Catalina State Park and water in the creek
If you have a publisher, they not only take a percentage of the book's sale but will decide on the pricing as that's part of the deal you entered into. If you are on your own, you have to look at what's out there, decide what you feel is fair and expect you won't please everyone by what you decided no matter what it is.
So here's what I have observed in my two years of doing this. When I gave away my books, I had thousands taken of each one. That's a lot of books. I also had some tell me in forums that they wouldn't buy one, although it sounded interesting, because it'd be free eventually. How many reviews did I get for all those books going onto devices? Maybe a couple in GoodReads which were all negative and one or two in Amazon. How many even read the books they took? Hard to say. How many books did I sell due to the free reads? Maybe twenty in the month following a giveaway. That doesn't take a mathematical genius to see that the Select, mass give aways were not a good deal for the writers, but even worse-- they set up expectations that free was what every book should be. Not bad if you didn't want to do this for a profession-- otherwise a disaster.
If I eliminate free, what about charging 99¢ or $1.99? Here's what Amazon does at those prices, they take 70% and you get 30%. At $2.99, writer gets 70% Amazon 30% (well except in some countries where unless you belong to select, you are back to 30%). Clearly really cheap isn't a good deal for the writer. There is another problem with it. People tend to think it's garbage if it's priced too low. Most of the books below $2.99 do not have a Table of Contents-- and if you've been reading eBooks, you know the TOC is a huge advantage in navigating the book. A lot of them at $2.99 also have no TOC but your odds are better at getting one.
When I did my first novella last December, second one coming February 1st, I had another problem with pricing. If I charged less than $2.99, it would hardly be worth putting it out. IF I had it at the same price as my full sized novels, which run 83,000-110,000 words, and it's only 27,000, how fair does that seem to the buyers? That's when I opted to create that level for novellas, which means the new one also when it is out. The next level up was all my contemporaries at $3.99.
I had another problem in August when I decided to dip my toe in the water with publishing the Arizona historicals. These are longer books also, usually above 120,000 words which according to the publishing houses puts them in the epic level-- although I wouldn't call mine epics because they don't encompass several generations and generally take place within a matter of months. What would be fair to the other books and the readers? I put them at $4.99 but ask myself all the time if this is a good idea.
One other thing where it comes to pricing. I hate sales. I hate them in buying clothing, groceries, appliances, anything. The only sale that I like would be end of season when it makes sense. Otherwise sales to me seem unfair to the person who had to buy something the week ahead or just before they would get the lower price if they took the drive back (which in my case means 25 or more miles-- hardly going to pay off).
Where it comes to the eBooks, I put one on sale when someone else just bought it at full price (I've been the one buying such a book) and I have to feel it was unfair to the first purchaser. They are big on urging sales as a way to promote your books but they simply seem wrong to me. But I could move my historicals back down to $3.99. Except... what about those who bought them at the higher price?
Pricing is one of those things I really hate about the whole business... and it is a business; so it has to be considered. According to the experts who write books helping you get your books seen, the sweet spot for sales is from $2.99-3.99 with the necessity of it being below $5 if it's from an indie writer. How do they figure this stuff out?
From the time I opted not to submit my books to publishing houses and put them out myself, it's been a continual learning process. It has its pluses (more control) and minuses (more problems). I have no regrets. I like the opportunity I have been given.