Book Royalties and How to Understand Them

Book Royalties – When 10% Is More Than 25%

Deborah Greenspan

There’s so much to learn when you first set out to get published, it’s hard to think of everything. What’s an ISBN? Why do I need a Library of Congress number?  Is a big publisher better or worse than a smaller one? Should I get Ingram distribution?  Which method of figuring book royalties is best for the writer? Personally, I think that writers should understand book royalties, so when they compare publishers, they can make informed decisions. Many writers realize that books published through the on demand system are fighting huge odds to get noticed.  But in case you surmount those odds, where does it leave you?  Do you understand book royalties as figured by your book publisher?  Are they to your advantage or disadvantage?

It’s not hard to comprehend book royalties: They can be based upon the list price of the book, or they can be based on net price, and which one is used can make a significant difference in the amount of money paid out.  Some publishers try to make the book royalties look more substantial than they are, so they use a net royalty. A 25% royalty sounds like more than 10%, but if it’s 25% of “actual payments received,” that may not be the case. “Actual payments received” or “publisher’s net receipts” or “net margin” or “net price” is list price minus the cost of printing, discounts to distributors like Ingram or Amazon, and other expenses, and 25% of that number is almost always less that 10% of the list price.

For example, let’s say the list price on your Breezeway Books POD book is $16. They pay a 10% royalty based on list price. This would be $1.60. That may not sound like much, but let’s look at how it works out when we compare it to a 25% royalty based on net price. This sounds like it means more money for the writer, but it doesn’t.  The “actual receipts” from a sale made through a bookseller traditionally reflects a trade discount of 55%. So right off the top, the price drops $8.80. That leaves the pub­lisher with $7.20 for this $16 book. The cost of printing a $16 POD book is about $3.90, so the publisher has $3.30 in hand on your $16 book. A 25% royalty on that $3.30 is $.82. Compare that to 10% of list at $1.60. It’s a big difference that you won’t see unless you understand book royalties.

What if the discount is not 55%? Publishers can set a 40% discount on books sold online and lower the cost of the book, making it more competitive. So with a 40% discount, that $16 book can sell for a more attractive $12.  When we take out the 40% discount and the print cost ($3.90), we have $3.30 left.  A 25% royalty figured on net price would still be $.82, while a 10% royalty figured on list price would be $1.20.

How about when the sale is a direct sale from the publisher to the consumer? A publisher offering a royalty that is 30% of list price will pay you $3.60 on each $12 book sold, but the publisher offering 40% of actual receipts on direct sales will pay less. On a $12 book, for example, actual receipts for a direct sale is generally $12 minus the cost of printing, returns, sometimes shipping, and other expenses. But let’s just take out the print cost because we don’t know what these other costs amount to. This leaves the publisher with $12 – $3.90 = $8.10.  40% of $8.10 is $3.24.  Though the author gets 40%, it’s not 40% of list; it’s 40% of what’s left over after the publisher takes out his expenses and it’s less than 30% of list price.  You don’t need to do higher math to understand book royalties and see that once again, book royalties based on list price are better for the writer than royalties based on net price.

If you understand book royalties and how they’re figured, and if you analyze these numbers, you will find that a percentage of list price is usually more than a larger percentage of some unknown “net” number that indicates what’s left over after all the expenses have been taken out. And for those who want to understand book royalties and how they’re paid, it’s certainly the most straightforward method – you’ll always know how much is owed on every book sold.

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