One of the most important things that will determine your success as a KDP Seller is your pricing strategy. But how can you set a reasonable price without being aware of your costs?
Although Amazon KDP offers the opportunity to start a business without any upfront costs for storage, materials, and printing, there are still a number of costs associated with selling on the platform.
Gaining awareness of these costs will ultimately determine your return on investment.
Amazon KDP Costs – Broken Down
There are several costs that you must consider when it comes to selling self-published books on Amazon KDP. Not all are applicable to every Seller (like editing and design costs), but there are some that you should consider unavoidable (like delivery costs and book tax).
Let’s discuss that in detail.
Costs Related To Improving The Quality Of Your Book
The first type of Amazon KDP costs we’ll look at are the ones that are not mandatory, but rather recommended for all Self-Publishing authors. These are the costs that you can sell books without but play a vital role in improving the quality of your book. The higher the quality, the better chances you have of generating more sales. These costs include things like book editing and proofreading, cover designs and images, and book formatting.
If you’re selling low- or no-content books on Amazon KDP, chances are that costs like proofreading and editing won’t be a must. Considering that these books usually have little to no content at all, it should be fairly easy to run a quick edit by using tools like Grammarly.
In addition, relying on software solutions like Book Bolt can also eliminate the need to pay for professional cover designs thanks to the Designer tool. It allows you to create high-quality, attractive book covers by relying on pre-made and easy to use design elements. With a complete and reliable tool by your side, you can scratch out these costs entirely.
However, you won’t be able to avoid the following Amazon KDP costs.
If you’re planning to sell paperback books, you’ll need to be aware of Amazon KDP’s printing costs. The printing cost depends on a range of factors, including the countries in which you will sell the book, how many pages the book has, whether it’s printed in black and white or color, and the type of ink used. This cost is taken away from your royalty, so you won’t really need to pay anything extra out of pocket. However, you’ll receive a smaller profit from your sale. To calculate printing costs, you can use Amazon’s printing cost and royalties calculator.
Let’s imagine you wanted to sell a paperback book with a premium color interior on white paper. The book is 104 pages long and will be sold in the US. Your asking price is $14.30. According to the calculator, printing costs will be $8.13 and your estimated royalty comes at $0.45. This means that you won’t really make profit, owing to the substantial printing costs.
But what will happen if we reduce the page numbers to 55 and increase the price to $20? You can expect printing costs to drop to $4.70 while your royalties will grow to $7.30. As a Seller, the latter is likely to make more sense.
Although Amazon KDP’s biggest advantage is that there are no upfront costs, this is not entirely true. Sellers are still charged for costs like delivery and printing, however they’re subtracted from the book price after purchase. In other words, they are taken away from the royalties that you will receive in the end.
Sellers can get an idea of delivery costs by multiplying the book’s file size by the delivery fee. However, the number you get won’t be an exact match to the actual cost. It’s best to upload your book file to the pricing page provided by Amazon KDP and get an answer from the tool.
Marketing costs are also something that theoretically could be avoided. However, with zero marketing, your success as a Seller is extremely limited. Why? Because the competition is harsh and it certainly uses marketing tactics to make products more visible and attractive to buyers.
Your marketing efforts will depend on your ultimate goal and the speed at which you want to grow your sales. Marketing costs could vary from $10 a month to $10,000+ a month. Some of the tools you could employ include email marketing, sponsored ads on social media and Amazon, paying promotional websites to present your products, and others.
Make sure to set a realistic marketing budget that won’t affect your profit in the end. In most standard businesses, marketing costs are around 10% of the revenue.
Are Sellers obligated to pay tax on their book sales? Absolutely.
All publishers on Amazon are required to comply with tax regulations in their country.
This is why, as a Seller, you’ll be asked to provide valid taxpayer information and go through a tax interview. The amount of tax you’ll have to pay varies depending on whether you are a US or Non-US publisher and it’s reduced from your royalty. If you are a US publisher on Amazon KDP, no tax will be withheld on royalty payments as long as your present legitimate tax information during your tax interview. However, Non-US publishers are subject to 30% withholding on royalty payments of sales in US stores.
Finally, you need to be aware of the fact that Amazon takes a commission for every sale that you make on the platform. The commission amount is dependent on the royalty rate that you’ve selected.
Why Do These Costs Exist In The First Place?
The Amazon KDP costs are created mainly to maintain a balanced environment, where Sellers abide by best practices. When we think of the reason for Sellers’ costs, it’s key to look at the topic from three different perspectives – the government, the Seller, and the platform. Taxes apply to certain Sellers as a requirement related to IRS regulations. It’s vital that Sellers are well-informed about their tax duties in order to avoid legal conflicts and detrimental consequences for their Amazon business.
The bottom line is that most costs on Amazon KDP are designed to ensure Sellers follow certain requirements and are encouraged to abide by certain practices.
How To Calculate Your Costs As A Seller
So, let’s say you’re now ready to start selling your books on Amazon KDP and you need to set a reasonable price to be competitive, yet profitable. You’ll need to calculate all of your costs as a Seller to get an idea of your minimum book price. For the sake of this example, we’ll imagine that you’ve done your book quality check solo and haven’t relied on experts for designs, editing, and formatting. We’ll also leave out marketing costs. Your only costs are for delivery, printing, and book tax. Here’s how to calculate them:
Delivery – Say you’re selling a low-content book and your file is only 1.103 MB big. Multiply this by $0.15 and you’ll get a delivery cost of $0.16.
Printing – Let’s stick to the example from above, where your book is 55 pages and you price it at $20. By using the calculator, we see that printing costs will be $4.70.
Tax – For the sake of this example, we’ll assume that you’re a US Seller selling in the USA, therefore no tax is deducted from your royalties.
If you’re selling a print book (paperback or hardcover), the available royalty rates are 60% and 40% for Expanded Distribution. The calculations that you’ll need to do are:
For sales through standard distribution channels: (60% Royalty Rate x List Price) – Printing Costs = Royalty
For sales through Expanded Distribution channels: (40% Royalty Rate x List Price) – Printing Costs = Royalty
In our case, let’s say we’re in the standard 60% royalty rate model:
(60% x $20) – $4.70 = a royalty of $7.30
What About The Return On Investment?
Although calculating your ROI could get pretty complex when it comes to determining the total return on investment on a business, there’s also a simple way around it. In a nutshell, ROI is money spent minus money earned. In the case of Amazon KDP, you’ll need to take the full financial investment you’ve spent on your book and divide it by your royalties. The result will tell you how many books you need to sell in order to recover your investment.
If we take the example from above, we’ll need to take our costs of $0.16 and $4.70 and add them to get $4.86. We’ll then need to divide the costs by the money we’ve earned or our royalties of $13.88 from the first scenario. This gives us a result of 0.35. In other words, you’ll need to sell 35 books in order to recover your initial investment.
Amazon KDP costs will be different for every Seller as they are widely dependent on numerous factors. However, no matter how beginner or advanced you are or how many books you are currently selling on the platform, it’s vital to be constantly aware of your costs and royalties in order to set the right prices for your products and as a result, remain profitable at all times.