How Retail Prices are Determined
In any business, including self-publishing, the ultimate reason for an effective pricing system is to make a profit from your work. Since the amount of profit earned depends on manufacturing costs, selling price, and the number of books sold, you should consider the following when pricing your work:
- Are all manufacturing costs covered?
- How much profit do I want to make?
- What are my fans willing to pay?
- What is my competition charging for a similar product?
Determine a Product Price
You may have created the very best book on your chosen topic, but your sales will suffer if the wrong price is set. Therefore, you must first know your book’s manufacturing cost so that a break-even point can be established. Keep in mind that self-publishing manufacturing costs include both materials and labor.
The following examples will help you understand the considerations that go into determining a retail price based on manufacturing costs, overhead, and expected revenue. By making conscious decisions based on facts and market knowledge, you can determine a realistic price. If, after using the formulas below, you find that your selling price is noticeably higher than that of authors offering comparable works, you may want to look for ways to reduce your manufacturing costs or accept a lower royalty per book in exchange for potentially selling more units.
Please Note: Once an ISBN is assigned to your print project, it must adhere to the retail pricing model described below.
Revenue vs. Royalty vs. Profit
Before we start setting a price for your remarkable work, there are several terms you should be familiar with if your intention is to earn income from sales of your book.
- Revenue is a general term for any money Lulu pays you for book sales.
- Royalty is a specific type of revenue that comes from retail sales and is subject to United States of America income tax laws.
- Profit is the net income for your business after other expenses have been accounted for, including payment to authors, pre-production, labor, marketing, and overhead costs such as utilities and rent.
Wholesale and Retail Pricing Example
In the example below, assume you have determined a market exists for a book about The Essentials of Underwater Firefighting. The cost of printing each book (# of pages + binding + labor) is $5.50. You determine your minimum acceptable royalty per book is $4.00. The overhead cost, or Lulu commission, is $1.00 per book.
In this example, “Wholesale Price” refers to the minimum price at which you are willing to sell your book to retailers, who will in turn sell it to their customers for a profit.
|Manufacturing Cost + Royalty + Lulu Fee= Wholesale Price per Book|
|From our example: $5.50 + $4.00 + $1.00 = $10.50 per book|
Since manufacturing costs are somewhat out of the author’s control, this pricing example relies on your decisions about the minimum royalty you wish to make from each retail purchase of your book. An author should also consider that while you may be earning a smaller royalty per book when offering it at a wholesale price, you could eventually earn more income from higher book sales through retail channels.
Retail (or List) Price
The generally accepted retail pricing formula is: Wholesale Price x 2
From our example: $10.50 x 2 = $21.00
When you decide to offer your work to retailers at wholesale prices, it is with the understanding that the retailer expects to sell your work at a price sufficient to cover their costs and still make a profit – even if the retailer chooses to offer your work at a discount.
What is a Suggested Retail or List Price?
The wholesale price you set for your book is the price retailers pay to purchase your book for resell from their sites, stores, or shops. The suggested retail price includes a price mark up sufficient to cover the retailer’s labor, marketing, rent, utilities, and other fixed costs associated with owning and running a business. The retailer may choose to sell your work at the full retail price ($21.00 from our example above), they may offer a standard discount (such as free shipping), or they may run a special for a defined period of time (such as 25% off all books purchased that month). The selling price set by the retailer has no effect on royalties you earn from selling your book at the wholesale price – in other words, if your Retail Royalty is set at $4, you will make $4 for every book sold in retail channels, even if the retailer offers a discount.
How to use the Print Retail Price Calculator
Lulu provides a Print Retail Price Calculator as part of the publication wizard to assist authors in determining a fair retail price for their remarkable works. Since no single pricing formula works for all projects and no formula assures maximum creator revenue in all situations, every author must approach retail pricing individually.
It is probably easiest to set a preferred retail price and let Lulu calculate your maximum royalty based on the specifications for your book (page count, paper quality, binding, etc.). Using the $21.00 retail price from the above example and assuming a 100% mark up, the calculator automatically sets a wholesale price of $10.50.
The wholesale price minus production costs determines what is left over for your royalty and the Lulu commission. The Print Retail Price Calculator will maximize this for you. Using the calculator, you can
- Enter a Retail price and Lulu calculates your royalty and the Lulu commission
- Enter a Royalty amount and Lulu calculates the retail price and the Lulu commission.
- Enter $0 in the Royalty field to reset the price to the minimum manufacturing cost.
Why must my Lulu price match my retail price?
A single retail price is not only a good business practice, but it ensures that your retail partners are not selling your title at a disadvantage. This practice also complies with markets operating under a "fixed-price law".
Books with distribution therefore have one suggested list price for retail sales on Lulu, Amazon, iBookstore, Barnes & Noble, and other bookstores. The list price must be the same for all retail channels, but individual sellers, including you, can set their own discounts with the understanding that these discounts reduce the profit earned for each book sold.
Lulu Bookstore Price vs. Retail Price
In the above wholesale pricing example, you make $4.00 for every copy of The Essentials of Underwater Firefighting purchased by a retailer. But, how does revenue compare if you choose to sell your work through retailers and the Lulu Bookstore? Using the same pricing structure:
|Description||Lulu Price||Retail Price|
|Suggested Retail Price||$21.00||$21.00|
(# of Pages + Binding + Labor)
|$ 5.50||$ 5.50|
(Price – Cost – Markup)
(20% of Net Profit)
|Creator Revenue||$12.40||$ 4.00|
* The retail manufacturing cost is an estimate since some retailers, such as Amazon.com, own the presses on which your book will be printed and can therefore print and assemble books at a slightly lower manufacturing cost.