Why is my royalty not based on the RRP?

In the Good Old Days publishers were the kings of their world. They dictated what books were published, where they were sold and more importantly, they dictated the price at which they were sold through something known as The Net Book Agreement.

Then along came the supermarkets who demanded massive discounts and not long after internet exploded and price became king. After a heated debate and many costly legal battles the Net Book Agreement was thrown out and retailers were free to set their own price for books. The Retail Price (RP) became the Recommended Retail Price (RRP). Supermarkets now bundled books, gave 2 for 1 offers or even gave them away free with magazines. Online retailers soon followed suit and now it is possible to buy a paperback for 20p (With a £5 P&P charge of course!).

All of this led to a conundrum for publishers. How do they pay their authors? If a £10 book sells for 20p from the retailer how much do they pay in royalties?

After much turmoil it was realised that the only figure over which a publisher had any control was the price at which it left their warehouse. This means the only thing publishers can use is the price they charge bookshops before it hits the shelves. The Net Price they actually Receive, (NPR). If they based their royalty rates on that price then it didn’t matter what the supermarket or eRetailer did with it in the end, they could sell it for £50 or give it away, it made no difference.

Of course the situation is complicated by the fact that there is no longer a single price on which to base royalty figures as different distribution channels sell through at different rates so often publishers will fix a single average rate for all channels. This means that authors are in reality paid slightly different royalty levels depending on where the book is sold and reputable publishers will normally tip this average in favour of the author.