I recently did my first free book giveaway for a few books on amazon and was getting hundreds of downloads a day, my first reaction being holy crap ... my second being does anyone have any ideas how I can make more money by giving away books for free?
(besides the obvious advertising my other books at the end)
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I suspect advertising won't get much traction -- unless it's a product related to the subject of the book (I'm assuming nonfiction here).
Probably the best payoff from a freebie is getting the email from a downloader. That way you can form a relationship with the reader/customer over time. From the book perspective, you can send book announcements and special discount coupon codes. (I'm talking about outside amazon.com here).
Also you can drive traffic to your blog, which can in turn can lead to more ad possibilities and more things to sell.
I think the hardest thing for authors is author branding. A free ebook can help alleviate that issue -- especially if you can persuade them to sign up for an occasional newsletter.
The best way to get this strategy to work is to have more books available for readers to BUY. The idea is to give away a title to generate interest in you as a writer. Then if the readers who acquire the free book decide they like it or you, they can go and look for other titles you might have available, and they end up buying those titles. This is a strategy that I have used very successfully with one of the pen names that I write under. This is especially effective when you are writing books in a series and make the first one free.
A word of caution though is to NOT make ALL of your books free, even if you do them one at a time at different times. You would be surprised how many readers will see that second or third book go free and decide that they can just wait until you eventually make the others free. You don't want to condition people into believing that you will eventually give away everything if they are patient enough.
There is a third option, but it does depend on where you are or willing to publish/release your eBook.
Leanpub, Gumroad, and I believe a few others have a "pay what you want" capability. That is, you set a minimum price (as low as $0), and you (sometimes optionally) set a "suggested" price. Then, you unleash your book to the world, and people pay what they are able/willing to pay.
It sounds ludicrous to think that people would pay for something when they can get it for free, but it's surprisingly successful, with ebook averages upwards of $10-15, and roughly half pay some amount of money even for a free book. The really crazy part? It doesn't just apply to eBooks.
