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Saturday, February 13, 2010


Steve Cole reports:

As we start to move into eBook sales, we face the challenge of setting a fair price.

When comparing eBooks to printed books (at least in our industry) there are numerous factors.
1. The lack of dead trees makes production costs lower.
2. People expect to pay less for an eBook

There is, however, another factor that is far more important than the cost of paper, that being the cost of distributor/retailer markup, and you get into "Pricing Politics" which gamers don't grasp. It also gets complicated.

The general rule of thumb in setting hard-copy prices is a combination of two factors: comparison to comparable books and what they sell for, and a multiple of production costs. (It doesn't help to have the top ten companies printing 20,000 copies full color in hardback in China and selling them for less than I can sell a black-and-white book printed 1,000 at a time in the US.) I have heard manufacturers talk about using multiples between five and ten, but not everyone agrees on what you are multiplying. There is the cost of writing, the cost of editing, the cost of printing, the cost of the building and its utilities, and the cost of shipping, plus other costs like marketing, shrinkage, and customer support. What we do is figure the cost of printing and paper (we print our own books), multiply by a secret number, then compare that to other books. If the other books are lower, we might not be able to afford to print this, but we sometimes adjust down to that price and take a lower profit. This might be because the product needs to be part of the line, or because the produce involves zero design work and hence doesn't have as much overhead. If comparable books sell for a higher price, we might go partly up toward that price, since we need the profit to cover the ones that we don't make as much on.

A $25 RPG book sold in a store may net the manufacturer $2-$7 based on various factors (and your definition of net). The manufacture gets $10 from the wholesaler, and has to pay the production cost, editing cost, writing cost, royalties, art cost, shipping, and everything else out of that. In most cases, the actual cost of printing and paper, not including art, authors, editors, and royalties is about $2.50-$4.50, depending on a lot of factors.

That same $25 book sold on a website generates $15+ more profit as we're not giving a discount to the wholesaler. (We manufacturers have to sell on the shopping cart for the same MSRP or the stores get upset, which is Pricing Politics Part 1, known in the real business world as Channel Manners.) Just a side note, ADB, Inc. makes about half of our gross dollar sales and maybe 80+% of our profit on shopping cart sales. We'd be out of business without the shopping cart profit. We cannot blow off the store market, however, as that is the primary source of NEW customers. Some have said we should blow off the stores and sell $25 books on the website for $12, but the total sales profit would not keep the doors open.

An eBook isn't sold in stores, but through e23 or someplace like that. I don't have to "pay" Alliance $15 to get my $25 eBook into Joe Gamer's hands. So even selling it at $15 or so through e23 nets more profit from the not-markup than from the savings on dead tree costs. If I were going to make the same profit on an eBook that I make on a book sold to Alliance, the price of that $25 RPG book in a store would be about $6.

Pricing Politics Part 2 comes into play. Setting the eBook price becomes a matter of getting the most out of it that the market will allow. (This is not because I like rolling around in money but because I have to eat and buy gasoline and pay health insurance; if I were still paying a mortgage I think I'd have to go get a job at McDonald's to break even.) The higher profit of eBook and Shopping Cart sales subsidizes the store sales because my printing plant cannot touch Steve Jackson's printer in China, but I don't sell 20,000 copies of a new RPG book so the cheaper per-each price from China is a meaningless footnote.) It also becomes Pricing Politics Part 3, setting the eBook price very low (say $6 or $7) would "devalue the brand" and become such a bargain that hard-copy sales would be driven out of business (and I'd be driven out of business along with it).