Life used to be easy for the author. A publisher accepted a book and offered the author the industry standard royalty rate of 7.5% of the Recommended Retail Price (RRP) take it or leave it! Now with a bit of searching on the internet it seems possible to find companies offering to pay royalties of insane amounts up to and beyond 50%. That has to be good news for the author, right? Wrong.

We have a multitude of publishing options. Not only do we have Traditional Publishers (Yes, there are still a few!) but we have Self Publishing, Partnership Publishing, eBook Only, Author Direct and Consortium Publishing. Now add in the variety of distribution options eBooks, Print On Demand (POD), Web Printing, Offset, Trade Paperback and Mass Market Paperback and the complications become endless. It’s no wonder that increasingly many authors give up and just slap their book up on Kindle along with 5,000,000 others and hope for the best.

However royalty rates need not be confusing if one pays attention to some basic laws of economics.

Rule 1. If it looks too good to be true… well, you know the rest.

For a publisher to prepare a book with artwork, typesetting, editing, etcetera and then insert it effectively into the recognised distribution channels a significant investment is required. That money can come from only two places. Book sales or the author. There is no other magic pot of money. Either the company funds the initial costs themselves then recoups the investment a little at a time on the gamble the book sells, Traditional Publishing Model, or the author fronts the costs, Self Publishing. There are hybrid/partnership companies in between these models that share the setup costs with the author but essentially the principles remain the same.

Business logic will tell you that royalty levels will be higher for the Self Publishing model, or at least should be.

So what about these apparently ‘Traditional Publishers’ who seem to be paying very high royalty rates?

Example:

A book Retails at £10. Say it costs £3 to print and ship, that leaves £7. The retailer distribution network demands 40% discount off the RRP or they won’t touch it. So that’s £4 for them. That leaves £3 (30%) to be divided between author and publisher. The publisher needs to start paying back their investment so an equitable split would be around £1 to the author and £2 to the publisher. That’s a 10% royalty rate.

Now, some so called Traditional Publishers, in an attempt to woo authors, (Rule 2; Traditional Publishers do not need to woo authors) offer bribes of seemingly impossible royalty rates. How do they do this?

The simplest way is restricted distribution eBook only. No printing costs, they can appear to offer higher royalties.

Or the sneaky way is to manipulate the RRP of the printed book.

Working backwards from the above example, the publisher needs £4 per book to print, distribute and repay the investment. That’s a fixed cost. They now want to appear to give the author 40% royalties. How is that possible? Easy, simply set the RRP to £20. that’s £8 to author, £8 discount to the retailer and £4 to the publisher. Of course the book will never actually sell at £20, but the publisher appears to give a good deal to the author while at the same time they are really only an eBook company and never intended to sell any physical copies anyway. If you find that unbelievable, just look on Amazon.

So, if one wants a Traditional Contract with a chance of selling books then high royalties are not going to happen. Around 10% of NPR (Net Price Received) is the norm. Anything wildly different to that should ring alarm bells.

What about eBooks? Shouldn’t I expect a higher royalty rate for those?

If you put your book up on say Kindle yourself it would appear you can get 70% royalties therefore why is it that seemingly quality Traditional Publishers offer much lower rates?

Rule 3. Amazon are in business to make a profit.

Amazon offers different royalty rates. The wider the distribution, the lower the royalty rate. You want total freedom to set your own price? Then it’s a lower royalty rate. If one wants maximum control over one’s own book with the widest distribution then 35% is the maximum Amazon will pay. One also has to ask the question about Amazon’s ranking system in favour of those books on which they take a greater cut… but that’s a different article altogether.

Now, out of the 35% that’s left, we have to deduct local Sales Tax of around 20% or whatever it is in your country as eBooks, unlike print, are subject to tax. Also if you are selling eBooks outside the country in which you reside then Amazon have an obligation to deduct income tax again of around 20% and send it to the local revenue office for that country. Of course you are quite entitled to contact that government’s revenue office to claim a refund, good luck with that one!

So again, if you are being offered seemingly high royalty rates on eBooks, take care because your sales are going to be affected.