My last post on ranking garnered a great comment that deserves an answer long enough to be its own post:

I have a number of favorite authors who offer all of their books through Kindle Unlimited. How does writer compensation work with K.U. does the availability of work to loyal readers pay off? I loathe loss leader marketing schemes that offer the introductory books for free the following books for a more or less fair market price, with the final book at a ballooned pricing to make up for the free first book. When I find these schemes I put it in the review of the first book. Do you believe that loss leader marketing works for most readers or authors?

Great questions, Scott.

So KU has an interesting compensation model.

On a straight-up sale of one of my books at $4.99, I get a 70% royalty — about $3.40 (there’s a few cents Amazon charges on top for a “delivery” charge – basically for storage and bandwidth).

For KU, it’s a per-page payment, based on the pages read. A “page” is determined by how the book would render on a predetermined Kindle device. Queen’s Pardon, for instance, is considered to be 682 standard Kindle “pages”, no matter how you display it on your personal device. In general, we get about half a cent per page, so Queen’s Pardon gets me, roughly, $3 for a KU read. Very close to the full sale royalty, and an amount I’m happy with.

There’s a bit of an unknown each month, though, because KU is a sort of a split-the-pot game. The actual amount per page varies month-to-month, but stays around $0.0044 and $0.0051 per page. Even that little tiny change can make some big swings in total royalties for an author with hundreds of thousands or even over a million page reads a month. Queen’s Pardon,for instance, got just over a million page reads in its release month.

What Amazon does is setup a “pool” of money each month and then splits that pool by the total page reads for all authors to determine that month’s rate. They don’t actually say so, but I think it’s sort of a percentage of all the KU subscription dollars for a month, less their cut, then sometimes they add to it to keep the page rate up and keep author’s, if not happy, then satisfied.

Not a lot of any transparency on how that pool’s really determined though.

The thing about KU is that it makes it really easy for readers to try new authors with little or no risk. That’s what I like about it. I’ve found a number of great authors for my own reading through it, and I know it contributes to people being able to access my own work.

It’s the same with my use of a loss leader on Into the Dark by making it free. It lowers the barrier to entry for a new series considerably.

Both KU and the first book being free also increase visibility, because even if someone’s just collecting free books and never reads Into the Dark, I get the “sales” ranking boost as soon as they click the download button. That gets me more visibility to other potential readers.

With regard to pricing on later books, I don’t think authors make the latest book a higher price to make up for the free one, but I do think there’s a tendency, led by publishers, that the newest book is more expensive. It’s sort of an early adopter thing — those who don’t want to wait will generally be willing to pay more.

Now, I’m of two minds on this, and I had to give it some thought to clarify even that.

Yeah, I’m all for more money, and the latest, greatest thing generally costs more, but these are books, not iPhones or even first-run movies. There’s a certain author-reader thing that makes that unpalatable to me. The readers who preorder my next release, who start reading at midnight on release day, who’ve made the last four years, honestly, the best of my life — I can’t see gouging them for a few extra dollars for the latest because they love Alexis’ story that much.

On the other hand, I can see publishers doing this sort of thing because they really don’t care about anything but the money. As evidenced by the outrageous ebook prices on traditionally published books. Personally, I won’t pay more than $9.99 for an ebook and use eReaderIQ to track and notify me when those drop to my price point.

For my own work, I think $4.99’s a fair price for both me and the reader, even for a new release. In fact, being self-published means that I see more from that $4.99 than a traditionally published author sees from a $9.99 ebook sale. To me, that’s a win-win for both author and reader.

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