The Straight Skinny on Royalties

How Publishing Royalties Work

by Allison Kelsey, Editorial Director

Note: While the below information is typically reflected in our publishing agreements, it is for reference only and does not in and if itself constitute a contract or agreement nor does it alter or amend any publishing agreement entered into between the author and the publisher.

Two of the most frequent questions we get about royalties are: 

1) You pay 10% on physical books sold through distributors and wholesalers. What does this mean and why is the percentage so low? 

2) Why can't you pay 100% of royalties like some other companies do? 

Below are the answers to both of those questions. But first, some context. (Note: when I say "bookstore" in this article, I am referring to both online and physical stores. Also, when I refer to a distributor, I am speaking of both distributors and wholesalers). 

Most books sold in bookstores arrive through a distributor. These are companies that serve as a "middle" between the publisher and the bookstore. Without them, a publisher would have to maintain accounts, provide fulfillment, and do customer service for every bookstore it deals with. That could be more than 100 accounts, depending on the publisher. Similarly, the bookstore has to deal with each publisher of a book on the shelf in the store, which involves ordering, inventory, accounting for sales, and managing returns. If you are a mom and pop shop, that's not easy. 

The distributor makes this easy by setting up accounts with both publishers and bookstores and serving as a go-between. This way, most bookstores only have to deal with one account—the distributor, and the publisher has one source to send books to distribute to the bookstores. 

However, the distributor does not do this for free. They charge a percentage of the book's retail price. That percentage is typically 15%, but could vary depending on the contract between the distributor and the publisher. So, for example, if a book is retail-priced at $13.95, 15% of that price, or $2.09, goes to the distributor. So that leaves $11.86. 

That's not all that comes out of that book's retail price. The cost of goods, i.e., the printing cost of the book, plus the shipping charge, has to be subtracted. So, in the above example, if the printing and shipping cost was $4.00, that would leave $7.86 of the retail price left over. 

After that, even more has to come out of the retail price. The bookstore that sells the book has to get a cut. They tend to get the largest cut because they are the ones that are actually presenting your book to customers. Many bookstores tend to ask at least 35-40% of the retail price. So, if 40% were taken out of the $13.95 retail price ($5.58), that would leave $2.28. 

Throw in any incidental fees, international transfer fees, etc., and the publisher will get only $2.00 out of a $13.95 sale. So, out of that $2.00, we pay $1.40 (10% of the retail price), leaving us only 60 cents per every $13.95 sale. Now, some books are more profitable or less profitable. Books that are hardcover, have color interiors, or more than 400 pages will be more expensive to print, cutting into the profit margin even further. But generally, this is how the economy of book sales works. 

In this example, raising the royalty rate above 10% would likely result in a loss of money on each sale. A 15% royalty would mean a loss of 9 cents per book. This is why the percentage is so low. So, given the economics I explained above, a 100% royalty would produce a loss of $11.95 per sale. How can anyone afford to do business like that? 

The truth is, they can't. Anyone offering 100% royalties, or any number anywhere close, will either be out of business soon, they are lying, or they are playing semantics. They are making you think you are getting 100% royalties on the retail price, but in truth, that 100% royalty calculation is before expenses such as the above are taken out. You get what is left over. So the 100% royalties they advertise is actually 10%-13% of the retail price in reality. Even if they offered you the entire $2.00 profit per the example above, it is still not a viable business model. No company, whether they sell books, clothes, cars, or candles, can afford to take the entire profit they earn off products and just hand it over to the product creator. Publishers have to earn some profit from sales in order to stay in business. 

You may think, "Yes, but I paid you a thousand dollars to get my book published." However, the time and expense required to produce a title and get it to market is extensive. Copy and content editing, cover design, legal review, copyright registration, obtaining an ISBN number, formatting your book, proofreading, setting up a web page, creating and programming the eBook, interfacing with the distributor and the markets, and doing initial marketing all require time and money. The $1000 paid is likely long gone by the time the book gets to market. Keep in mind also that the publisher has to continue to spend time and money to support your book for years to come. Order management, fulfillment, royalty accounting, online site updates, search engine optimization and marketing, social media management, and customer service are just a few of the tasks that publishers have to perform even after that initial investment is exhausted. 

So, we'd rather err on the side of clarity and say that your royalty is 10% of the retail price. No deductions, no subtractions. Even if the book is unprofitable, you still get 10%. For a $13.95 book, you'll get $1.40, plain and simple. 

How We Pay Royalties 

Royalties are paid approximately 60 days after the last day of a calendar quarter. For example, for the quarter of January - March, royalties of sales from that period are paid on or before May 30, provided that the total amount exceeds a payment threshold established via the publishing agreement, usually $20.00 (If the total does not exceed the threshold, the payment will be held and added to the proceeds from the next quarter). Royalties are paid by default via Zelle, Venmo, Paypal, or direct to your bank account using ACH. If an author does not feel comfortable using those methods, we can also pay by personal check upon request. 

How Royalties are Calculated 

We receive reports from all of our vendors monthly. Those reports are compiled in our systems and used to calculate the total number of sales for each author. Reports of those sales are uploaded online on or around the 30th day after the end of a quarter. Reports will include the name of the vendor, the date a sale was made to that vendor, the number of units sold, and the total royalty earned. 

Amounts that are debited from Royalties 

We charge a distribution fee annually for those authors that want their books distributed internationally. That distribution fee is debited from royalties on or around the 1st anniversary of the publication date of their book. We also debit royalties for bookstore returns or refunds.

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