A Publisher's Conversation with Authors: Which are Better, Net Royalties or List Royalties?

 

It is Tuesday. Monday's madness is over, and Wednesday will take us over the hump, so Tuesday it is--for some serious discussion with authors. Tuesday talks mean to address authors in waiting and self-published authors who would like to go a more traditional route or who would at least like to take their steps with a publisher by their side. 

This week, we share a conversation with a first-time author, who is new, naive, and nervous when it comes to the financial side of authoring a book. Specifically, this author clearly did not understand the difference between royalties on list and royalties on net. The pertinent part of the conversation elucidating these differences is reproduced here.

Typical Royalties on List and on Net

Briefly, royalties paid on list are paid at a percentage of the list price of the book. Royalties paid on net are paid at a percentage of what the publishing house "earns" after costs are subtracted from gross revenue. The differences are explicated in detail later in this post. 

• According to some recent figures, although royalty rates vary (sometimes more than just slightly) on average traditional publishers who pay on list offer the following royalties:
• hardcover: 15%
• trade paperback 7.5%
• mass market paperback sales: 5%
• e-book sales: 25%
• audiobook sales: 25%
• Some contracts include graduated royalties. For example: 10% on the first 5,000 copies, 12% on the next 5,000, and 15% on every copy thereafter.

• Royalties paid on net are generally higher and can range from 25% to 50%. (Rarely are royalties offered in excess of 50%.) One sees such royalties on hybrid contracts. In these cases, authors are shouldering about 50% of the book publishing costs so would expect to see better royalties along the lines of have the revenue -- but this is always net revenue (the after-expenses leftover), not list. Traditional publishers that pay on net generally pay at the rate of 8%-10%.

Paying on List

Paying on list means that royalties are figured at a consistent percentage of the book's listed price. 

Paying on Net

Net is gross revenue minus expenses (such as losses from selling on discount or incurred by the handling and shipping and other costs of returned books; overhead, too, comes out of revenue when determining the amount of net). Expenses drive net income way down so that authors end up with a low percentage of the book's earnings. 

Examples in action

Concretely speaking, a book selling for 19.95 (typical) -- let's say $20, would bring in a $2 royalty payment on list (10% of the listed selling price). Generally, gross revenue on a $20 book is $4 (after direct costs are subtracted: printing, shipping, distributor costs). That is not yet net, though. Overhead costs (each book requires some portion of staff time, which equates to expenses), ongoing costs to keep a book in the online catalogues ($50 a year per book), and variable costs related to any promotion/marketing costs efforts. These indirect and variable costs are difficult to calculate but can easily surpass $2 a book, especially where sales are low.

Now, let's apply some sales possibilities:
 

• First, take a sales level of 100 books, $350 would be the cost of one small ad appearing once (seriously, print advertisement is expensive; this is the discounted price we as a publisher get from one of the major catalogues that goes to most of the libraries and bookstores), $50 is a required annual fee for listing the book in online sellers' catalogues, $100 for one book award competition ($70-$125 tends to be the range), and $150 for one paid book review ($60-$400 is the range), noting that a lot of publishers will not spend money for paid book reviews or award competition fees. Gross revenue could be expected to be $400 on those 100 books; costs, without overhead, would be minimally $650. Net revenue, without any compensation for overhead, would be minimally -$250 (or zero if no monies were dedicated to a book review and award competition fee); however, once overhead and other kinds of costs are calculated, books can quickly end up in the hole, especially in the out years and especially if authors are not highly involved in book promotion. Often, authors receiving royalties of 50% net revenue would earn no royalty payment, and often new authors will gripe that they have not received any royalty payments and wonder about the honesty of the press when, in reality, the press is struggling to get the book to at least cover costs. Royalties based on 10% list would result in payment of $200 in royalties to the author.

• Now, let's move that sales figure to 1500 books. Gross revenue is now $6000. Net income (direct expenses will not change and are already figured into the per-book gross revenue; variable expenses associated with things like marketing could change but let's hold them constant) is now $5350, without adjustment for overhead. Authors receiving 50% of net in royalty payments would earn $2675 (minus a proportionate share of overhead, which might lower royalties to $2500 or less). Royalties based on 10% list would result in a $3K payment to the author. 

Bottom line: Be sure to read your contract carefully before signing to know the basis upon which your royalties will be calculated. All too often, authors will sign a net contract with a big number in front of the % for royalties, when, in actuality, it is a small amount because the royalty is based leftover revenue after all expenses have been accounted for.

See more Publisher Conversations with Authors HERE.

 Learn more about publishing from an acquisitions editor -- how to get your book proposal accepted, why proposals are turned down/accepted, and how to find the right publisher for your book. On special sale for $5 while inventory lasts at MSI Press webstore. Also available as an e-book and an audiobook.

The Tuesday talks reflect real discussions between the management of MSI Press LLC and our own authors or those would-be authors who come through our doors but don't make the cut--yet. If you have a topic that you would like addressed, leave the question in the comment section. Chances are, in our 18 years of publishing first-time and experiences authors, we have had a conversation with one of our authors that we can share with you.

                             

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