The royalty agreement is your tool to maximise the potential of all your publications

 A well-crafted royalty agreement can be make or break for your revenue as a publisher and different types of royalty agreements can significantly impact your income and your relationship with authors.

Negotiating a good agreement, navigating risk and reward, and leveraging different types of royalties to maximise earnings is complex for most publishers –  no matter their size. Royalty agreements are so important for your business and your reputation in the market to get just right.  Don’t go lightly on setting them up to manage efficiently.

Let’s dive into some common methods that are essential for any publisher:

Percentage of sales

This is the most common method, where the author receives a percentage of the book’s sales price. The royalty percentage can vary depending on whether the book is a print book, an e-book, or an audiobook.

While straightforward and simple to calculate, this model does not account for varying production and distribution costs. The publisher takes the biggest risk as they bear the costs without guaranteed sales.

Tiered royalties

In this model the royalty rate increases with the number of books sold. For example, an author might receive 10% for the first 5,000 units sold, 12% for the next 5,000, and 15% for all units sold after that.

This model encourages higher sales with increasing royalty rates but is more complex to manage and calculate. The publisher takes the biggest risk initially as royalties are paid out on sales, but there is reward for both author and publisher as sales volumes increase.

Net sales prices

Sometimes royalties are based on the net sales price, which is the sales price minus discounts and distribution costs. This model reflects the actual revenue after discounts and costs but can mean a less predictable income for both authors depending on discounts agreed etc.

Advance payments

Many authors receive an advance payment which is a prepaid royalty deducted from future royalties. The advance is often paid in instalments at various milestones, such as signing the contract, submitting the manuscript, and publishing the book. This model offers upfront financial support, but future royalties must offset the advance, delaying additional payments. The publisher takes the biggest risk by providing upfront payment without guaranteed future sales.

Profit sharing
This model aligns interests by sharing the profits. To work well, it requires detailed accounting and can be less transparent. The method ensures that publishers and authors share profits based on net income after all expenses, but it demands rigorous financial tracking and mutual trust. Both parties share the risk equally, as profits depend on the overall success of the book – which often means that decisions are made mutually between the author and the publisher in terms of cost.

And then there are the other factors in addition to the basic calculations that can also affect royalty payments:

International sales: Royalty rates may vary for sales abroad.
Special editions: Hardcover editions or paperback editions, for example, may have different royalty rates.
Licensing and film rights: If a book is adapted into a film, TV show, or other media, additional royalties may apply.

It’s complex – but it doesn’t have to be
As a publisher you know that many factors influence royalty payments, including the book’s sales price, royalty rate, sales channel, any discounts to booksellers, distribution among multiple contributors, the volume sold, whether or not the author is still alive, deductions applied before royalty calculation, among many others. Additionally, advance payments may need to be offset before royalties are paid out.

Publishing royalty software

Managing royalty agreements in spreadsheets or other homegrown tools can be nearly impossible, and any publisher who aim to grow their income must be on top of the royalty engine of their business. During the past 30 years Schilling has developed a robust, automated royalty system for major publishers in the industry – and it is available in packages tailored to the needs and budgets of smaller publishers as well as large enterprise publishers.

Reach out we are always happy to advise and curious to get to know your publishing business.

Read more about our royalty solution for growing publishers.