Working Out How Much Money You’ll Make

Though you may already have a price in mind to charge for your e-book — for example, $4.99 — this amount doesn’t guarantee a $4.99 profit from every sale, even if you’re selling your e-book only from your own website. Before you decide how much to charge, you have to know exactly how much of that $2.99, $4.99, or $9.99 will be paid to you.

Knowing how much per sale your retailer will keep

E-book retailers pay you royalties, or a percentage of the purchase price, for every copy of your e-book they sell. The percentage you get varies from store to store and, with Amazon in particular, also varies depending on the price of your e-book.

Amazon pays 35 percent royalties on e-books priced between $0.99 and $2.98 (inclusive) and $10 or higher. If you price your e-book between $2.99 and $9.99 (inclusive), you can receive 70 percent royalties instead — though, in this case, Amazon also charges for “delivery cost.”

On a $4.99 e-book with the 70 percent royalty option, Amazon pays the author $3.47 per copy sold. (It deducts 3 cents for delivery costs.) You can see the royalty breakdown when you create a record for your e-book on Amazon, as shown in Figure 11-1, so don’t worry about doing the math yourself. Chapter 13 describes the process of listing an e-book on Amazon.

Other electronic bookstores have their own royalty rates. If you choose to publish your e-book via Smashwords, you can expect to receive these amounts:

85 percent of the net sale proceeds (the sales price minus the transaction fee) for direct sales at the Smashwords site

70.5 percent of the net sale proceeds for affiliate sales via the Smashwords site

An affiliate promotes your e-book via a special link, making money whenever a copy is sold to someone who bought the book after clicking the link.

60 percent of the retail price for e-books sold via most retailers, including Apple, Barnes & Noble, and Diesel in the United States

60 percent of the retail price for books distributed via Kobo and priced between $0.99 and $12.99

(Other sales at Kobo are at 38 percent of the list price.)

If these percentages sound confusing, don’t worry: Like Amazon, Smashwords provides an explicit graphical breakdown, in the form of pie charts, when you enter a price. Figure 11-2 shows a pie chart for a $4.99 e-book sale directly from Smashwords, Figure 11-3 shows a pie chart for a sale via a Smashwords affiliate, and Figure 11-4 shows a chart for a sale via a third-party site.

Giving a portion to PayPal for payment processing

You might feel that Amazon and Smashwords are taking too large a portion of your e-book profits — but even if you sell your e-book via your own site, you incur costs. You have to pay for your shopping cart software. (E-junkie, recommended in Chapter 12, has a flat monthly fee of $5, regardless of how many e-books you sell.) If you use PayPal, the simplest and most popular option for payment processing, you also pay a fee for every e-book you sell.

The PayPal cut is 2.9 percent on every sale, plus a $0.30 transaction fee. For example, on a $5 e-book, PayPal gives you $4.56. If you have a large (more than $3,000) monthly sales volume, the percentage fee is slightly lower.

Paying taxes on your sales

The e-books you sell provide you with income — and it’s taxable. Maintain accounts of your e-book income for tax purposes, and pay taxes as customary in your home country. Consider the potential tax burden when you create your pricing strategy, and after your e-book starts selling, set aside a percentage of the profit to cover your tax debt.