What Happens When Ebook Customers Choose Their Own Price?

One of the pricing options authors and publishers can select at Smashwords is "Reader Sets the Price." The reader pays on the honor system. They can take the book for free, or they can select a price of $.99 or higher.

It's a chance for authors to eliminate price as a barrier in their never-ending campaign to reach readers.

We've offered this pricing option since we launched Smashwords two years ago (Hey, today's our two year birthday!). Internally, we always thought of it as Radiohead pricing, since our inspiration for this model was the band Radiohead who bravely offered their album "In Rainbows" under this pricing model in late 2007.

At the time, Radiohead had recently unshackled their careers from the control of their record company, and the pricing scheme probably amounted to an equal mix of experimentation, pre-album publicity stunt to drive paid concert attendance and physical CD and vinyl sales, a gift to their fans, and also a big F* You to the record companies.

Radiohead never revealed hard data on the percentage of people who paid or the average price paid, though the album did go on to top the charts in the U.K., U.S. and elsewhere.

As I mentioned yesterday in my post about the most popular ebook formats, earlier this week we did some number crunching to expose some of the data Radiohead never shared.

We looked at a small sample of 353 recent "purchases" under this pricing option at Smashwords. Of the 353 purchases, 299 customers selected to take the book for free and 54 paid money.

Next, we looked at the breakdown of the voluntary payments. The payments ranged from the lowest minimum of $.99 to a high of $12.42. The average price paid was $3.20, and the median price (for you statistic geeks out there) was $3.20. As you can see from the chart, the distribution of payment amounts was fairly even.

Interestingly, when we compute the average yield per book "purchased," including the zero dollar purchases, it averages out to $.49 per customer.

Not captured in this data is any other ancillary benefit received by the author/publisher. Possible author benefits might include:

• customer goodwill
• purchases of print versions
• free author and book publicity from satisfied readers on blogs and social networks
• increased fan base to which to market other titles by the same author/publisher
  

I neither encourage or discourage our authors to use the Radiohead model. As I'll discuss this weekend in my Ebook Revolution session with Dan Poynter at The San Francisco Writer's Conference, there's no one-size-fits-all pricing strategy for ebooks. Your choice of pricing really depends on your objective as an author, and also your subject matter. Are you looking to maximize readership or revenues, or do you want to do both?

High prices tend to discourage readership by reducing affordability. Lower prices expand the available market. Free eliminates price as a barrier. And the Radiohead model offers a middle ground by trusting the customer to decide.

The other bit of research I'll share at the conference is a small study where we sought to discover the magic price at which an author might expect to maximize earnings. Is the price $1.00 or $25.00, or somewhere in between? Or might there be multiple magic price points? This will be the topic of my next post.

And as a final note on our two-year birthday, I want to extend my sincere thanks to Smashwords authors, publishers, readers and everyone else in this wonderful business of publishing who honor us every day with their trust and support.