“Royalties” is the publishing industry term for money paid to an author (generally, by a publisher) on sales of a published work. Most authors receive the bulk of their writing income from royalties, which makes them a critical feature of publishing contracts.
How are Royalties Calculated?
Royalties vary from contract to contract, and across different publishing formats. However, industry-standard royalties are normally based on a percentage of either: (1) the money the publisher actually receives on sales of the author’s work, or (2) the sale price of the work. (Most commonly, royalties are based on a percentage of the publisher’s receipts.)
Royalty percentages are either calculated on a “gross” or “net” basis—but those terms can be tricky, because publishers and contracts don’t always use them consistently. Good contracts calculate authors’ royalties as a percentage of the publisher’s receipts – the money actually received from buyers or resellers (less refunds and returns). That’s a “gross” method of calculation.
Dangerous contracts allow the publisher to deduct certain costs (sometimes including marketing and advertising costs as well as publishing costs) from receipts before calculating the author’s royalties. This is “net” calculation, because the author’s percentage is calculated on “net profits” – meaning receipts minus some or all of the publishing costs. Traditional publishers don’t expect or ask authors to share the publishing costs, or the publisher’s marketing costs. No exceptions.
How Big is the Author’s Royalty Percentage?
Royalty percentages can vary widely, both from publisher to publisher and across the various publishing formats. Most contracts state a different percentage for hardback royalties (typically 9-15%), trade paperback royalties (typically 7-12%), mass market paperback (typically 4-8%) and ebooks (typically 25-35%). However, each of these “typical” percentages can vary by 2-4% (or more) in the printed formats, and the Author’s Guild wants publishers to increase ebook royalty rates to 50% of receipts across the board (a great idea, but not yet industry standard).
Royalty percentages also vary based on an author’s experience and sales record—those with lots of successful books tend to receive higher royalties than debut or midlist authors.
Royalties on foreign and subsidiary rights can vary widely, too, depending on the rights being licensed, the nature of the license, and whether you license the subsidiary rights directly or through a publishing house.
In other words: your mileage will vary, so always have your contracts reviewed by a specialist (an agent or an attorney) to ensure you’re receiving the best possible royalty percentages from your publisher.
How Often Do Authors Get Paid?
Every publishing contract should state how often the publisher will issue royalty checks and sales statements. Many larger publishers calculate royalties only twice per year, while some independent publishers pay their authors quarterly. Self-published authors often receive payments from Amazon on a monthly basis, and a very, very few small publishing houses also calculate royalties monthly (usually a month in arrears).
Publishers’ sales statements and royalty payments are normally sent 3 months in arrears, meaning the publisher has three months from the last day of the sales period stated in the contract to calculate and send the royalty payment. Again, the specific payment terms and timing should be stated in the publishing contract—and the language should be specific enough that the author knows exactly when the statement and payment is due (and hopefully not overdue).
Reserves Against Returns (And Other Royalty Issues)
Many publishing contracts allow the publisher to withhold a percentage of the author’s royalties as a reserve to cover potential returns and to pay reduced royalty rates (or no royalties at all) on copies sold at deep discount or distributed free of charge for review and promotional purposes. Again, the contract needs to contain specific language explaining when a sale is—and is not—a royalty-bearing sale, and the terms should match current industry standards.
A Word About Advances
“Advances” – technically, advances against royalties, are lump-sum payments some authors receive in advance of publication.
In most cases, advances are paid in 1-3 installments: upon signing the publishing contract, upon the publisher’s approval of the final manuscript, and/or upon publication of the completed work. Whether an advance is paid in one installment or multiple installments, and the timing of those installments, varies from publisher to publisher.
If an author receives an advance, the author normally won’t receive any royalty payments from the publisher until total royalties due to the author on sales of the work exceed the advance amount. When that happens, the work has earned out and the author will start receiving royalty checks on the next payment and statement date referenced in the contract.
Never Sign a Contract Without Professional Review
Always obtain professional review of publishing contracts. Publishing lawyers and agents have experience reviewing not only royalty provisions but other important contract terms, and know the current industry standards for royalty percentages, reserves against returns, and other vital terms that can impact not only the author’s rights but the timing and amount of royalty payments on the finished work.
Do you have any questions about royalty payments or publishing contract terms? Did anything here surprise you?
Susan Spann writes the Hiro Hattori Novels, featuring ninja detective Hiro Hattori and his Portuguese Jesuit sidekick, Father Mateo. The fourth book in the series, THE NINJA’S DAUGHTER, will release from Seventh Street Books in August 2016. Susan is the Rocky Mountain Fiction Writers’ 2015 Writer of the Year, and a transactional attorney whose practice focuses on publishing and business law. When not writing or practicing law, she raises seahorses and rare corals in her marine aquarium. Find her online at http://www.SusanSpann.com, on Twitter (@SusanSpann), and on Facebook (SusanSpannAuthor).