Adventures in Pricing

When last we met, I had figured out how to use Twitter Ads to provide a steady stream of visitors to my book’s page on Amazon. To summarize the math: If I spend $10 and bid $0.10 per click, I’ll get 100 visitors to my page. If 5% of those people buy my book, that’s 5 sales. I make about $2 per sale in royalties, so that’s $10. So if I spend $10, I earn $10. Why do that? Because some portion of those people will go on to buy the sequel to my book, and those royalties won’t cost me anything to acquire. Also, I can actually bid $0.08 per click and still get impressions, so I do a tiny bit better than break even.

Now that I have a click engine that reliably delivers eyeballs to my page, the obvious next question was what price my book should be. Of course, that’s a question every author has, but I’m in a unique position where I can actually find out the answer.

If I raise my price, we would expect my conversion rate to go down. That is, fewer people will be willing to pay $3.99 than were willing to pay $2.99. But I’ll make more royalty at the higher price. So we can define an optimization metric: ( royalty x conversion rate ). The value at which that number is largest is the best price for my book. So what I’ve been doing for the past couple weeks is testing different prices in the US/Canada and UK markets, to figure out what’s optimal.

Higher prices = fewer sales

Higher prices = fewer sales

If you look at the circles, that’s the conversion rate at different prices. I’ve normalized everything to dollars (excluding any taxes). UK prices are a little lower, because when I made them tidy numbers with the VAT included, it just worked out that way. The green circles are the US conversion rate, and the blue circles are the UK conversion rate. Within the experimental noise, I’d say the circles are all lined up.

So that confirms the first hypothesis, which is that higher prices yield fewer sales. That’s common sense, but it’s good to test these things to be sure.

The crosses show the royalty I earned multiplied by the conversion rate. Our optimization metric. Now this is a little complicated, because there are Kindle Unlimited read-throughs mixed with outright book sales. And while I can change the book price, I don’t have any control over the page rate KU borrows pay. So what I actually did to get this metric is take the total royalties I earned (book sales plus KU), divided by the number of clicks that I bought with the Twitter Ads. (If KU wasn’t in there, that would give exactly the same number as the royalty on a single book times the conversion rate. If you don’t believe me, ask in the comments and I can do a mathematical proof. I double dog dare you.)

I should set my price to the place where the cross is the highest. And clearly, that is the lowest price. What this tells us is that the increase in royalties does not compensate for the loss of buyers at a higher price. Note that Amazon has been trying to tell authors this forever. They say very clearly on the KDP setup page that the biggest earnings will come if you set your price to $2.99. My experiment shows that their average for all books perfectly matches my experience with one book.

This raises an obvious question: should my sequel also be $2.99? Right now it’s $4.99. The customer acquisition process is completely different for the sequel. The only people who buy it are going to be people who read the first book and want to know what’s next. My gut says that these people are less price sensitive. On the other hand, now that I’ve fixed my first book price at $2.99, I’ve set a price expectation. A 66% increase in price on a book that, for all intents and purposes, looks exactly the same (same page count, similar cover, same author, same characters!)… yeah, that’s not right. So I’m going to loose some portion of those people, who probably would have paid $2.99 but will not pay $4.99.

I could run an experiment, but that’s a much tougher one to run, because the volume of people is so much smaller. It would take months to get numbers I could trust. Deep down, I know the answer. The sequel should be $2.99 also. It’s only a question of how long it takes me to bite the bullet and change it.

Advertisements

9 thoughts on “Adventures in Pricing

  1. Very thorough, as usual. I’m pricing my sequel at $2.99 as well, and that’s because I’ve learned before that it’s better to get thirty cents from a hundred people each than wait for a handful of them to buy the book at a regular price…when I did a (less scientific) comparison of $0.99 vs $2.99 for the first installment, $0.99 netted me more royalties. I would be interested in seeing the conversion rate if you ever decide on a $0.99 sale.

    • I did run a $0.99 sale and the numbers were pretty good. But there were too many other things going on (sequel launch, newsletter ad) that the data isn’t clean. I will do a test of that once my next experiment is done.

      • Unfortunately, shortly after this was published the CPC rates on Twitter went through the roof. I assume that was because election ad buys started to hit. So I had to suspend all my Twitter advertising at that point. My first novel is coming off KDP Select in a few days (see my recent post about why I’m quitting that), and I’ll be putting it onto B&N, Apple, etc. At that point, I’ll start Twitter ads back up, and do conversion testing with the store as the independent variable. Not sure when I’ll get back to looking at $0.99 sales, but my gut says there’s no way I’d make a decent return since being off KDP Select, I’m eating the bulk of that $0.99 discount myself.

      • Yes! I have been watching the Erotic Romance category for months and there has been only one Amazon-exclusive book there (and it was free and from a really well-known author). There definitely is a bias against Select at BookBub. I’ll get my first novel into the other stores and then take another run at BB.

    • Easy for you to say!! I see your prices are even lower. Ugh. People don’t think twice about spending $5 on a cup of coffee, but yet here we are racing to the bottom as we price our books. I hate it!!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s