How Do Book Royalties Work?

In this blog post, you’ll learn how book royalties work

Book royalties are a staple in the world of publishing.

For would-be authors like you, understanding how royalties work is a key factor in figuring out whether to self-publish, traditionally publish, or pursue other options.

Book royalties are payments made by a publisher to authors in exchange for the rights to publish the latter’s book.

In the broadest sense, it means the more copies sold (or printed), the more money authors will potentially earn in royalties.

The concept of a book royalty is as old as publishing itself.

It’s a natural result of authors creating the content for books, and publishers may not have rights to it until they pay royalties. In short, it’s a mutually beneficial arrangement between an author and a publisher.

In a way, book royalties allow authors to get a second profit stream from their work and gain recognition in the industry.

What Are Book Royalties?

In essence, book royalties are the payments that authors receive from the sales of their books. These royalties are usually negotiated in the author’s contract with the publisher and are typically calculated as a percentage of the book’s retail or net price.

Publishing houses pay royalties to authors as a way to share the profits generated from the sale of their books. This system ensures authors earn from their works over time, allowing them to financially benefit from their intellectual property.

Different Types of Book Royalties

There are several types of royalties, and the one you might receive largely depends on the nature of your book, the type of publishing contract you have, and the method of distribution.

Print Royalties: These are the royalties earned from the sales of physical copies of a book, such as hardcovers and paperbacks. These royalties can vary widely based on the pricing of the book, the author’s agreement with the publisher, and other factors.

Typically, print royalties can range from 5% to 15% of the retail price.

Digital/E-book Royalties: E-books generally have higher royalty rates than print books. The standard royalty rate for e-books can range from 25% to 50% of the net price, reflecting the lower costs of digital distribution.

Audiobook Royalties: These are the earnings from the sales of audiobook versions. Like e-books, the production costs for audiobooks can be lower than print, leading to higher royalty rates, often ranging from 20% to 40% of the net price.

Foreign Rights Royalties: These are the royalties earned when your book is sold in a foreign market, typically after a foreign publisher purchases the rights to translate and distribute your book in their market. These royalties can be a valuable source of income for authors with international appeal.

How Book Royalties Are Calculated

Book royalties are usually calculated on a percentage basis.

For example, an author may be entitled to 10% of the net revenue (gross revenue minus printing costs) generated by each book sold or printed.

This is known as the “royalty rate” and is typically negotiated between authors and publishers before any contract is signed.

The royalty rate may also depend on the type of book published and the author’s experience in their field.

For example, authors with more extensive writing backgrounds will likely be able to negotiate higher royalty rates than those whose works represent their first foray into the industry.

Similarly, books that require more work (like textbooks) or have a longer shelf life (like New York Times bestsellers) might also have higher royalty rates compared to other genres.

Authors should expect around 7-10% royalties for paperback books and 25–50% for eBooks sold through retailers, i.e., Amazon or Barnes & Noble.

How are Book Royalties Paid?

Royalties are typically paid out on a semi-annual or annual basis, depending on the publisher. The author’s contract usually stipulates the specifics of these payments, including the dates when payments are made.

Before any royalties are paid out, an author must usually “earn out” their advance.

In the publishing industry, an advance is a lump sum payment given to the author before the book is published, representing the publisher’s estimate of the book’s earnings.

The author must make this amount back in royalties before they start receiving additional royalty payments. 

Royalties on Net Sales versus Retail Royalties

Publishers enter into an agreement to pay royalties to authors based on the book’s retail price, at least for the most part.

Case in point: a recently launched book sold at a retail price of $14.99 will net the author $0.75 if the royalty rate is 5%.

This is what’s called a “retail royalty.” This process, at least on paper, will benefit authors because they’re getting the royalty based on the highest possible price that the books will sell (retail price)

On the other hand, royalties on net sales are calculated based on the amount that publishers actually receive from retailers after discounts, shipping fees and other costs.

This means that if a publisher receives $11.99 from retail sales for each copy of a book sold (at a recommended retail price of $14.99), the author will earn less on net sales royalties than they would with retail royalties.

Authors Don’t Get a Higher Royalty When Books Sell Above the List Price

The list or cover price refers to the retail price of a book and is usually printed on the cover itself.

This list price determines how much money publishers will pay authors in royalties, but it does not determine how much readers actually end up paying for books.

The book may sell for more than the list price for some reason. But this doesn’t benefit the author at all.

For example, a book listed at $30 but got sold for $33 will give the author a royalty based on the $30 price and not the $33 that was paid.

Authors must also look at other factors affecting their royalties, i.e., foreign rights sales and print runs.

Foreign rights sales are additional income sources for authors as publishers may pay extra for foreign language editions or film adaptations. When it comes to print runs, authors should remember that the more copies printed, the higher their royalties will be.

Book Royalties with an Advance

On the surface, book royalties will make it smooth sailing for authors to start earning right after their book is published.

But this isn’t always the case for everyone, particularly those authors who signed up with traditional publishers.

In a typical publishing contract, an author will most likely be offered an advance – money is given upfront in exchange for exclusive publishing rights to the author’s work.

This amount often depends on factors, i.e., projected sales volume and author credibility.

The book advance is the reason why authors will never get royalties right after the book is published. Instead, authors will not receive any until their publisher recoups the advance from sales revenue. But it’s business – publishers want nothing less than getting all the money they’ve invested in you and your book. It would be unfair to expect any differently.

It’s also worth noting that if an author fails to meet the projected sales set by their publisher, they might be asked to pay back a portion (or all) of the advance. There’s a remote possibility for this, but it happened in the past.

Yes, publishers are the avenue from where authors take the step to prominence and wealth, but they’re there to do business, too. It’s not like they’re a charitable institution or a non-profit.

It’s commonplace for big-time publishers to grant book advances in the millions of dollars, but this is only exclusive to those who’ve earned it, i.e., established authors and literary agents.

On the other hand, the ones who are just starting out will usually have to settle for smaller advances – if any at all.

How a Specific Book Advance is Determined

The power to grant an advance lie solely with the publisher. But how do they determine the amount of money to give authors? What metrics are used in this process, and does it depend on the published book type?

To answer all these questions, publishers will likely base their advances on potential sales and risk.

Sales potential is paramount to any publishing deal as it gives publishers an idea of how much money they might earn from book sales.

It also allows them to decide how much advance they can grant authors.

On the other hand, the risk factor emphasizes how likely the publisher is to make back any investments (book advance).

As such, publishers will weigh how well-known and credible an author is before offering them any advance.

It’s a conventional approach in the publishing industry, but it doesn’t always apply to everyone.

Remember that book advances will never be free or easy money, and they’re never guaranteed.

There’s always a risk associated with them; one wrong move and all the hard work put into writing that book could suddenly go to waste.

As such, authors should be careful when signing any publishing contract and weigh their options before jumping in head-first.

It’s a given that publishing houses will eventually have control over the financial aspect of the book, but it doesn’t mean authors must completely give in to their demands.

What Authors Stand to Lose After a Book Advance

You must have guessed by now that there will always be some compromise for any deal that involves getting money in advance.

Because publishers stand to lose if a book doesn’t perform as expected, they will include measures to protect their interests.

For one, authors will lose the print license to their works for a certain period.

This means that, during the process of recouping the advance from sales revenue, authors will not have the right to republish or sell their books through any other channel.

You also can’t break down certain portions of your book and sell them via a website or a blog.

This measure is there to prevent authors from earning any additional income – which could potentially harm the publisher’s chances of recouping their investments.

If your book becomes a massive hit and earns more than your publisher has invested, you could demand a renegotiation of terms.

This will allow authors to take back their works’ exclusive rights and increase their royalties per book sale.

But that’s only in theory.

In the real world, when you earn back the book advance and the book sells more than everyone expected, the publisher will still take a significant percentage of the additional profits.

In most cases, authors cannot negotiate for better terms once they’ve accepted their initial advances.

So, it’s always better to comprehensively understand what you’re getting into before signing any publishing deal.

Are Book Royalties Meant to Last Forever?

Convention tells us that book royalties are paid within the duration of the copyright. In layman’s terms, authors get to receive royalties as long as their book remains in circulation. If you want specifics, it’s about 70 years from the author’s death.

But this isn’t a universal rule, and even if it is, publishers are clever enough to insert specific clauses in the book contract to reduce the author’s share of royalties.

If you look closely at the publishing industry, it isn’t difficult to see that this only applies in certain cases.

As mentioned earlier, publishers are not charitable institutions; they’re businesses with interests that need protection.

Because of this, publishers will turn to various tactics to minimize their risks and increase their chances of making a profit. And whether you like it or not, these practices will apply to authors in some form or another.

Book Royalties Are Taxed, Too

Royalties and book advances are taxable according to the laws of your country. For example, authors in the United States must pay taxes on all royalties they’ve earned regardless of whether they used it or not.

It means that authors have to file with two different organizations – one for the federal government and another for the state government.

And even if you’re located outside of the US, you’ll still be subject to your country’s tax laws.

This means that all royalties earned can potentially be taxed unless stated otherwise in the publishing contract.

Royalties Are for Publishers More Often Than Not

Royalties indeed allow authors to earn as much from their hard work, but the publisher makes the most out of the practice. Here’s what we mean:

There’s no other way for publishing houses to earn from working with an author (and eventually selling their books) other than through royalties. As a result, they have this sole focus or tunnel vision in which there’s no other concern than selling the book.

In some instances, publishers may even skimp on the book’s marketing budget or not bother to promote it as much as they should.

The reason?

They want to keep more profits from royalties, leaving authors with less say in presenting and promoting their work.

The problem is that new authors rarely get to work with a publishing house because the latter will turn their backs on a low probability of success.

Even if they do, publishing houses will still take the lion’s share of the royalties for themselves.

What Self-Publishing Does to Royalties

The conditions and stipulations in the manner of selling your book are in the hands of the publisher – this is the reality when you go through traditional publishing.

In other words, you lose some of your rights to the book you wrote, which will be reflected in how much money you can make from it.

Self-publishing is a very different story.

Many authors opt for self-publishing because they get to keep all their rights to their work. Authors have substantially more control over what happens to their books – including the royalties they earn from them.

Self-publishing platforms usually give authors up to 80% of the royalties from each sale, and authors can even set their own prices depending on what they think is fair.

Authors will still have to pay the regular taxes associated with their book sales in self-publishing.

But they don’t have to worry about a publishing house taking too much of their royalties or having control over what happens with their book.

To be quite literal, authors earn every cent of the money made from selling their books without sharing it with anyone else.

Final Thoughts on Book Royalties

Navigating the intricacies of book royalties can be complex, but a clear understanding of this concept is a must for any author.

It’s not just about signing a contract with a publisher and seeing your book in print.

It’s also about understanding the potential earnings from your work and making informed decisions about your career as an author.

While this blog post has given you an overview of book royalties, it’s always a good idea to consult with a literary agent or a publishing consultant who can guide you through the complexities of contracts, advances, and royalty structures.

This way, you will have a knowledgeable guide who can help you make the most of your writing career.

Remember, writing is as much an art as it is a business.

Here’s to making every word count, both on the page and in your bank account!