Royalties: How Do Publishers Pay Authors?

Writers and authors hoping to make publishing a part of their life’s work must know about royalties and how they work. Yes, maybe you have a literary agent, or a spouse who is an accountant, but still, it's important to know what you're getting into. So I’m going to share a brief overview of royalties, what they are, and some of what you might expect to see in a variety of book deals today.

Let’s begin with the basics: What are royalties?

A publisher pays authors royalties in exchange for the rights to publish their work in book form. Royalty rates are percentages of book sales and they are entirely negotiable, though some publishers have standard royalty rates or standard royalty ranges that they try to stick to for the majority of their book deals. Complicating matters a bit, there are also several different types of royalty payments that an author might see in an offer, or a book contract.

An advance is an up-front payment made before any book sales occur, but in essence this payment is made in expectation of future royalties. If you’re looking for more detail about advances, average advance levels, and why publishers might pay a lot for one book and very little for another, check out this post about advances, which I’ll post in a few days.

Before I outline how royalties work and describe an example or two, I want to unpack a few different types of royalties and their ranges. Note that all of this information is generic in nature and I’m radically simplifying the details here for the sake of clarity.
 

TWO TYPES OF ROYALTIES

Most publishers in general categories, especially New York publishers, pay authors royalties as a percentage of the retail price of the book. Sometimes these are called “list royalties” or “retail royalties.” However, there are a number of publishers (and this is becoming more common) who pay authors “royalties on net sales,” which means that they pay authors their royalty percentage after the discounts the publishers give to retail stores are figured in. Side note: publishers sell books to bookstores for a range of discounts, sometimes up to half off the cover price or more.

More on this in a moment.

Royalties paid on the retail price are fairly simple to calculate, and unless, the retail price of the book changes (which does happen), retail royalties are locked in. Average retail royalties fall in the 10% - 15% range on Hardcover sales, and 5% - 7.5% on Trade Paperback sales, generally.

On the other hand, royalties paid on net sales, are a little more difficult to calculate, because publishers will pay a percentage “of the amount received” by the publisher after discounts have been figured into the equation. This is why the royalties paid on net sales often appear much higher than royalties paid on the retail price. Average royalties paid on net sales begin around 16% and can extend up to 26%, for both hardcover and trade paperback, depending on a whole variety of factors.

Let’s walk through a couple of simple examples:

 

ROYALTIES PAID ON RETAIL SALES

As I stated above, royalties are a percentage of book sales paid to the author. So, for example, let’s say a publisher sells 5,000 copies of your book at a $20 retail price for each book sold (I’m using round numbers here for simplicity).

Let us also say that you are being paid royalties based on the retail price of your $20 hardcover book. If your royalty is 10% of the retail price, then you will be paid $2.00 per book. If your book sells 5,000 copies, you would theoretically earn $10,000 from those sales. However, if the publisher paid you an advance of $20,000 up front when you signed the contract, you won’t see any royalties until the advance has fully earned back (which would happen once you’ve sold 10,000 copies of your book).

Tracking with me here?

 

ROYALTIES PAID ON NET SALES

In the same scenario, if you’re being paid royalties on net sales, the numbers can shift a little bit. In this scenario, I made sure the ultimate author payout winds up the same, even though this is rarely the case.

In the Net Sales scenario, let’s say your publisher sells 5,000 copies of your book at a $20 retail price, but they’re paying you royalties based on net sales, or the amount received after they give the stores a discount of 50% off the retail price. The store pays the publisher $10 for each book, then turns around and sells it for $20 (or frankly, whatever price they decide).

Let’s say your royalty is 20% of the net sales, on your $20 hardcover book. If your book sells 5,000 copies, you would still theoretically earn $10,000 from those sales, even though your royalties appear to be double the percentage. This is because your publisher is paying you on net sales after a 50% discount is calculated into the deal.

Make sense?

I used very simple round numbers in these two scenarios, so this evens it out making neither scenario look better than the other, and that was on purpose.

However, in the real world, I don’t have to tell you that royalty rates, discounts, and retail prices all vary widely from book to book—so it will never appear this simple. Not only do the retailer discounts change from publisher to publisher, every single store or chain of stores or online retailer will probably receive a different discount on your book depending on a number of factors.

Oh yes, and of course, the most maddening of all, the number of books you ultimately sell is a number that is impossible to predict and often frustrating for authors.

 

PROFIT SHARING

Some smaller or indie publishers are trying a number of other creative scenarios for paying their authors. One of those you might see is royalties paid on “net profits” or “profit sharing.” In essence, the publisher only pays the author royalties after all their costs have been covered. Then, once they’ve covered all costs, the publisher pays the author a royalty percentage on the profits. Often there is no advance when it comes to deals of this nature, however, the percentage paid to the author is much higher, usually landing somewhere in the 40% to 60% range.

 

I hope this was helpful.

I'll finish by saying once again, that none of this information is meant to be comprehensive or taken as advice for your book deal. I recommend that you consult a literary agent or legal counsel with publishing experience if you receive an offer to publish your book. All of this information is simply context related after years of doing book deals on both sides of the business.

Best of luck, and publish well!