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Who Makes the Most Money, Indie Author or Traditional Author?

12 April 2011

Yesterday, I blogged about a Nathan Bransford comment on self-published authors vs. traditionally-published authors.  Here’s a summary of Nathan’s opinion in his own words:

The author backed by a publisher and with marketing and who has their book out there in large numbers is still going to have an advantage over an author who is unknown.

Nathan’s analysis of the advantage of a traditional author seemed grounded in how many books Big Publishing could sell. This is very reasonable, particularly if you’re looking at it from the standpoint of the publisher. If the Big Publishing way sells 100,000 books and the indie author sells 25,000 books, Big Publishing would seem to win.

Passive Guy decided to look at things from the author’s point of view. If you want to make a living as an author, ultimately, you care more about how much money ends up in your pocket than you do the absolute number of books you sell.

It’s no secret that royalty rates for indie ebooks are much higher than any author receives from Big Publishing. In the $2.99-9.99 price band, Amazon pays 70% of the sales price to the self-published ebook author.

So here’s the question a Big Publishing author faces – How many more books do I have to sell at traditional royalty rates to generate what I could earn if I took a ride on Route 70%?

I won’t argue that, for now, a traditionally-published book will probably sell more copies for a given author than the same book published indie style would sell.  But, given the hugely-richer royalties of indie world, how big a bump do I have to get from Big Publishing marketing and PR to make Route 15% or Route 7.5% pay off?

For the purpose of this exercise, I’m going to assume the publisher got the advance right and the author earns out the advance.

Scenario 1 is a trade paperback selling for $12.95 vs. a Kindle ebook. I’ve run numbers for three Kindle prices – 99 cents, $2.99 and $4.99. The first hurdle Big Publishing has to clear is persuading someone to pay more than double the price of the ebook, but we’ll assume that works. For now.

The assumptions I’m using for the trade paperback is that it carries a 7.5% royalty and requires an agent who receives 15%. (If you don’t like these assumptions, build your own spreadsheet and go crazy.)

Here are the royalties earned the traditional way on the $12.95 book:

[table id=4 /]

Now, we will add Kindle ebooks at 99 cents, $2.99 and $4.99:

[table id=5 /]

What do we see?

  • At 99 cents, the indie author needs to be able to sell about 2.5 times as many ebooks to beat trade paperback royalties.
  • If a price point of at least $2.99 can be maintained for the ebook, the paperback royalties never come close to paying more to the author than ebook royalties at the same unit sales volumes.
  • The author makes more than 250% of traditional royalties with a $2.99 book and about 420% of traditional royalties at $4.99.

In a nutshell, here is what a traditional publisher must represent to convince an author that he/she is better off going the traditional route:

  1. The publisher will be able to sell a printed book for more than four times the price of an ebook.
  2. The publisher will be able to sell 2.5 times as many printed books at list price (or a price high enough not to trigger reductions in royalties) as the author could sell for $2.99.

One more table – Scenario 2 – before we go. We will compare a hardcover book, which carries the richest standard royalty rate – 15% – priced at $19.95 against the ebooks.

[table id=6 /]

In this scenario, the royalties for the $19.95 hardcover match the $2.99 ebook almost exactly at equivalent unit volumes. You need to sell a boatload of 99 cent books to match hardcover royalty totals, but a $4.99 ebook still returns more to the author than the hardcover does.

To state the obvious, if low prices – $2.99 or more – help sell more ebooks than hard copy books, self-publishing will pay the author more, usually gobs more, than Big Publishing will.

Ebooks, Pricing, Self-Publishing ,