What Are Book Royalties?
What are Royalties and How Do They Work?
If you are self publishing using a platform such as Amazon's Createspace or Kindle Direct Publishing (KDP) OR you are traditionally published, your primary income from your book will be in the form of royalties.
Royalties are a percentage of a book's sale, or a flat fee per book sold, that are paid to a book's author (or the current copyright holder if the author's rights are sold or transferred) to compensate them for publishing and/or distribution rights. Royalties are typically paid by the publisher after sales are confirmed and fully paid. So there may be a lag time between a book's sale and when an author actually gets paid. That lag time could even be months. Payout periods and thresholds are determined by publishers and according to their agreements with authors.
Advances versus Royalties
When an author gets a traditional publishing book deal, he will usually be paid an advance. It is called an advance because it is paid as an advance payment against future royalties.
Authors who have received an advance are, therefore, not paid regular royalties until after their level of accrued royalties reach the dollar value of the advance. After that point, royalties will begin to accrue and eventually be paid according to contracted payout arrangements.
Because paying an advance can represent a significant investment and immediate cash outlay for a publisher, publishers often hold expanded rights to the author's book immediately and into the future. While this may seem unfair to authors, the possibility of making immediate advance money from writing may entice authors to relinquish some of their rights to the work. The higher the advance, the more rights an author may have to forfeit. For example, in exchange for an advance, an author may agree to not quote or republish any of his book's content. Legal review of book contracts is recommended before signing.
Royalties in Self Publishing
As with traditional publishing contracts, authors using self publishing platforms are paid royalties (percentage or flat fee) for each book sold. However, there are typically no advances paid to authors on these platforms. So royalties accrue and are paid to authors from the sale of the first book or ebook, according to agreed to payout thresholds and periods.
Since self published authors typically do not receive an advance, the publisher's (or in this case, the self publishing platform's) rights should be very limited or none. Authors should look for nonexclusive agreements with these platforms, meaning that the author can publish and sell the same work in other places and formats. Some self publishing scams seek to steal authors' rights and should be avoided.
What are Royalties for Tax Purposes?
Royalties are income and need to be reported on income tax returns. Publishers paying these royalties will report these payments to the Internal Revenue Service (in the US). Royalties may or may not require payment of state or local sales taxes in your area. Check with your CPA, tax preparer or local taxing authority to confirm any income and sales tax obligations that apply to you.
Note: Whether for print books or ebooks, self published authors who do NOT use a self publishing platform (such as Createspace or KDP) and who do all the production, printing, distribution and marketing of their books themselves do not receive "royalties." Instead, their primary income is from "revenues." Therefore, they would report their book income as business income on their tax returns. They will also be subject to collecting and paying any applicable sales taxes and would be wise to consult a CPA on tax reporting issues.
What are Typical Book Royalties?
When it comes to traditional publishing contracts, the royalty rate is contracted between the author and the publisher (or self publishing platforms for self published works). Since there are many royalty pay scheme variations, there are no "typical" royalty rates. However, there are some typical factors which impact royalty rates and payments.
Even though the volume of books produced and sold through traditional publishers can be large, the royalties paid to authors can be as low as a dollar or less per book (maybe even way less!). In the traditional arena, royalties can depend on a variety of factors including:
- Author experience and status. More popular authors with followings can command higher royalties and advances. New authors usually get smaller royalty rates and low advances since they represent a higher risk for the publisher.
- Publisher experience and status. Newer or smaller independent presses, or big publishers who want to be associated with a very popular author, may feel it necessary to pay higher royalties to attract or retain writing talent. Bigger trade publishers may pay lower rates and advances since they have a larger pool of authors to consider and they may have more costs which can drive down royalties.
- Book subject and market. When publishers consider a manuscript for publication, they will look at the potential level of sales (in both number of books to be sold and dollars) the market could deliver. If the market is small and unlikely to pay high rates for the work, royalties and advances offered to the author can be small, too. Conversely, and as would be expected, for markets with high demand and high potential sales dollar volume, publishers may be more willing to consider a higher advance or royalty pay scheme for authors. Therefore, when pitching a publisher with a proposal, authors would be well advised to highlight the size, strength and any positive trends for the book's market.
- Amount of advance. For higher advances, a publisher could reduce the royalty rate offered to an author to help offset the more costly advance.
(The following discussion of royalties ONLY applies to authors who use a self publishing platform.)
Unlike traditionally published works, royalties from self publishing are not dependent on the status of the author, publisher or market. Typically, the royalty rates paid to authors are established by the self publishing platform used, are non-negotiable and depend on costs to produce and distribute the book or ebook.
One of the biggest variables impacting these royalties is the distribution channel through which the author's book is sold. Retail outlets such as bookstores take the highest distribution fees. Ebook platforms, such as Amazon's Kindle Direct Publishing (KDP), have lower distribution fees when compared to print, resulting in greater royalty shares for authors. Even though the retail prices of ebooks are usually lower than print, the actual dollar value of ebook royalties may, surprisingly, be higher!
For example, as of this writing, through Amazon's Createspace platform, royalties are calculated by deducting multiple fees from the retail price of a print book:
Retail price per book - Fixed fee per book to produce the book - Per page charge based on number of pages in book - Percentage paid to distribution channel = Royalty paid to author
This is a complex calculation due to the variety of factors involved. So the royalty paid to the author for print books may not be the same for every book sold.
Royalty calculations for ebooks are often a straight percentage of the ebook's retail price. However, on platforms such as Amazon's KDP, there may be differing royalty percentages paid depending on factors such as the ebook buyer's location.
Disclaimer: Both the publisher and author have used their best efforts in preparation of this information. No representations or warranties for its contents, either expressed or implied, are offered or allowed and both parties disclaim any implied warranties of merchantability or fitness for your particular purpose. The advice and strategies presented herein may not be suitable for you, your situation or business. Consult with a professional advisor where and when appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other damages, including but not limited to special, incidental, consequential or punitive, arising from or relating to your reliance on this information.
© 2016 Heidi Thorne