Friday 10 January 2014

Amazon Top 100 Kindle Books - Indies versus Trads, Part 3 (Imputed Sales and Earnings)


This blog is a bit technical (there are many tables and lots of data to support the conclusions below), so I will reprint the “executive summary” here at the start.  People who like to see the underlying numbers and evidence should read the whole thing, though:

-          Indies have broken into the big time (i.e. 24% of the Top 100 Kindle list), but their share of total revenues (about 11%) is substantially less than their share of unit sales.

-          Having said that, Indie writers can take home as much as Trads, as long as the Trads’ royalty rates are near the industry standard 25%.

-          This is especially true for writers whose books will be selling in the lowest price range (under $4).  It looks as if a writer who sells in this range might well be better off going Indie.

-          In particular, the gap between average revenue per title between Trad and Indie is not that large in the Romance genre.  Given the better royalty rates that Indies receive (especially in the Romance genre), Indies who break into the top sales categories can easily make more money than Trads who do the same.

-          SciFi/Fantasy may not be too far behind Romance in that regard.

 And now for the main blog:
Recently, Amazon released lists of its 100 top selling titles for Kindle ebooks.  In some previous blogs, we looked at how Indies (self or independently published ebooks) compared to Trads (traditionally published or trade published ebooks) in terms of books sold (as measured by ranking within the top 100) and reader satisfaction (as measured by Amazon reviews).  In this third blog we will try to get an idea about revenues, making use of prices and sales levels (estimating those from number of reviews, assuming some constant fraction of readers review books).

( For more information on the detailed definitions of Indie and Trad, as well as the findings from that earlier analysis, see the previous blogs  Amazon Top 100 Kindle Books - Indies versus Trads, Part 1 and Amazon Top 100 Kindle Books - Indies versus Trads, Part 2.)

The analysis in this blog has a couple of additional complications, compared to the first two.  We want to estimate total revenue produced by each title, by multiplying the book’s listed price by its sales.  However, we don’t know the actual price of any particular sale (it could vary with limited time offers, for example), nor do we know the book’s sales.  To cope with the first problem, we will just have to assume that the prices listed for the books on the Top 100 Books on a particular date (we will call it our census date, which in this case is Dec 16, 2013) is representative of prices for the year.

To cope with the second problem, we have to estimate sales numbers via some other measure, since Amazon doesn’t actually list sales, just sales rank.  The measure to which we do have access is the number of reviews that a book received.  We will use that number to estimate sales, assuming that a fairly constant proportion of purchasers eventually review books.  Therefore, the estimated sales will be the number of reviews divided by the proportion that we use to estimate reviews per hundred sales.  For example, if a book had 500 reviews and we estimated that 1% of purchasers became reviewers, then the sales estimate would be 500/.01 = 50,000.

Well, that was an easy formula to come up with, but the hard part is estimating the appropriate factor for the proportion of purchasers who become reviewers.  The time honored way of doing this is to give a low, middle, and high estimate.  I propose to use:

·         0.50 percent as a lower bound estimate (in other words, about 5 of every thousand purchasers become reviewers).

·         1.00 percent as a mid-range estimate (10 of every thousand).

·         1.50 percent as an upper bound estimate (15 of every thousand).

So, what is my basis for these numbers?

·         Personal experience from Dodecahedron Books, where the proportion of reviews to sales seems to hang about the low percentage range.

·         I did an analysis of Joe Konrath’s sales figures (that he thoughtfully provided on his blog some weeks back) comparing those figures to the number of reviews posted on Amazon for those books this week.  It turns out that the reviews to sales percentage was about 0.3% on average for all titles, which evidently included a fairly large proportion of free downloads.  For the titles that sold at higher price points (calculated by taking dollars and dividing by sales), the reviews to sales proportion was more like about 1%.

·         On the various blogs that I have read, the figures of 0.5% (one in 200) to 1% (one in 100) seem to be pretty typical reports by self-publishers (for example, Kindleboards has had several threads on the subject, which tend towards the 1% figure for paid downloads).

·         Using the top selling book in the Top 100 Kindle books (Inferno), these proportions seem reasonable:

o   0.5% would yield about 2.4 million copies sold and about $15 million revenue.

o   1.0% yields about 1.2 million copies sold and about $7.5 million revenue.

o   1.5% yields about 800,000 sales and about $5 million revenue.

·         In social science jargon, these numbers have “face validity” – they seem about right (well, to me anyway).

·         Note that this is bound to be an oversimplification.  In fact, the proportion of reviews to purchases will likely differ by level of sales, genre, author gender or other factors, but this will serve as a first order approximation.

 

So, with that out of the way, we can proceed to the stats.  As we can see in the first set of tables, the overall amount of money that we impute was earned by the top 100 books is sensitive to the assumed Review to Purchase rate.  No surprise there - we baked that result into the cake when we set up our model.

Assuming  5 Reviews for every 1000 Purchases (0.5% Review to Purchase Rate)

Publisher1
Total
Total Sales $
Avg$/book
Pct of Books
Pct of Money
Traditional
76
171,921,248
2,262,122
76%
89%
Indie
24
21,688,450
903,685
24%
11%
Grand Total
100
193,609,698
1,936,097
100%
100%

 
 Assuming  10 Reviews for every 1000 Purchases (1.0% Review to Purchase Rate)

Publisher1
Total
Total Sales$
Avg$/book
Pct of Books
Pct of Money
Traditional
76
85,960,624
1,131,061
76%
89%
Indie
24
10,844,225
451,843
24%
11%
Grand Total
100
96,804,849
968,048
100%
100%

 
Assuming  15 Reviews for every 1000 Purchases (1.5% Review to Purchase Rate)

Publisher1
Total
Total Sales $
Avg$/book
Pct of Books
Pct of Money
Traditional
76
57,307,083
754,041
76%
89%
Indie
24
7,229,483
301,228
24%
11%
Grand Total
100
64,536,566
645,366
100%
100%

 
We can also see that, though Indies made up 24% of the books in the Top 100 list, they only accounted for about 11% of the money earned.  That’s caused by a combination of somewhat lower average sales (as imputed by reviews and confirmed by position within the rankings) and lower average prices.

However, Indies authors generally get 70% of the Amazon list price for royalties, while Trad authors usually get a much smaller cut of the money.   If we take the middle scenario (the 1% review to purchase rate), the top selling Indies would get 70% of the $452K average revenues per book, which would come to about $316K.  Assuming that the Trad got the industry standard 25% royalty rate, he or she would receive about $283K (25% of the $1.13 million earned by Trad books on average).  Naturally if the Trad could negotiate a better royalty rate, he or she would do correspondingly better.  The crossover point for the Trad is at about a 28% royalty rate.  Perhaps it is no accident that the standard royalty rate in ebooks for traditionally published writers is 25%.
In order to save on space, I will confine myself in the following analyses to the 1% reviewer to purchaser assumption.  The results of the other scenarios would just change by a scale factor, in the tables below.  The differences between Trads and Indies would remain the same, relatively speaking.
If we break out the data by the gender of the writer, we see that males tended to receive significantly  more revenue per title than females, on average, for both Trads and Indies.  Female writers as a group still earn somewhat more money overall, however.  The reason for this gender difference is probably at least partially the tendency of female authors to write in the Romance category, which tends to sell at lower price points than other genres (as we will see later in the genre analysis).
Traditional Publishing
Writer Sex
Total
Imputed $
Avg$/book
Pct of Books
Pct of Money
Female
51
46,063,108
903,198
67%
54%
Male
25
39,897,516
1,595,901
33%
46%
Grand Total
76
85,960,624
1,131,061
100%
100%
Indie Publishing
WriterSex
Total
Imputed $
Avg$/book
Pct of Books
Pct of Money
Female
19
6,310,679
332,141
79%
58%
Male
5
4,533,546
906,709
21%
42%
Grand Total
24
10,844,225
451,843
100%
100%
Looking at price ranges, I have categorized prices into three ranges: low (under $4.00), moderate ($4.00 to $7.99) and high (over $8.00).  We can see that Trads as a group earned the bulk of their money at the moderate and high price ranges.  Indies as a group earned the bulk of their money at the lower price range (note that there were no high priced Indies).   It is interesting, though, that at the lower price range, the average revenue earned by Trad and Indie books was not much different; in fact, Indies earned somewhat more on average in that price range.  Couple that with higher royalty rates, and it looks as if writers selling at lower price ranges do much better publishing as Indie than as Trad.
Traditional Publishing
Price2
Total
Imputed $
Avg$/book
Pct of Books
Pct of Money
1-Low
13
4,455,254
342,712
17%
5%
2-Mod
45
54,361,164
1,208,026
59%
63%
3-High
18
27,144,206
1,508,011
24%
32%
Grand Total
76
85,960,624
1,131,061
100%
100%
 Indie Publishing
Price2
Total
Imputed $
Avg$/book
Pct of Books
Pct of Money
1-Low
17
6,741,849
396,579
71%
62%
2-Mod
7
4,102,376
586,054
29%
38%
3-High
0
0
0
0%
0%
Grand Total
24
10,844,225
451,843
100%
100%
 Although there were precious few non-fiction books in the Kindle Top 100, it is interesting to note that the average revenue per title was about the same for fiction and non-fiction, within the Trad and Indie groups.
Traditional Publishing
Fict_or_NF
Total
Imputed $
Avg$/book
Pct of Books
Pct of Money
Fiction
73
82,544,176
1,130,742
96%
96%
Non-fiction
3
3,416,448
1,138,816
4%
4%
Grand Total
76
85,960,624
1,131,061
100%
100%
Indie Publishing
Fict_or_NF
Total
Imputed $
Avg$/book
Pct of Books
Pct of Money
Fiction
23
10,442,369
454,016
96%
96%
Non-fiction
1
401,856
401,856
4%
4%
Grand Total
24
10,844,225
451,843
100%
100%
 Finally, we will look at genre, which is always of great importance when  looking at Indie vs Trad publishing.  As we know from the previous blogs,  Indies are heavily weighted towards Romance, along with a smaller tendency towards SciFi/Fantasy.   The tables show that Trad books earn more than Indie books within all genres.  However, it should be noted that the amount of money going to the writer is greatly affected by royalty rates.  An Indie Romance writer might easily receive more money than a Trad Romance writer, if her (or his) royalty rate was 70% and the Trad’s royalty rate was less than about 37%.  For SciFi/Fantasy, the Indie will earn more as long as the Trad’s royalty rate is under 32%.   In neither of these cases is the agent’s cut considered, though that would likely be a consideration for a Trad writer.
Traditional Publishing
Genre2
Total
Imputed $
Avg$/book
Pct of Books
Pct of Money
Romance
29
19,078,429
657,877
38%
22%
Thriller
28
38,479,541
1,374,269
37%
45%
LitFic
11
14,800,663
1,345,515
14%
17%
SciFi/Fantasy
4
8,609,121
2,152,280
5%
10%
Other
4
4,992,870
1,248,218
5%
6%
Grand Total
76
85,960,624
1,131,061
100%
100%
 Indie Publishing
Genre2
Total
Imputed $
Avg$/book
Pct of Books
Pct of Money
Romance
18
6,173,265
342,959
75%
57%
Thriller
0
0
0
0%
0%
LitFic
0
0
0
0%
0%
SciFi/Fantasy
3
2,945,661
981,887
13%
27%
Other
3
1,725,299
575,100
13%
16%
Grand Total
24
10,844,225
451,843
100%
100%
 So, what’s the story when it comes to money, in the Amazon Top 100 Kindle ebooks list?
-          Indies have broken into the big time (i.e. 24% of the Top 100 Kindle list), but their share of total revenues (about 11%) is substantially less than their share of unit sales.
-          Having said that, Indie writers can take home as much as Trads, as long as the Trads’ royalty rates are near the industry standard 25%.
-          This is especially true for writers whose books will be selling in the lowest price range (under $4).  It looks as if a writer who sells in this range might well be better off going Indie.
-          In particular, the gap between average revenue per title between Trad and Indie is not that large in the Romance genre.  Given the better royalty rates that Indies receive (especially in the Romance genre), Indies who break into the top sales categories can easily make more money than Trads who do the same.
-          SciFi/Fantasy may not be too far behind Romance in that regard.
There are still a number of interesting things to explore in this data.  For example it would be useful to do some more research into how well the number of reviews corresponds to number of sales.  We could examine the sales ranking versus the review rankings to see how strong the correlation is, and whether it differs by such factors as genre, price range, etc.
In addition, it would be interesting to compare the Top 100 Amazon Kindle ebooks versus the Top 100 Amazon print books.  As time permits, we will look at these topics.

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