Let’s talk about book royalties.
Despite the regnal-sounding name, book royalties have absolutely nothing to do with kings, queens, or the aristocracy.
You can think of royalties as the lifeblood of the publisher-author relationship. It’s there to nourish both parties, helping them to thrive and enabling them to create and distribute even more books to readers all over the world.
Without royalties, most writers would have little incentive to write, while publishers would have nothing to publish in turn. The publishing industry as we know it would cease to exist.
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Why should you learn about book royalties
We know that all of this talk about money, contracts, and royalties can seem scary and overwhelming.
Lots of questions might be popping into your head right now. Like… Why are book royalties important? How exactly do they work? Are they necessary for your writing career? How much can you expect to earn if you do opt to earn from them? And how can you maximize the earnings that you’ll get from royalties?
These are all valid questions that all writers, regardless of experience, should be asking.
Why are book royalties called… royalties
Before we get into the meat of the matter, let’s answer this question first:
Why are author payments called “book royalties” when they seem to have no connection to actual royalty whatsoever?
Though we might have mentioned earlier that the modern meaning of the term has nothing to do with the aristocracy there is, in fact, a small connection that dates back to medieval Britain.
Book royalties – some brief notes on etymology
There used to be a time when mines containing “royal” metals like silver and gold were exclusively owned by Britain’s ruling monarch. Anyone who wished to extract these minerals from the mines needed to ask permission from the reigning king or queen first.
The crown would then receive a portion of the profits generated by the mining operations. This payment was known as a “royalty” because it was derived from the extraction of “royal” metals.
Fast forward to the present day, and the concept of paying “royalties” has carried over into the creative industries, particularly in publishing.
Instead of monarchs, authors have become the new rights holders, with their books and creative outputs taking the place of mines, and publishers acting as the ones who extract value and pay royalties in return.
How a writer gets paid in royalties
We’ve already previously discussed the various ways in which authors get paid for their work and how much they usually make per book sold in this blog.
But for the purposes of this article, let’s do a quick review of how writers usually make money through a publishing contract.
Receiving a flat fee payment
Receiving a flat fee payment is exactly just that. You sign over your rights to your book through a publishing contract. Then you receive some agreed-upon amount of money upfront. It’s a simple and straightforward process. The amount doesn’t change no matter how many copies of your book the publisher sells.
If you agreed to $5,000 as a flat fee in your contract, then that’s the amount that you will receive, no more, no less. Regardless of whether you sell five copies or five million copies of your book, $5,000 is all that you will get.
Royalties, as we’ve mentioned previously, are payments made by a publisher to an author in exchange for rights to their work. The more books that are sold in any given period, the higher the royalty that the author can receive.
Your standard book contract royalty rates are mostly determined by the final retail price of your book. In traditional publishing, these rates can be influenced by a number of things including:
- Your literary agent’s expertise and skill in negotiating
- How marketable your publisher deems your book to be
- Your book’s genre
- Your book’s format (e.g. hardcover, paperback, audiobook, e-book)
Publishers can take anywhere from 5 to 25% percent of a book’s net sales price, but due to the factors we have listed above, the rates can vary from author to author, contract to contract, and even from book to book.
Receiving an advance against royalties (aka “book advance”)
Lots of traditional publishers offer this kind of payment scheme to their authors, especially for authors who have already produced bestsellers for them before.
This is how an advance against royalties usually works: A publisher provides an “advance” on the author’s contract, based on their projected sales performance for the book (usually a first year’s sales figures). If the book sells well, then the author will receive additional royalties on top of the initial advance.
It’s probably the most desirable kind of author payment method combined. When popular authors talk about getting a million dollar deal for their book, this is the kind of deal that they’re talking about. You essentially get the benefit of a flat fee payment with the flexibility that is offered by royalties.
How book advances work
So, let’s imagine that you’re a hotshot author who has another possible bestseller on your hands.
You think the book is going to fly off the shelves. Best of all, your publisher agrees that it does have a lot of potential.
So off your agent goes to draw up a contract with the publisher. Upon signing, you’ll receive an advance of $50,000 for the first 20,000 copies of your book. Any additional copies sold beyond that will earn you a royalty of $4 per book.
It’s a sweet deal for authors because you won’t have to wait around for your book to sell just to earn. You can receive money right off the bat.
The downside is that if you want to earn more, you do have to wait until you have “earned” the advance first.
Let’s say for example that you received an advance of $5,000 on a book project. You receive book royalties at $1 per book. At this rate, you’d need to sell 5,000 copies first before you start earning regular royalties again.
Why are book royalties so important?
Book royalties, in a nutshell, refer to the payments received by authors from publishers for the use of their work. They’re one of the major ways for authors to earn money from their books.
Aside from giving authors a chance to make money off of their books, royalties are important because:
- Royalties ensure that your favorite authors produce a steady stream of creative output that you can enjoy. What better way to motivate an author to write than by showing them that their work is being appreciated by people and can also earn them an income at the same time? It’s basic human nature, after all. When we’re rewarded for something that we do, we keep on doing that thing.
- Book royalties help protect an author’s intellectual property rights. Contracts involving royalties usually have clauses that provide compensation if there is unauthorized use of an author’s work. These contracts also cover everything that can be derived from the work like movie rights and foreign market sales.
- For publishers, the more opportunities they have to earn through author royalties, the better. Book royalties also serve as an incentive for them to invest in promising new authors and their work.
- Aside from the publisher and the author, there are other people who are deeply involved in producing a book and getting them to readers like typesetters, agents, editors, distributors, and more. Book royalties are a way to ensure that all of these parties get their fair share of the pie.
How are typical book royalties calculated – a few examples
Calculating book royalties is a straightforward process for the most part.
Here’s a brief overview of how typical book royalty payments work:
1st step: Someone buys a book, and you earn a percentage of its final sales price.
2nd step: Your publisher then deducts fees from the proceeds you’ll receive from the sale.
3rd step: Your distributor (if you have one) also deducts their own fees.
4th step: You’ll finally earn the amount that’s left after the publisher, distributor, booksellers, and other involved parties have deducted their fees.
Of course, calculations can differ depending on your book’s specifics (e.g. format, genre, length, etcetera), as well as the terms that were stated on your contract. Whether you choose to go through a distributor or publish directly through a bookselling site, the royalty percentage and involved fees can vastly vary.
Here are a few examples of how royalties can be calculated depending on where or how you sell your book:
For an ebook published through Amazon’s Kindle Direct Publishing
Amazon’s KDP is one of the world’s largest and most popular self-publishing services, with over a million books from self-published authors published each year.
The platform typically pays out 70% of a book’s sales price as royalties to the author.
However, KDP charges a “delivery” fee for every book sold through the platform.
Yes, we know that you’re curious on how exactly a delivery fee is supposed to work on a purely digital platform, but the reality here is that there really is a cost involved in getting your book from Amazon’s servers to a reader’s device.
So Amazon KDP’s delivery fee is dependent on how large your book is, based on its digital size (in megabytes).
For the United States, Canada, and Australia, the rate is $0.15 per MB in their respective currencies. In the United Kingdom, the delivery fee rate is £0.10 per MB.
The formula here then is:
(Royalty rate * Final sales price) - delivery fee
Below is a computation for an ebook that is 1 MB in size, priced at $5.99, and with a book royalty rate of 70%:
($5.99 * 0.70) - ($0.15 * 1) = $4.04
So, you’ll get $4.04 for every book sold through Amazon’s KDP.
For an ebook published through other platforms like Google Play Books and Barnes & Noble Press
These platforms have a pretty straightforward royalty process. They just pay out a percentage of a book’s final sales price as royalty.
The formula is simply:
(Royalty rate * Final sales price)
For a book that is sold at $5.99, you’ll get $4.19 (provided that your royalty rate is pegged at 70%).
For ebooks sold direct-to-reader
Some writers opt to cut out the middleman or distributor entirely, and just sell their books directly to their readers. This is done usually through an online sales page on the author’s website or through social media.
Though it can potentially make you more money, the calculations for the deductions can be quite complicated.
Here’s how it usually goes.
1st step: You start with a retail price for your book. For this example, let’s say that you’ve decided that your book should be priced at $15.
2nd step: Next, you’d have to deduct fees related to order processing, like credit card payment fees, delivery fees, etcetera.
3rd step: To get your total profit, subtract the costs that you have incurred during the printing of your book.
4th step: Whatever’s left is your profit (i.e. your book “royalties”).
Amazon has a handy printing cost and royalty calculator that you can use to estimate your earnings based on book type, page count, list price, and marketplace.
Standard book contract royalties in traditional publishing and self-publishing
Authors who are traditionally published typically have rates anywhere between 5% to 30%. For example, the standard book royalty rate for a paperback is 7.5%.
If it seems low, you must remember that the publisher also has to cover production and distribution costs. Unless it’s a certified bestseller, the profit margin is notoriously small for traditional publishing houses – like 10% – and that’s on a good year.
In self-publishing, you typically don’t have book royalties in the strictest sense of the term. Authors have full control of the production and distribution process, and as such, can dictate what their desired prices and profit margins will be.
Essentially, you’ll be able to earn the full profit (minus deductions for editing, cover design, marketing, typesetting, etc.) from each book sale.
“Royalties” only come into play in self-publishing when you sell your books on a marketplace or distribution channel like Amazon Kindle’s Direct Publishing (KDP), Barnes & Noble Press, and IngramSpark Publishing. These outlets charge distribution fees, though compared to print, their fees are still much lower than traditional publishing fees.
To illustrate, Amazon KDP has a royalty rate of 60% for a standard paperback, while Barnes & Noble has a rate of 55%. That is way, way higher than the 5% to 30% that you’d get through a traditional publisher.
Book royalties taxes – do you need to pay them?
The answer here is, yes, of course. Book royalties ARE income. As such, they must be reported on an income tax return and you would have to pay taxes on them.
You might not think of yourself as a businessman, but to the IRS, you are essentially running a small business on your own. You will be treated like a small business owner. And you will be taxed like a small business owner.
It doesn’t matter whether you’re traditionally-published or not. You are selling a product, and that product is your book.
There are various deductions that are available to you as an author. These deductions can significantly reduce the amount of taxes that you owe the government. Overhead expenses related to writing and publishing can be deducted, and this includes fees paid to editors, typesetters, and graphic designers.
Other types of book royalties
There are other variations to the traditional book royalty structure that you may not be aware of.
The first type is graduated royalties. Usually, book royalties have a fixed rate throughout the duration of the publishing contract. If your contract specifies that you’ll receive 10% of a book’s final sales price as royalties, then that’s all you’ll receive.
With graduated royalties, your royalty percentage can increase if you meet certain criteria. If you start at 10% per book, your percentage can increase to 11%, 12%, and so on if you reach certain sales targets.
Another type is royalties on net sales. This involves the publisher paying royalties based on your book’s total net sales, with discounts and fees deducted from the royalty amount you earn. If your books are in ebook format, this is likely the royalty structure you’ll encounter.
A book is the product of not only an author’s efforts, but of a whole team of professionals working and collaborating together.
So the next time you pick up a book and lose yourself in its pages, remember that behind every word, every sentence, every chapter, that is laid out on the page is brought forth by a network of people working tirelessly to bring that book to life. And at the heart of that network is the humble book royalty, quietly flowing through the veins of the publishing industry, keeping it strong and vibrant for generations to come.