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Royalty rate questions from the interns

I’ve looked over so many royalty statements that sometimes it’s easy to forget that not everyone understands them. And believe me, there are times when royalty statements are very, very hard to understand. But I realized the necessity of this post when going over royalty statements with a few interns, and they had the same basic questions I first had.

How do publishers determine royalty rates?

Fair question. The answer is that they don’t. Not alone, at least. Royalty rates are outlined in the author’s contract, and if the author has an agent, it’s his or her job to negotiate the terms of this contract on behalf of their client, including the royalty rates. This also partially answered their second question.

Are hardcover royalties handled differently than e-book royalties? And what about audio royalties?

Well, yes, they are, and kudos to the interns for inadvertently asking a contentious question concerning a longtime issue in the publishing industry ever since the ascent of e-books. Although all royalty rates are outlined in each individual author’s contract, the industry standard generally dictates a royalty rate around 10-15% of the list price (retail price) for hardcover editions of a book–7.5% for trade paperback and 8%-10% for mass market. E-book rates hover around 25% of the net, meaning 25% of the publisher’s profits. Although the latter might seem more beneficial for authors, e-books are priced lower than print editions and have significantly lower production costs, which if we were to do the math, results in less earnings per unit.

And if considering a wide range of royalty rates for multiple editions of a book isn’t enough, many contracts have royalty escalators and different rates for exports, foreign sales, and subsidiary rights.

Confused yet? Want to know more? Well then let me hear your thoughts: post your question in comments section!

One Response to Royalty rate questions from the interns

  1. Bill says:

    You said: E-book rates hover around 25% of the net, meaning 25% of the publisher’s profits. Although the latter might seem more beneficial for authors, e-books are priced lower than print editions and have significantly lower production costs, which if we were to do the math, results in less earnings per unit.

    If production costs are lower, how can earnings be lower — unless the sale price is ridiculously low? Can you give some numbers as a “frinstance”? Thanks.

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