Smashword analyzed over $12 million in sales for a collection of 120,000 ebooks from May 1, 2012 through March 31, 2013.  The study represents the most comprehensive analysis todate of how ebooks from self-published authors and small independent presses are behaving in the marketplace. You can find some of the key findings below:

KEY FINDINGS

1. Ebook Sales Conform to a Power Curve
Most books don’t sell well, but those that do sell well sell really well. This finding wasn’t a surprise. Just as in traditional publishing, very few books become bestsellers.

2. Longer Books Sell Better
For the second year running, we found definitive evidence that ebook readers – voting with their Dollars, Euros, Pounds, Krone, Krona and Koruna – overwhelmingly prefer longer books over shorter books.

3. Shorter Book Titles Have a Slight Sales Advantage
This year we asked our data if bestselling books had shorter or longer titles. We looked at character count, which indicated slight advantage for shorter titles, and then we looked at word count, where the advantage appeared to be more pronounced.

4. How Indie Authors are Pricing Their Books: $2.99 is the Most Common Price Point

The most popular price points are FREE through 2.99.

$.99 remains a popular price point.

$5.00 and up has lost favor with indie authors and publishers compared to the same data a year ago.

5. How Price Impacts Unit Sales Volume: Lower Priced Books (usually) Sell More Copies

As you might expect, we found there’s a definite relation between price and unit sales volume. Lower prices generally sell more copies than higher prices. But not always. Books priced between $1.00 and $1.99 significantly underperform books priced at $2.99 and $3.99. $1.99 appears to be a black hole.

What price moves the most units? The answer is FREE. Although not shown in the chart, my presentation includes an analysis I performed of our sales at the Apple iBookstore over the last 12 months. FREE books, on average, earned 92 times more downloads than books at any price. If you’ve written several books, consider pricing at least one of the books at free. If you write series, consider pricing the series starter at FREE. Nothing attracts reader interest like FREE. But remember, it’s one thing to get the reader to download your book. It’s an entirely different challenge to get them to read it, finish it and love it.

6. The Yield Graph: Is $3.99 the New $2.99?

It goes without saying that a $.99 book will usually sell more units than a $10+ book. But will the $.99 book make up in volume what the $10+ book earns in margin?

One surprising finding is that, on average, $3.99 books sold more units than $2.99 books, and more units than any other price except FREE. According to our Yield Graph, $3.99 earned authors total income that was 55% above the average compared to all price points.

The finding runs counter to the meme that ebook prices will only drop lower. I think it offers encouraging news for authors and publishers alike. It also tells me that some authors who are pricing between $.99 and $2.99 might actually be underpricing.

Other highlights from the Yield Graph: Books priced between $.99 and $1.99 continue to underperform when we look at the book’s total earnings. $1.99 performs especially poorly. It’s a black hole. I’d avoid that price point if you can. Price the book instead at $2.99 and you’ll probably earn more, AND sell more units if your book performs near the average.

7. Indie Ebook Authors Have a Competitive Advantage over Traditionally Published Authors

I predict that within three years, over 50% of the New York Times bestselling ebooks will be self-published ebooks. It’s possible I’m being too conservative.

Indie ebook authors can publish faster and less expensively, publish globally, enjoy greater creative freedom, earn higher royalties, and have greater flexibility and control. It’s not as difficult to successfully self-publish as some people think. The bestselling traditionally published authors already know how to write a super-awesome book. That’s the most difficult task of publishing because the best books market themselves on reader word-of-mouth.

I think the percentage who go indie will continue to increase. What do you think?

You can read the full report on Smashwords.