Some comments on another blog got me wondering which digital books are more profitable for Amazon to sell–those from Big 5 traditional publishing houses or those put out by authors/publishers using KDP (Kindle Direct Publishing). At first blush, you’d think it would be the traditionally published books, since they generally sell at a higher price than self-published books, but I wasn’t sure that would hold up statistically. My analysis still doesn’t really answer the question, but it does provide some interesting data that I thought would be worth sharing.
So, what did I do? I looked at the Top 50 Kindle bestsellers and broke them down into four groups:
1) Those published by Amazon imprints (8/50 or 16%)
2) Those published by Big 5 publishers (25/50 or 50%)
3) Those published by self-publishers (16/50 or 32%)
4) Those published by independent presses like Harlequin (1/50)
The reason I had to break them into four groups is because the percentage Amazon pays to the publisher depends on which category the publisher falls into. For purposes of this analysis, I’m not interested in the books published by Amazon imprints or those published by the independent presses (because there was only 1 in the sample, I just can’t say anything interesting about that). That leaves us with books in categories 2 and 3, which also happen to make up 82% of the top 50 Kindle books sold.
For books in category 2 (the Big 5 publishers), since the DOJ settlement was inked, Amazon still pays the publisher 70% of the book’s list price for each sale, but is no longer required to sell the books at that list price. This means that Amazon can (and usually does) discount the digital list price. In most cases, Amazon doesn’t provide the digital list price on the pages for these books, only the print list price, and then shows the discount as a markdown against the print list price. In a lot of cases, that print list price is probably pretty close to the digital list price, but there are quite a few books in the top 50 that are currently out only in hardcover, which means the digital price Amazon is paying for the book is probably *not* the same as the hardcover price. Coming up with an average list price is the one place where I had to do a little fudging, because the data just isn’t there, but taking into account the mix of hardcover, trade, and mass market paperback books in the sample, I’m going to put that list price average at $8.50, which means Amazon is paying the publishers an average of $5.95 per ebook sold.
For books in category 3, the sale price split depends on the digital list price of the book. For books priced $2.98 and less, Amazon takes 65% of the sale price. For those priced at 2.99-9.99, Amazon gets only 30%. Because of this, I divided the self-published books in the top 50 into two groups based on which pricing category they fell into. Of the 16 books in the Top 50, 9 were priced under $2.99 (18% of the total) and 7 were priced above $2.99 (14%).
Okay, you ready for the data? I’m actually pretty shocked by the results.
| Book Type | Average Price | Amazon’s Cut | Per 100,000 Units |
|---|---|---|---|
| Big 5 Publisher | $6.74 | $0.79 | $39,500 |
| Self Pub < $2.99 | $1.10 | $0.72 | $12,870 |
| Self Pub > $2.99 | $3.56 | $1.07 | $14,952 |
The primary thing about this outcome that surprised me is the fact that it appears that books in the 70/30 KDP program are actually more profitable to Amazon that either those published by Big 5 houses or those in the 35/65 KDP program. I would have thought it would be the other way around. (And in fact, a fair proportion of those 70/30 books are probably sold in territories where Amazon actually only pays the publisher 35%, further increasing its profits. Also, this profit table doesn’t take the Whispernet fee into account, which decreases the publisher’s 70% split by a few pennies and puts a few more in Amazon’s pocket.)
Of course, I’m only looking at the top 50 books in this analysis, so I can’t say for certain whether this math would hold true across Amazon’s entire catalog. In fact, it probably doesn’t. Because Amazon is often aggressively discounting Big 5 books that are selling well, the marginal profit at the top of the bestseller list is probably lower than it is further down the chain. But, the top of the bestseller list is where the majority of units are moving, too, so I actually doubt it’s all that that far off. It’s also possible that the average digital list price in this sample is actually lower than $8.50, so it’s possible that Amazon’s average profit is closer to $1.00 or more per copy sold. Unfortunately, that’s not a number I can get with any reliability so I have to go with my best guess.
The real reason I did this analysis, though, is because we often hear that Amazon isn’t making much money from self-published books and we should be worried that they’ll cut the percentage they pay KDP publishers to make up for that difference. This claim is based on the assumption that Amazon isn’t making as much profit from self-published books at the $2.99+ price point as it is on the traditionally published ones because the self-published books have a lower price point. But if my numbers are anywhere close to right (and I think they are), that assumption just doesn’t hold up. The per unit profit difference between traditionally and self published books is remarkably small, especially at the higher volume end of the business.
To me, that means self-published authors probably don’t have much to worry about in terms of Amazon changing its terms any time soon. It doesn’t look like we’re any worse for their bottom line than traditional publishers and we might even be a little bit better.
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