This is how I work. Please note that I actually run a micropress with recurring expenses, and therefore can’t wait around for a year for a product to make money. I use the three month turnaround time because that is essentially what I need to do in order to pay for the next project. This all assumes you are publishing to actually make money and not just as a hobby.
1. Calculate the actual expenses for the product (editing, art, ISBN, etc)
2. Add 15% margin to cover indirect costs associated with business (website, brand building, promotions, etc)
3. Look at the industry norms and determine which price point will recover my expenses in a three month period
4. Take into consideration how you intend to market the book
So let’s say you spent $500 in direct expenses (editing, proofreading, cover art, formatting, etc). If you add a 15% margin, your total expenses becomes $575.
The industry norms for genre work range from .99 to around $7.99. Assuming you are only selling through Amazon, that means at $2.99 or above you get 70%, below that you get 25%.
At $7.99, you need to sell 103 copies in three months to reclaim your expenses
At $6.99, you need to sell 118 copies
At $5.99, you need to sell 138 copies
At $4.99, you need to sell 165 copies
At $3.99, you need to sell 210 copies
At $2.99, you need to sell 274 copies
At 1.99, you need to sell 821 copies
At .99, you need to sell 1,643 copies
Now the next part is to determine how you intend to market. If your primary market is going to be spamming KB, for example, then that is going to force you to look at lower prices because the particular marketplace at KB leans towards the lower end of the spectrum. If your primary market is people accustomed to paying $40 for hardcovers who just now discovered digital books, you would swing toward the higher end of the spectrum because even at $7.99 you are still cheaper than mainstream authors with digital books priced at $10 or more. Or, if you already have a strong build in marketplace from some other endeavor; you might hit a price somewhere in between.
So you pick the price point that most closely matches the expectations of the group you intend to target that also recovers your expenses in a three month period.
If you are planning on releasing a second book in the next two or three months, you may consider using the first book as a loss leader (i.e. deliberately selling it at a lower price) in order to build a follow-up audience.
For example, let’s assume you would assume you can sell 300 copies in three months, so you would normally select the $2.99 price. But, you know you have a second book almost ready and will be releasing it in three months. You also figure that book should sell about 300 copies as well. (For a total of $1,256 over six months)
In order to build an audience, you decide to sell the first book at 99 cents. You sell the initial 300 you expected, but also pick up an additional 600 readers who are attracted to the 99 cent price. If half of those new readers buy your second book at $2.99, you increase you overall profits ($1,569 over six months) You take a loss on the first book in order to increase profits on the second.
BUT if it is going to be a year (or two) before the next book, then this idea could backfire because the chance of someone remembering you a year from now is slim to none.
Now some people will argue that three months is too short, and if you don’t have recurring expenses there may be a tendency to allow that period to stretch out. But keep something in mind, money tied up waiting for your book to sell is money NOT doing something else. The longer it takes you to recover your expenses, the less money you have to invest in other things. If you have $500 tied up in your book, that is $500 not sitting in a savings account drawing interest. That is $500 not going toward credit card debt. That is $500 not available for a family vacation or Christmas gifts. So you really need to consider what your actual tolerance threshold is for your money to be tied up with no return.
