How is a list price set for a book?

I was recently asked the question, "How do you set a list price for a book?"

Sometimes our authors want their books to sell at a certain price, mostly because they want to make the book affordable for readers. And that's definitely an important goal to keep in mind.

But a list price isn't something you can just pull out of thin air. There's actually a formula you need to keep in mind to make sure you can financially justify the price that's set. That's why it's typically the publisher setting the list price rather than the author. The publisher has key information about production costs that need to be factored into the final price.

Understand the Market

At Emerald Lake Books, we start by looking at the prices of other books in the genre. From a reader standpoint, if two books on the same topic or of similar interest are both of good quality with positive reviews, the price may be a determining factor in their purchasing decision. So you don't want a list price that's too much of an outlier compared to other books on the shelf with yours.

Different genres have different "norms" for anticipated list prices as well. If you're setting the list price yourself, you should be able to figure out the norms based on your research of competing titles. If not, use Google or another search engine to look for something along the lines of "average list price for books" or "average list price for paperback books," etc. based on the specific information you're looking for.

While this will help identify a range of potential price points, eventually, we need to decide where your book falls within that range.

Often, that's based more on the author's platform and perceived sales potential of the book. If the author is a first-time author or has a small following, the list price may be in the lower half of the range to entice potential readers to take a chance on it. A-listers or well-known authors can anticipate more sales simply because of their name recognition, so it's easier to justify a higher price point for their books.

Run the Numbers

Once we've identified a range of prices we think might work for each format of the book, the next thing to do is "run the numbers." As with any business, we want to make a reasonable profit on a sale, and we certainly don't want to lose money on the sale of a book.

So, we have to identify the production and delivery costs of a book and factor that into its list price. These costs differ based on format, obviously, which is why there's such a difference in pricing between eBooks and printed books.

Pricing eBooks

For the most part, the pricing of eBooks has to do with the genre. But we also need to consider the delivery costs of the eBook and that’s based on its file size.

The formula to calculate the list price for eBooks is:

(Royalty rate x list price) – delivery costs = royalty

For Amazon, the delivery fee is calculated by multiplying the file size by 0.15 (Amazon charges $0.15/MB at the 70% royalty rate).

Therefore, to set the eBook price, we calculate the delivery charge and adjust the list price until you reach your desired royalty rate.

Let’s say we want to receive a royalty payment of $2.00 on an eBook that's 9MB. We can easily calculate the delivery charge (9 * 0.15) to see that Amazon will charge $1.35 to deliver the book.

Now our formula looks like this:

(0.70*x) – 1.35 = 2.00
Add 1.35 to both sides.
0.7x = 3.35
Divide both sides by 0.7.
x = 4.79

Therefore:

(70% * 4.79) – 1.35 = 2.003

Once we've identified what we think the list price should be, we go back and compare it to the range of prices for competing titles and adjust as necessary. Does it fit? Does it make sense? Does this author have a large enough platform that we can justify being in the top end of the range?

Pricing Printed Books

While you don't have delivery charges for printed books, you do have printing (and possibly shipping) costs that are incurred to produce the book. And this is where authors can get into trouble if they’re hoping to distribute their book beyond just Amazon.

If a book is sold directly to a library or retailer, their anticipated wholesale discount is 40% off the list price. However, if a book is sold to a retailer through a distributor, the distributor receives anywhere from 5–15% of the list price (on top of the retailer discount). So, books can conceivably be sold wholesale to retailers via a distributor for up to 55% off list price.

Therefore, your royalties might be calculated on only the remaining 45% of the list price. But, wait! We haven’t accounted for printing and shipping!

It is essential when setting the list price to make sure that all printing and shipping costs (commonly referred to as just "print costs" or the "price per book") can be covered and still have something left over. I’ve seen some authors price their books in such a way that they are actually losing money if a retailer wants to sell their book. And that’s no way to stay in business long.

Amazon, like other retailers, gets 40% off the list price. The publisher’s royalty is calculated on 60% of the list price, less the printing costs.

So, the formula to calculate the list price for printed books is:

(Royalty rate x list price) – print costs = royalty

To settle on the list price then, we need to estimate our print costs (most printers have calculators where we can check that quickly).

We've a simple spreadsheet that shows us the royalties of a book whose total print cost is x and list price is y. All we need to do is plug in those two numbers, and we can see immediately what the royalty will be when the book is sold at both 55% and 40% off the list price.

We continue to play with the numbers until we know we'll earn at least $2.50 (preferably $3.00) when a book is sold at a 55% discount. We focus on that specific number knowing that if we can make that work, then books sold at a 40% discount will simply produce a larger profit for us.

Setting the list price for a book is all a numbers game. Know your numbers and adjust them until comfortable.