Book Publishing Royalties: A Comprehensive Guide
Book royalties are a common term in the publishing world, yet for many, they remain a source of mystery. What exactly are book royalties, and how do they work? In this comprehensive guide, we will unravel the intricacies of book royalties, exploring their meaning, typical rates, calculation methods, and the impact of advances.
Understanding Book Royalties:
In essence, a book royalty is the compensation that a publisher pays an author for the rights to publish their book. While this definition is straightforward, it raises various questions, especially for new authors:
Do authors start earning royalties immediately?
How much can authors earn from royalties?
What is the standard profit margin for books?
Despite the initial complexity, book royalties can be demystified, providing authors with a clear understanding of how royalties work. This guide aims to clarify the concept of book royalties, offering insights into earning potential and calculation methods.
Deciphering Book Royalties:
What is a Book Royalty? A book royalty represents the compensation a publisher pays to an author for the rights to publish their book. These royalties are usually calculated as a percentage of book sales. For example, an author may receive 7.5% royalties on each paperback sale and 25% on each eBook sold.
While royalties are the standard in traditional publishing, self-publishing operates differently. In self-publishing, authors control pricing and profit margins, eliminating the concept of standardized royalties. Still, self-published books, which primarily sell in only an eBook format, do not come with advances and often have lower prices due to overcrowding in the eBook landscape.
Royalties vs. Alternative Income Streams:
While royalties are a common source of income for authors, they don't solely encompass how authors can earn money. Authors have diverse revenue streams, such as book advances, film/TV licensing, foreign rights, audiobooks, speaking engagements, consulting, product launches, coaching, or building personal brands. The narrow focus on book sales associated with royalties can be limiting for publishers but may not align with an author's broader financial interests.
Standard Book Royalty Rates:
Typical royalty rates may vary slightly, but some industry standards exist for various formats:
Hardcover Sales: Around 15%.
Trade Paperback Sales: Approximately 7.5%.
Mass-Market Paperback Sales: Roughly 5%.
eBook Sales: Typically 25%.
Audiobook Sales: Averaging 25%.
Some contracts include graduated royalties, where rates vary based on sales thresholds. For example, an author might earn 10% on the first 5,000 hardcover copies sold, 12.5% on the next 5,000, and 15% on all copies thereafter.
Calculating Book Royalties:
Many publishers determine royalties based on the book's retail price. This means that if a book retails for $20, and the royalty rate is 5%, the author earns $1 per book sold. These are often called "list royalties" or "retail royalties."
In some cases, publishers pay authors "royalties on net sales." As publishers sell books to various outlets at different prices, this method considers price discrepancies and discounts. Authors generally prefer retail royalties as they are based on the book's highest selling price.
The Role of Advances:
Advances are an integral part of the book publishing process and offer a higher level of financial security to authors, along with financial buy-in from publishers. An advance is a negotiable upfront payment made by a publisher to an author. Advances are not gifts but payments against future royalties, signifying the publisher's commitment to the author's work.
Advances can vary significantly. While there's no fixed average, six-figure+ advances are more common in major publishing houses, while smaller presses may offer lower advances. The advance amount depends on the publisher's estimation of potential book sales.
Advances are very enticing to authors, though they do come with trade-offs. Authors allow publishers to hold print and eBook licenses for their books (based on a term of license or term of copyright), somewhat limiting content usage. Authors receive a portion of the profits if the book earns its advance back in book copies sold or becomes a bestseller. In self-publishing, authors retain more extensive control of their earnings, but these earnings are much smaller when compared to the other sales revenue tributaries in traditional publishing. Self-published books tend to sell primarily in only one format (eBook) and come with a much lower price tag to compete among a glut of other self-published material. Furthermore, it is harder to license foreign rights, audio rights, film/TV rights, and merchandising rights for self-published titles than when a traditional publisher is in the picture.
An Example of Book Royalties with an Advance:
Suppose an author secures a $100,000 advance divided into three payments. Retail royalties are 7.5%, and the book costs $20. Earning the advance could take around a year if the author sells 5,000 copies in the first month. Afterward, any royalties become the author's.
Amazon's Self-Publishing "Royalties":
Authors retain their rights and control pricing and promotions in self-publishing, but self-publishing amounts to having a lot of nothing—rather than a little bit of something in traditional publishing. Amazon's Kindle Direct Publishing (KDP) offers two royalty options: 35% or 70%. KDP authors have the flexibility to use their books as they see fit. This does come with many drawbacks, however. As discussed before, eBooks are merely one sales revenue tributary (resulting in a financial portfolio that lacks diversity) and tend to be priced much lower, so it requires selling many eBooks in a "Walmart" or "McDonald’s" effect to get the numbers to work well for the author. Furthermore, eBook self-publishing requires being a marketing guru to get a self-published book to stand out, and every self-published book requires that an author put up their own time and money—and be ready to weather the storm every time Amazon changes its financial arrangements with authors.
Understanding book royalties is pivotal for authors considering traditional or self-publishing. Book advances offer much greater financial security to authors. While self-publishing can be attractive, authors should carefully consider the pros and cons. Authors should decide how their books work, ensuring their financial interests align with their broader goals and vision.