readers or in a given time (ebooks are forever), the author should be trying to find the price where the most number of readers will purchase it for the most amount of money. Where the risk is acceptable to most readers, and the reward is greatest for you.

Lots of factors will move the graph above so that the curve falls either at a higher price point or a lower price point. Let’s examine a few of these forces that will act on your book:

• Retailers’ Sales Algorithms: Recently, Amazon changed its algorithm so that books with lower prices had to sell more copies in order to achieve the same rank and visibility. This made the sales curve of my books move to the right. I got more reward (visibility) for pricing slightly higher and less reward for pricing at $.99. Previously, the opposite was true.
• Cost of Production: If paper gets more expensive, the cost of paperbacks will rise to compensate. If the cost of paper decreases, the cost will decrease to compensate.
• Accruing Reviews: Books don’t sell themselves. Readers sell them. Readers share good books among friends, leave reviews, and blog about them. So in order for a book to sell, it has to be read first and favorably received. The risk of buying an unreviewed, unsuggested book is very high for a reader. They don’t want to go into a purchase blind unless they aren’t risking very much in terms of money.
• Endorsements: If someone major–I’m talking Oprah level celebrity here–endorses your book, the price can move to the right significantly. If someone in your field endorses it, the price can also move to the right, but to a lesser degree.
• Noteriety: If you do something cool like steal Doctor Who’s TARDIS and land it on the White House, I think it’s safe to say that people will be curious about you and your book, thus moving the price to the right too. Commit a heinous crime, and you can’t give the book away, except to creepy stalkers who want to emulate you. Or if you become a known expert in your field or a known entity in your genre, your price will shift to the right.
• Time and Acceptance: As your book begins to accumulate positive reviews and people begin recommending it to others, the price can move to the right because the risk to possible readers has been lowered. Someone they trust told them it was good, so they are willing to risk a bit more money to read it. Conversely, if your book gets negative reviews across the board, the price will move left because people are not going to want to risk a lot of money on something that others hated.

I could go on for ages about all the market forces that will affect price. It’s a complicated subject with many angles and possibilities for change. But if you keep in mind that readers determine the value of your book and not you, then things become clearer.

Every writer thinks their book is unique and special. They think it brings something new to the market and therefore is more valuable and can support a higher price than its competition, but here’s the flaw with that thinking: every good book should offer something new. If you’re providing the same old, same old, then why bother? But let’s assume that you have written something truly unique that cannot be found anywhere else. Just because you’ve written the world’s only underwater-basket-weaving suspense thriller/romance, that doesn’t automatically garner a higher price tag. Uniqueness or newness of information doesn’t matter at all if no one ever reads it. You have to get the readers on board with you, and pricing where the risk is acceptable to them will allow you to gain their support and thus raise the value of your book on the whole.