The Third Way: Digital Small Presses

In all the emotionally fraught discussions of the past few weeks about the making the choice between traditional and self publishing, there’s been very little discussion about the fact that there is a third option. It’s not either turn down an advance with low digital royalties OR self-publish. Authors who don’t want to self-publish but either don’t get an offer from a traditional publisher or don’t want to hassle with trying do have an alternative–especially in romance–and that’s the digital small presses.

It’s sort of ironic that I feel I have to point out the availability of digital small presses given that they are in many ways responsible for paving the way for self-publishing. The folks who created the first digital publishing houses were taking a huge risk, because at the time (the late 1990s at the earliest), digital books were still a novelty and ereaders as we know them now hadn’t even been invented yet. Still, many of these digital presses built an audience, especially in romance and erotic romance, where they undoubtedly benefited from making sales to folks who were embarrassed to buy “those” books in bookstores with clerks staring them down. And they were definitely the first to test the proposition that books could be profitable without a print component. No, they didn’t pay advances (which made RWA and some other writers’ organizations view them askance for many years), but they offered much better royalty rates per sale than the then still primarily print traditional publishers, and as more and more readers experienced digital books and as ereaders began to come out, some authors started making really good money with those publishers.

Now, I could go into a really long spiel at this point about how not all digital small presses are created equal, but I’m not going to bore you with it. Instead, I’m going to list the four things I think are most important when choosing a digital publisher:

  1. Pricing

    I’m a firm believer in sensible pricing for digital books. I grant you, everyone’s meter for sensible may differ in this particular case, but I personally fall into the “cheap” camp and as a self-publisher, I price my books accordingly. This means I don’t want to run with a digital press that prices its books substantially higher than I would (say, no more than 20% higher). My sensible price range is as follows:

    • 5,000-25,000 words — free to 99 cents
    • 25,000-40,000 words — 99 cents to $1.99
    • 40,000-65,000 words — $2.99 to $3.99
    • 70,000+ — $3.99 to $4.99 (possibly $5.99 if it’s 100k+, but you have to be my favorite author ever to get me to pay that; just sayin’)

    So, basically, I won’t sign with digital publishers whose pricing doesn’t fall into these ranges. That’s not to say that they are bad publishers; it’s just to say that I don’t feel the higher per sale royalty makes up for the lost sales due to the price point being outside what I consider the “impulse buy” zone. Once you’re outside the impulse buy zone, IMO, you either have to be a very well-known author with a large following OR your publisher has to have a strong brand and your book has to pretty much perfectly reflect that brand. Getting those last two right can be tricky.

  2. Packaging
  3. Do you like the publisher’s cover art? Is it eye-catching and attractive? Look at a lot of the covers. Do they stand out in a crowd? Do they properly convey the genre and mood? Obviously, every publisher is going to have a few covers you don’t like, but don’t bother submitting to a publisher if you think the majority of their covers suck, because they are going to create a cover for your book that you think sucks. Cover art is part of your publishers’ brand, which means those covers you hate aren’t an accident.

    Also part of packaging are the product descriptions. Are the cover “blurbs” enticing? Interesting? And, perhaps most important, grammatically correct? Some digital small presses expect their authors to write their own cover copy and don’t do a whole lot of editorial or provide much assistance. That’s easy to see if you find a lot of variation in the quality of the book descriptions within a publisher. The more consistency you find in the quality of the blurbs, the more likely it is that someone is shepherding the process. This is an important aspect of marketing and we aren’t all good at doing this for ourselves. Not being good at yourself is a good reason for not self-publishing, but if your publisher isn’t going to offer any input, you might as well self-publish when it comes to this aspect.

  4. Editing
  5. Before submitting to any publisher, you should read some of their books. Partly, this is to get a sense of their brand, as I mentioned above. You need to know this because every book isn’t well-served by every small press. Some do better with certain genres and themes than others. You need to know where you’ll fit into their list.

    But you also want to be sure that they have high quality editorial. If you only read one book and it’s good, that doesn’t necessarily indicate great editorial. It indicates either this book was edited by someone who’s very good or that the author is an excellent self-editor. Either way, that doesn’t mean you’ll get said great editor or that you are a great self-editor. So read several cover to cover and sample more. You want to see consistency in editorial quality across the board. If you don’t see it, it’s not a good place for you book, even if you are a great self-editor. Publishers with poor editorial quality get a reputation for it. Even if your book is an exception, readers who’ve experience that poor quality may choose not to buy your book because it comes from that publisher.

  6. Financial Stuff
  7. Before submitting (but definitely before signing), you should contact some authors who are published by the publisher you’re considering. Ask them if they’re paid in a timely manner, how they like working with the publishers, and what (if any) complaints they have. Make sure you contact authors who are selling poorly as well as those who are selling well. The ones who are selling well and making a lot of money are probably inclined to be more generous if there are any warning flags. You’re likely to get a more unvarnished opinion from someone in the middle or the bottom of the heap.

    In addition, make sure you understand the publishers’ royalty structure. Any contract that pays you on “net” instead of “list” price is a tricky proposition, because you can’t know how much you’ll get paid for each sale unless you know what the publishers’ net is, and if the publishers’ net changes, your royalties will change, too.

As most of you know, I have one book with Entangled Publishing and another one on the way. When the second is wrapped up, I plan to write another in the same series, and I’m hoping Entangled will be interested in publishing it despite my labor pains with this second book :).

I imagine, though, that some of you wonder why I’d work with a digital publisher when I’ve done pretty well as a self-publisher. The primary reason was pretty simple–I was breaking out into a new subgenre I’m not well known for (contemporary romance) and I knew Entangled brought something to the table I didn’t have. To wit, they have truly developed a “brand” for their imprints and have many loyal customers who read practically every book in their favorite lines. In other words, I knew that having SKIN IN THE GAME in Entangled’s Brazen line would bring readers to it that I would never find on my own. And I was right about that. First week sales for that book were several times more than any other book I’ve published. And the novella I put out myself in October has done quite poorly, especially by comparison (not that I’ve done a lot to promote it, but still…). If you haven’t guessed already, I am quite happy with Entangled. Yes, not having control over every aspect of production is hard for me now, but the trade-off has been more than worth it.

It’s fashionable nowadays to say that the publisher doesn’t matter. I think that’s true in some cases, but I’m quite confident in saying that in the case of Entangled, the publisher IS the difference. I am truly grateful that I’ve had the opportunity to work with such a wonderful group of people and a publisher that really walks the talk in terms of communicating with and supporting its authors. I haven’t said this enough before, but I’m saying it now: Thank you, Entangled!

P.S. A late Happy Birthday to Liz Pelletier, Entangled’s owner and founder!

It’s Hard to Take You Seriously When…

For the record, I totally agree with folks who’ve said that the much-discussed, ballyhooed, and denigrated Author Earnings report way overreaches the conclusions that can be drawn from the current data set. Both Dear Author and Courtney Milan have done excellent posts on the subject, so I won’t belabor the point.

But the defenders of the traditional publishing model who are so eager to discount the Author Earnings data are just as guilty of overreaching or misrepresenting data to support their viewpoint. I don’t bring this up to “take down” traditional publishing. I do it because I think, if traditional publishing really isn’t worried about the long-term effect of self-publishing on its bottom line, it’s probably \because it’s not getting the real picture. Instead, it’s getting “guesstimates” from the likes of Michael Cader at Publishers Lunch, who wrote this doozy:

(Smashwords) total sales were $20 million.

If you posit that Smashwords is only reaching a third of the market for their authors (so triple their gross, to $60 million), and then you postulate the total self-publishing market is three times bigger still (500,000 KDP exclusive authors, plus 275,000 Smashwords authors), you’ve talked your way to a market of $180 million or so.

(Sadly, this doozy is in Part 2 of the article, which is located behind a paywall, so I’m not going to post a link that will take you to it. If you want to read more of what’s behind the paywall, Joe Konrath has excerpted a lot of it here.)

Now, I don’t know anything about Michael Cader and I have no personal axe to grind with him, but his “positing” here is just plain loony tunes. It’s also not the first time I’ve seen folks who aren’t familiar with self-publishing assume that Smashwords represents a huge share of the market and/or that the only available options for authors are either Smashwords OR Amazon KDP Select (which are your “KDP exclusive authors”). Neither of these comes close to accurately depicting the truth.

Authors who self-publish can upload their books directly to Amazon, Apple (iBookstore), Barnes & Noble, and Kobo. Granted, some authors use Smashwords to distribute to Apple, B&N, Google Play, and Kobo (non-US authors can’t get to B&N any other way and it’s also the only way to list a book on B&N for free). There are also some smaller outlets that accept self-published books for upload, if you want to take the time, including All Romance eBooks (aRE) and Xin Xii (big in the overseas market, I hear). I’m sure there are others I don’t know about.

The notion, therefore, that Smashwords represents a third of all sales of all self-published books (edited to add) OUTSIDE OF AMAZON is just plain ridiculous. Folks who have their books on Smashwords and distribute to Apple, B&N, and Kobo through them ALSO often have their books on Amazon, Google Play, All Romance eBooks, etc. A lot of authors who have books on Smashwords upload their books directly to Apple, B&N, and Kobo and thus, those sales aren’t showing up in the $20M that supposedly represents all sales on those retailers, however.

I’m teaching a class at a client site right now, so I don’t have time to parse out the percentages of revenue based on my actual experience in self-publishing, but I will say with absolute certainty that Smashwords doesn’t represent more than 2-3% of my revenue. If I distributed through them and had the same percentage of sales as I do directly on those retailers, the slice would be much bigger, but it’s not like I only have the choice of Smashwords (edited to add) and the retailers they distribute to OR Amazon. I can have both.

And that means it’s pretty hard for me to take this estimate seriously. Because frankly, it’s based on both an incomplete data set AND a complete misunderstanding of the facts on the ground.

The Pros and Cons of the Unearned Advance

Because I’m apparently incapable of staying out of trouble lately, I got into a discussion on Mike Shatzkin’s blog the other day about advances and earn-out. In discussing Hugh Howey’s comparison of earnings for authors in traditional publishing versus self-publishing, Mike (who’s an industry consultant) pointed out that it’s hard to pinpoint a traditionally published author’s income based on royalty rates because that doesn’t factor in unearned advances. The contention here is that most advances in the current market are intended to be more than the author would earn at the standard royalty rates, meaning that the author isn’t meant to earn out. Instead, the publisher is paying a larger advance in lieu of higher royalty rates.

In theory, this sounds like a pretty good thing, doesn’t it? I mean, if the publisher offers you a $25,000 advance but doesn’t think you’d earn more than $20,000 in royalties, they’re giving you a bonus of $5,000. What’s not to like?

Before I answer that question, I’m going to show you a lovely little spreadsheet I developed in my spare time. (Oh, wait, I don’t have any spare time. I developed it in time I should have been using for other things. Bad Jackie, no cookie!)

The Earn-Out Worksheet

This spreadsheet is designed to help a writer figure out, based on a book’s list price, format, and royalty rate, how many copies he/she must sell to earn out a particular advance amount. It’s also designed so that you can change the breakdown of sales between print and digital based on what percentage of sales are print vs digital. A writer in genre romance might sell 40/60 print to digital while a YA or middle grade author might see a breakdown more like 75/25. I used the industry’s standard value for my “base” spreadsheet, which is 70% print, 30% digital.

I also made some basic assumptions about standard royalty rates that might not be accurate in all cases. For example, when it comes to digital books, most legacy publishers pay 25% of net. Since net depends on whether the publisher is getting 70% of the list price (most of the Big 5) from retailers or 50% of list (most of the independent publishers), 25% of net can mean either 17.5% or 12.5% of list. If you have an escalator clause (i.e., you get 25% of net up to 20,000 copies sold and then 35% of net after that), the spreadsheet formulas would have to be modified to account for that difference.

If you want a copy of this worksheet to play with your own numbers, email me at jackie at jackiebarbosa.com. I was going to upload a copy here, but I can’t get to CPanel today and I didn’t want to hold off posting until I could. Just let me know you want the Advance Earnout Worksheet and I’ll be happy to email it to you.

I was able to get on CPanel today, so now you can download without emailing me. Just click the link below.

Download EarnOutWorksheet.xlsx

So here’s how many copies you’d have to sell to earn out that $25,000 advance in each of the formats, assuming a 70/30 print to digital ratio. (Obviously, I can’t factor in whether or not your hardcover book goes to a trade edition and later to mass market paperback, so if you have a hardcover contract, this may not be as useful to you as to someone in trade or mmpb.)

Worksheet1

Just for funsies, here’s the same calculation, but assuming a 50/50 print:digital split:

Worksheet2

A few things jump out at me when I look at the results of these calculations. The first is that, if your book is going out in hardcover, you are getting a raw deal on digital royalties. I mean, like, seriously bad. The second is that, if you’re getting an advance less than $25,000, regardless of format, your publisher probably expects you to earn out. If you don’t earn out that $25,000, your book probably FAR underperformed the publisher’s expectations because, frankly, the print sale numbers you need to earn out are so low that your publisher is not going to be happy with your sell-through.

With that in mind, we’ll look at the numbers for a $100,000 advance:

Worksheet1

All right! Now we’re talking about an an advance that might be pretty tough to earn out and which might have the practical effect of paying you more per sale than the royalty rates would imply. Especially if this is a mass market paperback deal, this definitely looks like a great offer.

But let’s scratch below the surface before we conclude that you’d always be wise to take this offer. Here are a few reasons that even a $100,000 advance might not be to your benefit (and I’m assuming, here, that you’re not already sitting atop the bestseller lists with a self-published novel when you get this offer.

How Long Do You Have to Earn Out?

When a publisher offers a large sum of money for your book, it’s easy to think, “Woohoo! Guaranteed money in the bank. I am absolutely certain that I am never going to make less than X dollars on this book. I should take the money and run.” You might be right, but before you assume it’s in your best interest, consider this: the initial term of a contract is seven years. This means that, although you might get $100,000 in the year you sold the book, if you don’t earn out your advance during the next seven years, you are guaranteed not to earn so much as one more penny in those seven years.

Back in the old, pre-digital days, this wasn’t that big a deal because, frankly, unless your book was selling well enough to go back for additional print runs, you only had maybe 4-6 months to sell most copies of your book. This might be less true in non-fiction, but in fiction, there’s heavy churn, especially in mass market paperback. You’ve got maybe four months on the shelves before most retailers strip your books and return them. In this world, a publisher giving you a big advance is taking a pretty significant risk. If your book doesn’t catch on in those initial four months, they are probably screwed. You, on the other hand, are sitting on $100,000 in cash. Yes, you’ll have to wait seven years to get your rights back, but in those print days, your reverted rights were practically worthless. Publishers weren’t likely to line up to buy the rights to republish your book that didn’t do well the first time, and you couldn’t publish it yourself. In this world, that big advance that might not earn out was absolutely a win for the author. If the book did well and went for additional printings, the additional royalties were just icing on the cake.

Problem is, we don’t live in that world any more. The churn in the print market is just as rapid as ever (in some cases, rapider; I know an author whose entire order was stripped by a big box retailer before it was even shelved), but the digital book is forever. In this environment, the majority of your print copies are going to sell within the first six months to a year. But your digital copies? Those can keep selling for the next six and a half years. Granted, they’re probably not going to sell at the same, healthy clip three years after release as in the first year (unless your publisher drops your sale price and does a promotion, which might move more copies, but at the expense of royalties, so there’s a trade-off there). But all in all, this means you now really have six years to earn out that $100,000 advance. Does that mean you will? No. But it does mean that you’re selling books six or seven years into your contract term and still not seeing so much as a penny in additional earnings.

If you’re still steadily selling a book or two a year to publishers at $100,000 or more a pop, the fact that you aren’t earning out your advances isn’t that big a deal. After all, you’re getting new advances to take up the slack. But that doesn’t happen to everyone. Not everyone who gets a healthy advance is going to keep getting them. When you’re looking at the possibility of not earning out an advance, you have to ask yourself what happens not in the best case scenario, but in the worst case scenario.

And the worst case is that your book sells below expectations, you don’t get more great advances, and…

You Can’t Get Your Rights Reverted

As I said above, the term of a typical contract with a NY publisher is seven years. At the end of seven years, authors can request reversion, but only if certain conditions are met. Back in the old print days, a publisher had to keep your book “in print” to retain the rights, which meant investing in another print run of your book. If your book sold poorly the first time around and you didn’t become a big name in the meantime, the likelihood that the publisher would invest in another print run was nil. You could easily get your rights reverted. Of course, you also couldn’t do anything with them, but…

Now, however, most contracts are written in such a way that no additional print copies are needed to keep your book “in print.” The fact that it’s available for sale on retail sites in digital format means it’s still in print. That doesn’t mean you can never get your rights back (at least not the way most contracts are currently written), because most contracts additionally state that a certain number of copies must sell each calendar year. If your sales drop below that threshold, you can request a reversion. The problem is that the thresholds are often pretty low. I’ve seen them as low as 250 copies. Some are more like 500. There might even be a few that generously let you request reversion at less than 1,000 copies a year.

Now, if you’ve already earned out your advance and are selling below the threshold, then there’s a pretty good chance your publisher isn’t going to try to hold onto your rights. But what if you’ve earned out only $70,000 of your $100,000? Your publisher has an incentive to squeeze as much revenue as possible out of your book, which means doing things like putting it on sale for 99 cents for a month. Quick as a flash, they’ve sold 1,000 copies, but you’re still not appreciably closer to earning another dime. And this could conceivably go on for years. (I also know of at least one author who suspects her publisher is over-reporting her digital sales because she hasn’t earned out her advance yet. She can’t afford to have an audit done, so she has to take the publishers’ word for it.)

Bottom Line

As you can see from the above analysis, I’m skeptical that an advance that can’t earn out is necessarily in an author’s best interest. It certainly can be. But you really have to ask yourself two questions:

1) If I never earn another dime from this book because the publisher retains the rights for the next 35 years, is this advance enough that I’ll be content?

2) If I do earn out the advance and continue selling copies such that I can’t get my rights back, will I be content earning only standard royalty rates on the additional copies that sell for the next 28 years?

Once you know the answer to those questions, you’ll have a better idea of how good a deal it actually is.

And if you’re Audrey Niffenegger and someone offers you $5 million? Take the money and run!

Print vs Digital Sales: An Addendum

Today, Hugh Howey provided an update to yesterday’s data by looking at print sales and what impact giving up those sales might have on authors’ bottom lines. (Sorry, I have to link to the information on The Passive Voice because the firewall here won’t let me load Howey’s site directly. Can’t help wondering if my employer is in collusion with the Big 5, lol!)

Anyhow, when I looked at this data, it struck me that when the AAP says 70% of book sales are in print, they don’t mean actual unit sales; they mean gross revenue. You can see right away why that’s an important distinction. Because in general, prices for digital books tend to be lower than prices for print, even when it’s the same book. (Thank you, DOJ, for the abolition of agency pricing.) So when traditional publishers say 70% of the market is in print, they don’t really mean that 70% of books sold are still sold in print. That’s what it SOUNDS like they’re saying (it’s what *I* thought they were saying!), but it’s not.

I wondered, based on this light bulb going on, whether the estimates on print vs digital sales would change if I did the math based on gross revenue as opposed to unit sales. Of course, this has one inevitable problem, which is that I have to estimate the average sale price of both print and digital books to arrive at a conclusion. And I have to estimate those prices to take into account all the different print formats as well as the different pricing strategies of different publishers. I thought, however, that it was reasonable to assume the average sale price of a print book is $8 (taking into account retailer discounts) and the average sale price of a digital book is $4. It’s possible that my average for print is too low and my average for digital is too high, but from my look at the Top 50 on Amazon a week or so ago, I think it’s pretty close.

Ready for the math?

$70 in print = 8.75 copies sold
$30 in digital = 7.50 copies sold
$100 print + e = 16.25 copies sold

7.50/16.25 = 46.15% of all unit sales are digital

I did NOT expect that outcome. I swear, I didn’t choose my pricing estimates with a goal in mind. But there it is. It’s nearly exactly the same as when I estimated it based on 75% of the market belonging to traditionally published books and 25% belonging to mostly digital/self-publishers.

But what if the average price of print books is $9 and the average price of digital is $3.50?

$70 in print = 7.78 copies
$30 in digital = 8.57 copies
$100 print + e = 16.35 copies

8.57/16.35 = 52.42% of all unit sales are digital.

Again, all I can say is coffee=smelled.

Print vs Digital: Which Format Sells More Books?

One of the statistics that’s commonly batted around these days in publishing is that 70% of book sales in trade publishing are in print. This figure is commonly touted by the AAP (no, not the American Association of Pediatrics, but the American Association of Publishers). And I’d bet it’s pretty accurate. Yesterday, however, Hugh Howey posted some data on his website suggesting that the digital slice of the book sale pie is much, much larger than 30%. I’m also betting Hugh’s right. But how can they both be right?

The answer is really simple. “Trade publishing” is a term of art that means (quoted from the AAP’s website) “Trade Division publishers develop and produce the fiction and non-fiction enjoyed by the general public, in ink-to-paper, eBook and audio versions.” But in AAP’s parlance, it also means, “all trade publishers who are members of our organization.” From its membership list, however, you can see that a lot of digital first publishers don’t belong to the AAP. Samhain is a member, for example, but Entangled and Ellora’s Cave are not. This means that whatever data AAP is getting from its members, it excludes a lot of publishers, including many of the bigger digital-first/only presses and all self-publishers.

What this means is that you can’t extrapolate the composition of the entire market by looking at only one sliver of it (even if it’s a big sliver). The fact that 70% of trade published books are sold in print doesn’t tell us that 70% of all books published sell in print any more than the fact that 70% of all meals at fast food restaurants include french fries tells us that 70% of all meals served in all restaurants include french fries.

And that means both answers can be right. For trade published books, the percentage of books sold in print format may well be 70%. For digital-first and self-published books, however, the percentage sold in digital format is probably on the order of 95%. If you put those two numbers together, you’ve got to come out with more than 30% of all books being sold in digital format.

Because I like math (and if you’d asked me in high school if I’d ever say that, I would have said you were nuts!), let’s conservatively estimate the actual value. We’ll pretend, for the sake of argument, that 25% of all book sales are self-published and 75% come from publishers. Let’s further pretend (very conservatively) that the breakdown on the 75% of books from publishers is actually 70/30 (even though lots of digital first publishers aren’t included in those statistics). Ready?

25% x 95% = 22.50%
75% x 30% = 23.75%

By those numbers, conservatively, 46.25% of all books sold are now sold in digital format. I’d bet it’s more. But that’s a low, low estimate that accepts a lot of the figures from traditional publishers as gospel. This means we’re already effectively at parity (especially because some books are always going to skew toward print–who buys a coffee table book in digital format?).

Consider the coffee smelled.

How Much Does Amazon Make Per Kindle Book Sold?

Some comments on another blog got me wondering which digital books are more profitable for Amazon to sell–those from Big 5 traditional publishing houses or those put out by authors/publishers using KDP (Kindle Direct Publishing). At first blush, you’d think it would be the traditionally published books, since they generally sell at a higher price than self-published books, but I wasn’t sure that would hold up statistically. My analysis still doesn’t really answer the question, but it does provide some interesting data that I thought would be worth sharing.

So, what did I do? I looked at the Top 50 Kindle bestsellers and broke them down into four groups:

1) Those published by Amazon imprints (8/50 or 16%)
2) Those published by Big 5 publishers (25/50 or 50%)
3) Those published by self-publishers (16/50 or 32%)
4) Those published by independent presses like Harlequin (1/50)

The reason I had to break them into four groups is because the percentage Amazon pays to the publisher depends on which category the publisher falls into. For purposes of this analysis, I’m not interested in the books published by Amazon imprints or those published by the independent presses (because there was only 1 in the sample, I just can’t say anything interesting about that). That leaves us with books in categories 2 and 3, which also happen to make up 82% of the top 50 Kindle books sold.

For books in category 2 (the Big 5 publishers), since the DOJ settlement was inked, Amazon still pays the publisher 70% of the book’s list price for each sale, but is no longer required to sell the books at that list price. This means that Amazon can (and usually does) discount the digital list price. In most cases, Amazon doesn’t provide the digital list price on the pages for these books, only the print list price, and then shows the discount as a markdown against the print list price. In a lot of cases, that print list price is probably pretty close to the digital list price, but there are quite a few books in the top 50 that are currently out only in hardcover, which means the digital price Amazon is paying for the book is probably *not* the same as the hardcover price. Coming up with an average list price is the one place where I had to do a little fudging, because the data just isn’t there, but taking into account the mix of hardcover, trade, and mass market paperback books in the sample, I’m going to put that list price average at $8.50, which means Amazon is paying the publishers an average of $5.95 per ebook sold.

For books in category 3, the sale price split depends on the digital list price of the book. For books priced $2.98 and less, Amazon takes 65% of the sale price. For those priced at 2.99-9.99, Amazon gets only 30%. Because of this, I divided the self-published books in the top 50 into two groups based on which pricing category they fell into. Of the 16 books in the Top 50, 9 were priced under $2.99 (18% of the total) and 7 were priced above $2.99 (14%).

Okay, you ready for the data? I’m actually pretty shocked by the results.

Book Type Average Price Amazon’s Cut Per 100,000 Units
Big 5 Publisher $6.74 $0.79 $39,500
Self Pub < $2.99 $1.10 $0.72 $12,870
Self Pub > $2.99 $3.56 $1.07 $14,952

The primary thing about this outcome that surprised me is the fact that it appears that books in the 70/30 KDP program are actually more profitable to Amazon that either those published by Big 5 houses or those in the 35/65 KDP program. I would have thought it would be the other way around. (And in fact, a fair proportion of those 70/30 books are probably sold in territories where Amazon actually only pays the publisher 35%, further increasing its profits. Also, this profit table doesn’t take the Whispernet fee into account, which decreases the publisher’s 70% split by a few pennies and puts a few more in Amazon’s pocket.)

Of course, I’m only looking at the top 50 books in this analysis, so I can’t say for certain whether this math would hold true across Amazon’s entire catalog. In fact, it probably doesn’t. Because Amazon is often aggressively discounting Big 5 books that are selling well, the marginal profit at the top of the bestseller list is probably lower than it is further down the chain. But, the top of the bestseller list is where the majority of units are moving, too, so I actually doubt it’s all that that far off. It’s also possible that the average digital list price in this sample is actually lower than $8.50, so it’s possible that Amazon’s average profit is closer to $1.00 or more per copy sold. Unfortunately, that’s not a number I can get with any reliability so I have to go with my best guess.

The real reason I did this analysis, though, is because we often hear that Amazon isn’t making much money from self-published books and we should be worried that they’ll cut the percentage they pay KDP publishers to make up for that difference. This claim is based on the assumption that Amazon isn’t making as much profit from self-published books at the $2.99+ price point as it is on the traditionally published ones because the self-published books have a lower price point. But if my numbers are anywhere close to right (and I think they are), that assumption just doesn’t hold up. The per unit profit difference between traditionally and self published books is remarkably small, especially at the higher volume end of the business.

To me, that means self-published authors probably don’t have much to worry about in terms of Amazon changing its terms any time soon. It doesn’t look like we’re any worse for their bottom line than traditional publishers and we might even be a little bit better.