Monday, 27 January 2014

Permafree Diary: Day 5

Today is the 5th day of our permafree experiment. We have now gone free worldwide on Amazon thanks to KDP's support team.

As at 96 hours, our total freeload count was 2005, which was just enough to edge us into the top 20 in the UK store.

Our US count is a mere 5 so far (after approx 2 hours free).

As a quick reminder, here are our test parameters:

• No active advertising at this stage; we will promote once our 'anniversary edition' revisions are done, proofed and uploaded.

• No announcement beyond this blog (which is writer oriented; we get a few readers, but the readers that visit tend to already have our books as they find us via the backmatter link).

Our "opportunity cost" on this is roughly 2 or 3 lost sales per day at the recent 'no ad' baseline. We've seen Dead on Demand stay at about that sales rate whether it's at $4.99 or 99c (see earlier blog posts for our 99c experiment stats). After 'zon cut, that's roughly a $225 a month loss in paid sales at the higher rate (or $7 or so per day as a guesstimate average).

So far, we've had 2000 downloads against that in four full days, or about 500 a day. That gives an "opportunity" cost of about 1.4c per copy.

Cleaver Square, the second in series, is selling at roughly a dozen a day. That's at 99c, which generates 35c in royalties (this will be increased, but for now we'll give you the 'as it is' stats).

What we need to see is additional sales of book two that justify giving away book one. 1.4c cost versus 35c potential gain means we need one in twenty five freeloaders to buy Cleaver Square simply to tread water.

That's a 4% conversion rate. If 4% of DoD freeloads buy CS, we make exactly the same as we did before.

Except for the fact that some of our original paid readers would have bought Cleaver Square. We haven't had both out for long enough to give an accurate 'sell through' rate, but we'd guesstimate that it's about a third. So our 2-3 a day paid sales would have generated 20-30 CS sales per month, generating 35c. That adds $7-$10.50 in added opportunity cost per month (i.e. the class of sales where we still have it, but would have made the sale without a free intro).

That takes our opportunity cost of $235 per month in lost revenue from going permafree. Of course, this is based on our 99c discount rate. If we were to adjust Cleaver Square to a more reasonable $4.99, then our lost opportunity cost would move to more like $335/ month, but the sell-through required would drop (as we'd be generating 10x greater income per copy sold at $4.99 than at 99c - which would make the required sell through 0.6% - roughly what we've seen so far).

Right now, we're getting roughly 3 paid sales back per day (but note, we can't definitively say whether this is based on freeloads, or simply gaining momentum). That's 3 more than our 'last week, same day of the week' stats.

In short, a 0.6% sell through gaining approximately $1.05 back on our $8.75 a day cost of being permafree. Prima facie, a loss. But we're way too early in the game to call it. Those instant sell through sales are going to be from added visibility, and from readers who like to buy all an authors books when they find one they want. Most of our freeloaders won't have read DoD yet - we think we'll have a more accurate picture around the 2 month mark.

So what we do we expect to happen?

• Our download rate will level off, probably at a much lower level than where it is now (as we won't stay top 100 forever)

• Our US permafree will pick up a bit which will countermand the expected slow-down in the UK.

• When we're in genre only lists, readers will be pre-selected as they'll actively be seeking out a crime novel, and thus we should see a better sell through rate.

• The sell through will improve over time as readers get through very long 'to read' lists filled with freebies

• Dead on Demand's review average will drop - the net is too wide when you're in the top 100 list. We may also see troll reviews appear. These could affect our sale rate if we ever return to paid, but are unlikely to impact greatly on freeloads.

• Cleaver Square should gain momentum at the cost of Dead on Demand (and it will need to in order to justify the permafree).

Of course, we are going to do one more proof on DoD as explained in earlier blog posts. It's been through 2 editorial rounds already, but with an increased number of readers looking at the book we're likely to find those lingering errors that slipped through anyway.

We're hoping we'll see some secondary effects from this, most notably an increase in our mailing list. This wide net approach should gain us long term fans - so while we may not make much now, we'll be well placed to capitalise on a growing fan base for books 3, 4, 5, and beyond.

These numbers are very early so our projections could well be miles out. We could see an upswing in conversion rates from reads (and we hope we do). We might see a loss of visibility when we're not top 100. We may have wildly differing sell-throughs once Cleaver Square is more sensibly priced.

But for now, it's all about building a readership. A long term approach should pay off in the end - once we have a longer series, the % conversion bar will move ever lower as each reader will result in a higher number of average paid sales (so a Free + 99c 'set' of DCI Morton sales now is worth a lot less than a free, a 99c and two $4.99s later). Once readers find authors they like, they stick with them so our 2->3 conversion is likely to be significantly better than our 1->2 conversion rate.

Of course, we should note that all of the above ignores 'sunk' costs of production - editing, art, etc. This is often four figures, and at 35c per reader in maximum royalties (based on one free and one 99c sale), it'll take 5000+ sales to get out of the red. At 10,000 sales (at 99c), that's roughly £2000. After costs, that's roughly 10% of minimum wage (and the tax burden is more complicated than minimum wage work). If we compare that earning potential to "other work we have done in the past", then we'd be aiming for six figure download counts (a feat achieved by 150 authors last year on the paid side).

I'm including this data because I don't want anyone to rush into any strategy - eBooks are not a gold rush. Making a reasonable living means either multiple books (which is likely to mean 5-7 based on the dataset we outlined above) or a break out. Hoping for the latter is not a reasonable business plan. We want to put out affordable, interesting fiction that has been professionally produced - and permafree is a long term plan. It works better for authors with big back catalogues, and a strong social media presence.

As a reader, I love this current climate. My kindle is stuffed full of great books which have cost me a tiny fraction of what I used to spend on paperbacks. As an author, I have to admit to a level of concern about sustainability. We all like freebies, but someone has to pay the costs. A book can take anything from a few weeks to a decade to produce. Taking that much work, adding editing and other costs in, it doesn't take a genius to see a mismatch between pricing and costs. Hopefully we can generate enough downloads so that the volume of sales justifies the freeloads (which at the 'unadvertised' 500/ day rate could well number 150,000 by the end of the year - a 0.6% conversion as seen above would be 900 sales, generating 35c per sale for a grand total of $315, or about £200.

To put that into an even more interesting light, that's £200 for roughly 150,900 total downloads - or a thirteenth of a (British) penny per copy on average. Viva la goldrush :)

Long term options:
1. Go cheap as long as humanly possible.
2. Adjust book two (and any new books) to suit the required sell through and monitor revenue closely
3. Return all books to paid (at a mid-market price)

For now, #1 means the biggest opportunity to build a fan base. We're an interesting test-bed; we have never sought a traditional publishing deal, and we have been thrown in head first by our 90 days challenge. Some have said that the 90 days thing was a mistake, that 'first attempts' should never see the light of day - but we think it's an interesting experiment to see exactly where the baseline is. You guys get to see everything - the raw early tries, and how our writing develops over the next few books. And we're not charging - so if you don't like it, just delete it. Once we have done a few touch ups, a new version of DoD will be out but anyone who wants the ugly first try in the uncut state can simply email us for a copy in their choice of format.

At some point, we'll move to option #2 - we can't absorb production costs forever, and it'd be unrealistic to sink thousands into something that has no prospect of a return. But we'll keep our prices as low as possible - by controlling the whole end-to-end of the publishing process, we can keep our costs down to a bare minimum. No publishing house could turn a profit on giving away a 2 book catalogue for 99c. It's going to be fun seeing if we can - because if it is possible, then old school publishers are going face a very tough future.

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