Mailbag: What should my royalty rate be?

Rightreading hereby initiates a new feature (no doubt destined to be as fitful as all our others) in which we answer e-mails from readers.

.
A reader writes

I know very little about book contracts.

Can you please elaborate on this subject?

Specifically, what percentage of each book sold should I receive as the author?

.

Dear reader

The most general answer is “whatever the market will bear.” If you are writing great poetry that will someday be taught in university classes, the answer is no one is likely to pay you any royalty at all. On the other hand, if you are a famous and controversial public figure — Sarah Palin say — you can pretty near name your price.

But the general answer isn’t much help to the vast majority of writers who fall somewhere between those extremes.

Royalties constitute a system whereby an author is rewarded for good sales by receiving a percentage of the income those sales generate. Commonly an author is paid an advance against future royalties on signing of a publishing agreement. The advance may be paid up front or in portions — half on signing and half on publication; or a third on signing, a third on delivery of a suitable manuscript, and a third on publication of the book (“publication,” by the way is an artificial date around which publicity is centered and is not the same as completion of production); or according to some other schedule. Authors should make sure advances are “guaranteed” and are not liable to be returned if the book doesn’t “earn out” — if royalties don’t equal or exceed the amount of the advance.

Royalties may be paid against the retail price on books sold, or against some other figure, such as net income after certain costs of sales are deducted. More often than not, royalty rates “escalate,” that is they increase by steps as different stages of sales are reached.

Basing royalties on retail price is the more traditional method. Typical royalty rates might look something like the following (although there is a great deal of variation, and I suspect the trend is downward).

.

As I mentioned, some publishers base royalties on net sales. The definition of net sales can vary, and it is important to specify what costs are used in the calculation. In general these should be direct costs of sales and not various sorts of publisher overhead. As a rule of thumb, sums eligible for royalties on a net basis might be about half what they would be on a retail basis largely because of trade discounts. So a 12% royalty on net might be roughly the same as a 6% royalty on retail.

Several factors can reduce royalties or delay their payment. These include freight allowances, deep discount sales, and reserves against returns.

Of course there are many more issues involved in book contracts than just royalties and advances against them. I will try to touch on some of the other factors in upcoming posts.