Writers get money from book sales in two ways: ADVANCES and ROYALTIES. Advances are up-front payments against royalties that a publisher pays an author upon a book's sale. Sometimes they are paid all in one lump payment upon signing a contract, and sometimes they are spread out over three or four installments, for example, at signing of contract, at delivery of manuscript, upon publication. With an advance, you don't begin making royalties until you've "earned out" the advance amount. Most e-publishers do not pay advances or pay only small advances. Most New York publishers pay advances, and those can range from $1,000 to 7 figures (the average is at the lower end - see Brenda Hiatt's uber useful survey of earnings by publisher). Royalties are monies earned from actual sales of books to consumers. These are paid by the publisher either quarterly (4x a year), biannually (2x a year), or monthly (12x a year). Because online book vendors don't pay publishers anywhere from 45-90 days after a month ends for that month's sales, your royalty statement will always reflect books sold 1-2 quarters ago (self-publishers can see their sales in real time).
The amount of the royalty received per book depends on the royalty rate. Royalty rates vary widely, especially among e-publishers, but also between New York publishers, e-publishers, and self-publishers. Sometimes royalty rates are based on a percentage of the cover price, which is advantageous because it doesn't matter what the "discount rate" is (more on that in a moment) - no matter what, 40% of cover is 40% of cover is 40% of cover. More often, royalty rates are based off of the net proceeds received by a publisher from a vendor (Amazon, bn.com, etc.). "Net" proceeds are always lower than the cover price because they reflect the "discount rate" a publisher offers a distributor or vendor so that the distributor or vendor can make a profit when it turns around and sells a book. For example, if a book retails for $2.99, Amazon takes between 30% and 45% (the exact amount of the discount rate is determined by the publisher-vendor relationship) of that for its service in selling the book and gives the remaining 70% or 55% of each sale to the publisher - those are the percentages from which a net royalty is determined. So, under the 70% discount rate, a publisher would receive $2.09 per book; under the 55% discount rate, the publisher would receive $1.64 per book. Those are the amounts from which you'd figure your net royalties. So, if an author's royalty rate was 35% of net, here's what this big paragraph would mean in practical terms:
- $2.99 book x 70% discount = $2.09 net proceeds x .35% of net royalty rate = 73 cents per book to the author
- $2.99 book x 55% discount = $1.64 net proceeds x .35% of net royalty rate = 58 cents per book to the author
Making sense so far??? *g*
A common New York ebook royalty rate is 25% of net. A common e-publisher ebook royalty rate is 35% of net. Again, this can vary. Many e-publishers' rates are available online as part of their submissions information.
Self-publishers generally avoid the issue of "net" royalties because they don't have a publisher middle-man taking its cut for cover art, editing, marketing, distribution, etc. Self-publishers provide those services for themselves out of pocket. Self-publishers still have to deal with discount rates, however. And, with some exceptions, they operate like this:
- Amazon: Offers 70% of cover for books priced $2.99 and above; 35% of cover for books priced below $2.99 (Thus, using the first bulleted point above, an author would pocket the entirety of the $2.09 net proceeds per book)
- B&N: Offers 65% of cover for books priced $2.99 and above; 40% of cover for books priced below $2.99
- Thanks to Killian McRae for letting me pick her brain on self-publishing royalty rates!
NOTE: In all of the cases described above, there are variations in the discount rate vendors charge for books on promotion, books sold through foreign outlets, etc. So what I've laid out so far is most accurate for regular priced book sales sold within the U.S.
Your royalty rates are therefore very important for determining how much money you, as the author, receive for every book you sell. Which means that the royalty rate a publisher offers you when it offers to buy your book needs to be considered and weighed carefully. You may be super eager to make that first sale, but if the royalty rate is really low, you'll need to decide if the advantages of that publisher, etc., outweigh the disadvantages of the low rate (a cost-benefit analysis). It may not seem like there's a huge difference between 30% or 35% of net, or between 20% of net and 20% of cover, but the numbers tell a different story--one you should know before you have to decide whether to accept a contract offer.
The below table lays out what an author would receive in sales income from a book priced at $2.99 with a 70% discount rate (i.e., where the publisher or self-publisher would receive $2.09 per book). As an FYI, this table is meant as an illustration and does not reflect any of my books specifically. Take a look at the difference by royalty rate:
Now, perhaps the difference between receiving 73 cents for a book (35% of net) and $1.20 for a book (40% of cover) doesn't seem that great to you. After all, how important is 47 cents these days? Based on just one book's sales, not much. BUT. Look what happens to the total income once you've sold 100, 1,000, 10,000, or 100,000 copies.
- 100 books sold at these two royalties = difference of $47
- 1,000 books sold at these two royalties = difference of $470
- 10,000 books sold at these two royalties = difference of $4,700
- 100,000 books sold at these two royalties = difference of $47,000
All of a sudden, that 47 cents makes a big difference. Huge.
What about the difference between a royalty rate that is 20% of net and 20% of cover on a $2.99 book?
- 100 books sold at these two royalties = difference of $18
- 1,000 books sold at these two royalties = difference of $180
- 10,000 books sold at these two royalties = difference of $1,800
- 100,000 books sold at these two royalties = difference of $18,000
How about the difference between, say, 30% of net and 35% of net:
- 100 books sold at these two royalties = difference of $4
- 1,000 books sold at these two royalties = difference of $40
- 10,000 books sold at these two royalties = difference of $400
- 100,000 books sold at these two royalties = difference of $4,000
Over the life of a book, even a 5% difference in royalties can impact your bottom line by thousands of dollars.
Now, I haven't tried my hand at self-publishing yet, but if you can be successful at it, the numbers are compelling. Look at the difference between a high ebook royalty rate (40% of cover) and self-publishing through Amazon (70% of cover):
- 100 books sold at these two royalties = difference of $89
- 1,000 books sold at these two royalties = difference of $890
- 10,000 books sold at these two royalties = difference of $8,900
- 100,000 books sold at these two royalties = difference of $89,000
Or, alternately between a low ebook royalty rate (20% of net) and self-publishing through Amazon (70% of cover):
- 100 books sold at these two royalties = difference of $167
- 1,000 books sold at these two royalties = difference of $1,670
- 10,000 books sold at these two royalties = difference of $16,700
- 100,000 books sold at these two royalties = difference of $167,000
Uh huh. Just soak that in for a moment.
Now, of course, self-publishers bear a lot more of the risk. They have to lay out up-front, out-of-pocket money for a cover, editing, copyediting, formatting, marketing, etc. Not only do all these activities take time away from writing, but they can cost anywhere between $2,000 and $3,000 depending on how much you hire out to others to do. So a self-publisher may have to sell between 1,000 and 2,000 books before the money they receive covers their start-up costs and becomes profit. Everyone knows of the growing number of self-publishing success stories - just look at the USA Today and New York Times bestseller lists, but it's worth saying that those huge success stories still remain a minority, at least for now.
It's also worth noting that New York's lower (often 25% of net) digital royalty rate is predicated upon the idea that their printing of paperback books, distribution of those paperbacks, and ability to get those print books shelved is a value add that gives authors sales and exposure that offset the lower digital royalty rate. Again, the results of each individual's cost-benefit analysis may vary.
The above chart also demonstrates the importance of having a backlist (multiple already published titles) to turning your writing into a reliable income generator. If you have four $2.99 books at 35% of net, let's say, each selling 1,000 copies per quarter, that means you can expect a combined royalty payment of $2,920 ($730 x 4) or $11,680 in a year. They say "backlist is king" because you've already done the work, yet those books keep bringing in money. And, generally, each new release not only creates a spike in all of your books' sales, but strengthens the selling power of your backlist in general because you're creating new ways for readers to find you with each book.
All of this is a very long way (I know, I know!) of saying that royalty rates matter. So do your homework, know your business, and may you have many, many sales!
Thanks so much for reading! Please feel free to share or link. I'll do my best to answer any questions. And, if I got something wrong here, don't hesitate to let me know!