I have written quite a few posts recently on pricing your indie books, all of which are stepping stones on the path of me learning it while watching the turbulent changes in the publishing industry and going through bankruptcy and running out of my ghostwriting money and being a novice to indie publishing. The only experience I can rely on is running my startup for 5 years, and the basics that I learned from reading books and articles on how to stay profitable and how to acquire customers and how to do basic accounting and more of the same.

Ryan, this post is for you because in the comment on my last pricing post you asked me to expand on this. I'll dump here what I remember as some basic principles (and which I still use as guidelines) and you tell me if it was helpful, okay?

1. Your profitability lies in your margin.

The rule of thumb that I have adopted was this: have a 50% profit margin. What is a profit margin? It's your net profit divided by your sales. Basically, the amount of money you make on every dollar you spend. So if your profit is 20%, that means on every dollar you make 20 cents. 20 cents is your net income. The goal is to get to a profit margin that will allow for a heathy business growth. It's important to understand that more sales doesn't automatically mean higher profits. If you made $1000 in sales but only $100 in net income (after you deduct the cost on cover design and promotion and whatever), your profit margin is 10% ($100/$1000). Whereas when you made $500 in sales but $250 in net income, that's 50%. You have more wiggle room to grow. You have cash for a bigger better website, bigger better promotional materials, etc, etc.

How does this apply to books? Easy. A book is a product. You can look up typical profit margins on book or retail products and conduct your own little study.

To price your books you need to calculate how much it costs you to print one book and, working backwards, double that number to add 50% on top of the cost. (NOTE: you'll have to calculate the cost of your time if you can't afford a book cover designer and design your covers yourself.) I have read about this 50% markup formula somewhere, in some business book, can't remember where. Supposedly the 50% markup is an ideal number to help you grow as a business. At least it's what I remember. Here is a handy markup calculator for you to play with. Are you following the math so far? I hope you do. It's always twisting my brain to read about math. That's why I write books.

2. Put your price between the 50% markup and the median market price.

After you have calculated your price (double the amount of how much it costs you to print your book), see how that price compares to the median book price on the market. Say it costs you $5 to print a book. Say you priced it at $10. But say the same type of book is typically $8 at the bookstores. What do you do? Well, I can go here into a lot of business strategies like Blue Ocean and the like, but my knowledge is rusty. I haven't updated it in years, so I don't know how it stacks up against what is happening now. So I say, do why works for you.

All my books have 3 prices now. Well, no, 4.

Free ebooks on my site.
$3.99-$4.99 ebooks on Amazon, iBooks, B&N, etc.
$7.99-$8.99 CreateSpace paperbacks.
$9.99-$11.99 IngramSpark paperbacks.

I can't lower the IngramSpark prices due to their calculation methods. Their system won't let me. So I have each book with 2 ISBNs: the cheaper Amazon version and the more expensive bookstore/library version. Is this a smart idea? No clue. Time will tell. I'm experimenting with things, but since I lowered my prices, my book sales are up. A little bit, but up.

3. What would you pay for a book?

This is called "eating your own dog food" in startup speak. The idea is that you become a customer and see what experience you get as a customer buying and using your own product. If there is something you don't like, your customer won't like it either. Ideally you should be in love with your product and use it daily.

I apply the same principle to books. When I shop for books, what am I willing to pay? Well, I like free stuff. Everyone likes free stuff. If I can get something for free, I will. So I offer my ebooks for free and do paperback giveaways often. But if I really like something for free, next time I come across the same/similar product, I'll pay for it without thinking. For each product I have a box in my mind where throughout my life as a consumer I have built certain expectations. For example, 99 cents a pound for apples is cheap, $3 is pricy, $5 is expensive. Same goes for houses, cars, phones, socks, vodka, trained circus bears and so on. I'm perfectly willing to pay $8-$10 for a paperback (or up to $15 if I love the author) and about $15-20 for a hardcover book (I bought The Casual Vacancy for $35 without a blink). That's why I have lowered my prices. $15 was simply too much for a paperback for me for an unknown author, and to the majority of people I'm an unknown. In other words, I wouldn't buy my own book thinking it too expensive!

Do this exercise with your books. If you're shopping for books, how much are you willing to pay?

4. Price it according to quality.

If you're buying a pair of shoes from Payless for $15, you don't expect them to be made from genuine leather and last you 10 years. You know they'll fall apart in a couple months. That's another reason why I'm hesitant to price my paperbacks higher than $7.99-$8.99. The quality of the product itself is so-so. The text is not always printed accurately on the page, the paper quality often suffers, the color of the cover is often not correct, there are usually typos (despite 4 people poring over the text before it goes to print), and the quality of my writing is still puerile. I'm still learning. The price tag tells you where I fall in the range of cheap crappy shoes and Manolo Blahniks.

So make your own decision. How do you think your books stack up against what's out there on the market? Unfortunately most indie books lack the quality of large traditional publishing houses that have been printing books for decades. We simply can't compete. High quality printing would cost us too much.

5. What's it worth to you?

After considering all of the above, ask your gut. What's your book worth to you? Trust yourself. If $8.99 or $9.99 seems too cheap, then you will feel resentful when promoting it and people will feel it. If you think it should be $19.99, by all means sell it for $19.99! The beauty of self-publishing is, you can always change it, and pretty quickly, too, as opposed to traditionally published books. But when talking about your book you'll feel proud, and people will sense it, and that's what you want. In the end, if they really want your book, they will do an impulse buy and price will hardly matter.

I hope this helps you, Ryan. Go ahead and experiment. What have you got to lose? And if you learn anything interesting, share your findings here.