[DMcCunney]

Originally Posted by murraypaul

And you do not know what that proportion is until you know how many units you have actually sold.

Correct. And for paper books, the distribution system is convoluted enough that you may not know that until a year after publication

But for any product, when a producer is creating a budget, they have to factor in a best guess as to what they will sell. For books, publishers arrive at this figure by looking at previous sales of other books by that author, or sales of comparable books by other authors if they haven't published this author before. That "how many do we think we'll sell?" guess determines things like the amount of the advance offered to acquire the title in the first place.

There seems to be an all encompassing pessimism that no books will ever actually cover their costs. Only in the last sentence does 'expect to sell' become 'can sell'.

Nope.

The goal of any book is to "earn out" - to generate enough revenue to cover costs and the amount that was given as an advance to acquire the title. Once the book has earned out, the author will see additional royalties detailed in quarterly statements. Most books do not earn out, and the initial advance is all the author sees. And the agent wants to make as good a deal for the author as possible, so the agent's goal is likely to be to negotiate an advance high enough that the book won't earn out.

In any year, a publisher will publish a number of books. A few might go on to become best sellers. More will sell enough to justify publishing them, but will never reach any best seller lists. A lot won't even cover their costs, and will be net losses. The publisher is betting that enough will sell well enough to cover the losses on the ones that don't, and make enough money for the publisher to stay in business.

My point is that once you have covered your costs, it is always a good thing to sell more eBooks, it is not like a physical object where it there is a minimum price forced by the manufacturing process. I'm not saying you start at a low price, but that there is nothing preventing you from ending up at a low price.

Contracts may prevent you. The publisher's contract with the author will specify royalties per copy as a percentage of the sale price. They are generally written assuming a sale price for an edition (whether HC, TP, or MMPB) that doesn't change over time. If I'm a publisher and I want to implement something like what you suggest, I better have that possibility detailed in the contract when I acquire the book.

And my authors may not be enthusiastic. They expect me to try to sell their book, and might just view the fact that lower pricing is kicking in and they are seeing less money per sale as evidence that I wasn't really trying to sell the book in the first place.

There is also a vicious circle problem. If you only expect to sell 1000, and so charge $100, you probably will only sell 1000, because you are charging so much.

If I only expect to sell 1000, it's because I am creating a product for a limited market. I have a pretty good idea of what my market is going in, or I wouldn't be investing the time and money to make the product.

When establishing pricing, I know what I have to make to justify doing it at all. I'll establish a target price based on the number I'll expect to sell. When I look at the possibility of boosting sales by lowering prices, the question becomes how many I must sell at the lower price to make my required return. I may say "I expect to sell X copies at price A. To make my numbers, I have to sell Y copies at price B, and Z copies at price C." Whether I go with a lower price will depend upon whether I thank I can sell the additional copies needed at the lower price, balanced against the fact that if I don't, my losses increase, because I'm not making as much on the copies I do sell. I want to stay in business, so I'll be quite conservative in my estimates.

Once you've exhausted the market at $100, you can try selling some more at $75, then $50, and so on. This is exactly the model that pBooks use, with hardback, trade, mass market then sales.
Retailers know that demand is elastic, that is why they have sales, BOGOF programmes and so on.

See my earlier comments about elasticity and total demand for any product, and my comments above about contracts.

Hardback, trade, and mass market do differentiate on price, but I don't believe they work the way you seem to think. Each will have a separate budget. Hardcover and trade paper editions generally get released about the same time. Mass Market editions are delayed. Most books don't get hardcover or trade editions, and are only issued as mass market. "Sale" books aren't a factor.

A long time ago, I worked in retail, and I saw the model you propose for things like clothing. The store would buy clothing from manufacturers and put it out on sale. They would then monitor the progress. Clothing that did not sell at the original retail price would be marked down after 30 days, marked down again after 60 days, marked down a third time after 90 days, and finally go to clearance. They did that because they were stuck with what they ordered. They couldn't just return it for credit. It was on the buyers to make accurate guesses about what would sell.

Publishing doesn't work that way. In the US, publishing has historically operated on a 100% returns model. If a book doesn't sell, the retailer can return any unsold copies for credit. In practice, hardcovers are actually returned. Paperbacks have the covers stripped off, and the bodies of the books are trash (though all too often, they wind up getting sold on the gray market for a tiny fraction of the original price.)

Sales happen when publishers clear out unsold copies of hardcovers in the warehouse at a fraction of the cover price to make room for new stock. This usually happens when the mass market PB edition is released. The publisher decides the hardcover has sold as many copies as it's going to. Sometimes the timing is gotten wrong, and the remaindered hardcover winds up at the retailer competing with the just released mass market PB edition, at a lower price.

The fact that retailers can simply return unsold copies for credit accounts for the "reserve against returns" numbers in book budgets, and has been a source of agony for the industry for as long as I've been paying attention. We are finally seeing experiments where publishers are offering retailers higher discounts, in exchange for limits on the amount that can be returned and acceptance of risk by the retailer when ordering because they won't simply be able to return the books if they guess wrong on what they can sell.
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Dennis