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.