Big Numbers part 3: Costing the zeroes and ones

So far this month we’ve mostly been talking about the costs of developing and printing physical books, whether textbooks or novels, using the costing numbers and estimates I work with in my day job. Some of it’s been hard and fast, some of it’s been a bit squishy around the edges, none of it’s been universally applicable but all of it’s been honest.

Is everyone still with me? Because now we sail off into the land of conjecture and guesswork – which is a lot like Narnia but with fewer talking mice and feline Jesuses – to talk about the work and considerations that might (emphasis on might) go into making an ebook and how that affects the final cost.

But before we go on, let’s split the discussion in half, because when we say ‘produce an ebook’ we’re talking about two different things – making an ebook version of an existing print book and creating an ebook from scratch (a manuscript). There are other options beyond those two, of course, but let’s keep this simple.

The ebook version

Let’s say that we have our bestselling novel My Dinner With Batman already produced and published, as per last week’s post. It’s costed to be profitable, the books are in the warehouse, all the production fees have been paid… it’s done. So does that mean that it costs nothing to turn the pre-press files into an ebook, that any ebook sales are just a bonus, and that we should just charge 99 cents for the e-version?

…long-time readers probably realise that the answers to my rhetorical questions are almost always ‘no’.

For a start, it’s going to take some work to turn the pre-press file of the novel (probably a PDF) into a MOBI or EPUB file. You can’t just push a button and have a computer do all the work; you can push a button and have a computer do most of the work, but you still need someone to check it, fine-tune it and make sure it displays well on all the potential readers. But having said that, this could potentially be an internal cost for the publisher, and we’ve been handwaving those away so far, so let’s do the same here.

More pertinent is that the ebook sales aren’t just free money, because they potentially reduce sales of the print book. Obviously it’s not a zero-sum game, and there’s a market that just wants physical books and a market that just wants ebooks – but there’s also a market that will be happy with either, and the cheaper the ebook the more likely the readers in that market will buy it instead. You’ve already spent $19 607 printing books with the expectation of selling 4818 of them at $22.95 and making $68 271 in revenue – and of paying the author $8192 in royalties – and the last thing you want is to reduce your bottom line (and short-change the author) by pricing the ebook too low and cannibalising your print sales.

So what do you charge? Well, this is where the hard numbers aren’t much help any more. We can use things like our target gross margin (59%), our expected revenue, the unit cost of the physical books (each book cost $3.38 to develop, print and ship) and the rest of our data to give us some ideas, but what we can’t really estimate is the size of the overlap between the print and ebook markets and how it will respond to different price points. All we can really do is work on instinct and occasional math.

Well, we know one thing for a start – whatever we charge, we’ll only get 70% of it, because Amazon will take a 30% cut. That’s assuming we do all our sales through the Kindle Store, which is obviously untrue, but that’s probably a solid averaging of the cut the various e-distributors receive. It’d be great to sell direct, and you can do that, but right now you need the various digital bookstores. (This also assumes that you’re selling all your books into countries where you get the full 70% from Amazon; sell an ebook to an Australian reader and you only get 35%, which is something that’s great for Aussie authors like me with mostly Aussie readers. Just great.) Then we’ll also need to pay the author a 12% royalty from our 70% share, so that in the end we only get 61.6% of our asking price per sale.

I mentioned that unit cost of $3.38 per book above. Well, we probably don’t want to make less than that for each ebook sale, because if the e-sales do end up cannibalising print sales, we don’t want to actually lose money on each sale, right? That would mean – and stand back, I’m going to use algebra – that 61.6% of our asking price should be $3.38 or higher:

.616x = 3.38

         x = 3.38 / .616

            =$5.48

So we could charge $5.48 – or $5.99 for convenience – for our ebook version? Is that ‘fair’? Well, probably not, because that assumes that the ebook sales entirely cannibalise the market for print sales, rather than cannibalising some of it but also creating a new market, and we know by now that that’s not the case. It could be cheaper and still make money without damaging print sales too much. If 20% of buyers only ever want ebooks, we could then tailor the price to cover the 80% of sales that risk cannibalising print sales, so that’s $5.99 * 0.8 = $4.79, which we can again round up to $4.99. And that’s not an unusual price for an ebook.

But at the same time, it could be more expensive and still be fair; we’ve number-crunched a lower boundary where we don’t lose money on the ebook, but we’d actually like to make some worthwhile profits and give the author a decent royalty. Looking on Amazon, it seems like many of the books that would retail offline for around the $20-$25 mark (US, but whatever) have Kindle editions coming in around eight dollars or so. (That’s from a skim, and I’m sure there are many exceptions, but let’s just go with it.) That suggests that we could go a few dollars higher – let’s say $6.99 – and still be pricing our book in a market-appropriate fashion. While we only get $4.30 for each sale (and the author gets just 59 cents), we can hope that the sales volume will make up for it and that we still end up selling all the print copies we had planned to over the three-year sales period.

…or not. It’s guesswork. But it’s guesswork that publishers have to make to create non-hypothetical ebooks, and everyone’s going to come to a different answer. It’s going to depend on the costs of the print book, the market you’re selling to, the additional resources required to produce and market the ebook, the danger of cannibalising print sales, the potential of long-term sales long after the physical books are all sold… Dump some numbers in a hat and pull one out. Or look at the numbers other publishers have pulled from the hat and do the same thing. Or charge two bucks and go all in. Let it ride.

But still. Maybe we can look at this and say when a publisher charges $4.99 for the ebook version of a $22.95 novel, it may not be from greed or lack of awareness of the market; it may be because that’s what the spreadsheet demands. For now.

Original ebooks

And finally let’s talk about independent, author-created ebooks. This is a very different ballgame because we step away from the requirements and costs of a publishing company and a print book, but we also step away from the production infrastructure and larger budgets to DIY it. But we can still look at the costs from the previous examples and see what’s applicable. And hell, I’ve made a couple of these, so I can share the fruits of my minimal experience.

Let’s assume we’re going to produce a novel of about 200 pages – well, no, because ebooks repaginate themselves based on the device and the user’s preference. We’re probably better off thinking in terms of wordcount. Let’s say this new book… You know what? Let’s actually talk about my novella-in-progress, The Obituarist, and use it as an example here; if nothing else it’ll help me work out how much to charge for it when it’s done.

My target for The Obituarist is 20 000 words; it won’t be exactly that, but it’s close enough for disco. So if we think back to last time, what are my costs?

Manufacturing costs – zero. That was easy. It means my mother will never read the book, but I can live with that.

Editing – page rates aren’t appropriate, so we’re either paying by the hour or by the word. Looking online, I can see rates of around 2-4 cents a word being offered by editors. While I could get something at the low-end without much trouble, let’s assume I pay the middle rate of 3 cents a word, which would cost me $600.

Proofreading – a page rate is again hard to calculate. It’s also difficult in a situation like this to distinguish cleanly between an editor’s role and a proofreader’s role. Probably the simplest thing is to bump up the page rate for the editor so that it covers proofreading as well; another half-cent a page will cost $100. In a perfect world it’d be good to have a separate proofreader to catch mistakes the editor misses, but little is perfect on this bastard planet.

Typesetting – none, because we’re not laying out final pre-press files in a stable format; we’re taking a text/Word file and converting it to EPUB or MOBI. Which in theory is pushing a button, but like I said above, it’ll probably require tweaking and fine-tuning. If I was going to pay someone to do it for me, I’d expect it to take about an hour, so I’d probably pay that person (which would probably be the editor) $50; since it’s not difficult, so I’ll do it myself for nothing.

Text design – there almost isn’t such a thing with ebooks, although you still want to start the process with an idea of how things will look at the other end. Still, fonts and layouts are morphable things and mostly up to the reader, not the writer. We can fold this into the typesetting cost, which is nothing.

Cover design – this is the place where a lot of ebook authors try to save money and do it themselves. Stuff that. I think that a strong, professional cover is pretty much your third priority when making an ebook, after writing a damn good book and making sure it’s been edited. It doesn’t have to be spectacular, it doesn’t have to be 100% original, but it needs to be polished and it needs to show readers that you take this shit seriously. The covers of Hotel Flamingo and Godheads were created by a Melbourne designer (Design Junkies, who are great) and cost me about $220 each. I might not use the same design concept for The Obituarist, or indeed the same designer – it’s good to mix things up occasionally – but I figure that I’ll pay something similar. Let’s call it $250.

Other costs – no, not really.

So there’s a total cost of $950, which is a lot for a dude like me to fork out. In practice, I’ll probably be able to get the editing and proofreading done by friends in return for doing the same for them in the future, or as payback for help I’ve already given them. I’m lucky there in that I have friends who are writers and editors and who can help me out. But if they can’t, then I’ll have to wear that cost.

So what should I charge for the novella?

Well, if it’s more than 99 cents, I can demand the full 70% royalty from Amazon – but as pointed out above, I’ll only get 35% for Australian sales, which will be most of them. I’ll get a more consistent royalty from Smashwords (between 66% and 75% for direct sales, less about 15% for affiliate sales) but generally expect fewer sales from them. Without really good stats about who’s buying and from where, all I can really do is assume the median value, which is going to be around 55%.

Let’s say I charge $2.99 for The Obituarist, which is what I was charging for my other, shorter ebooks before I pulled them down to 99 cents at the start of 2012. That means I can expect about an average of $1.65 for each sale. So if I can make a deal-in-kind on the editing and proofreading, I only need to pay the $250 for the cover, which I’ll do after selling 152 books. If I have to pay the entire $950, I’ll need to sell 576 books just to break even, and previous experience tells me that that is not very likely. If I charged $3.99, I’d get $2.20 per book and would break even after 114/432 sales. Better, but the market isn’t likely to respond positively to that price for an indie book. And if I go lower than $2.99 I’m cutting my own throat, because the royalty rate would also drop; at $1.99 I’d probably only get around 45% and it would take more than 220 sales just to make up for the cover costs.

So is $2.99 a fair price for a novella like The Obituarist? I don’t know if that’s the right question, because ‘fair’ is going to have a different meaning for the reader than it does for me. What I can say is that, assuming that I can work out the editing costs in trade and pay with my time rather than my money, and assuming that I can devote more time to promoting and marketing the book in useful places, and assuming that I can maintain that price for a decent period without the need to discount, I’ve got a pretty good chance of paying off my costs eventually, or at least defraying them to the point where I don’t feel like I’ve pissed $250 up against a wall. Which is not exactly comforting, but the game is what it is.

But I’m not really trying to justify charging whatever I eventually charge for a book I haven’t finished writing yet. What I’m hopefully doing is showing you, the reader of this here post, that even the humblest DIY ebook operation has costs, and that it’s worth working those out ahead of time so that you’re not surprised by them or left shocked by how much work is still required to make it all come together. Because what I’ve learned in my day job is the value of planning and costing a project ahead of time – and, sometimes, to look at the poor projections and say fuck it, let’s do it anyway.

Don Quixote is my spirit animal.

2500 words on this today, and I could keep going. But I think the point has been made by now about what it might cost to make a book, physical or otherwise, and if it hasn’t then I probably can’t make it even with another 2500 words. So let’s call it a night.

In the aftermath of these three posts I’m going to be a bit quieter on PODcom through March, because I want to finish The Obituarist – and get it edited, and pay for a cover, and etc – and publish it online before the start of April. And time spent writing mammoth blog posts is time not spent writing about Kendall Barber getting beaten up by bikers.

Which doesn’t mean I’m closing up shop. I’m still aiming for 1-2 posts a week, and will be offering up some flash fiction next week as a relief from all the number crunching. But they’ll be shorter, faster posts that don’t require sitting in a hot office for four hours to get them done.

Until next time, true believers.

6 thoughts on “Big Numbers part 3: Costing the zeroes and ones

    1. My explanation of it? Amazon likes money.

      My opinion of it? Well, I don’t love it. I don’t imagine any indie publisher loves it, because you’ve got to keep up a significant modicum of control over the book you wrote and created. And Amazon does not give a fuck if that bothers you.

      At the same time, well… Amazon’s not the only game in town, but it’s the biggest game in town. If your ebook isn’t on the Kindle store, you cut yourself off from the largest section of the market, even if you have a MOBI version on another site like Smashwords. So what you lose in control, you hopefully – hopefully – gain in exposure and sales. And the feedback from writers that take advantage of things like Kindle Store exclusivity deals is that that gain really, really makes a difference.

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