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Book publishers tend to enter the business because of a love for books, not a love for royalty accounting. But royalties can be complex, and consume a disproportionate amount of the time spent on the business. This article is an introduction to book royalties and how they work, with information about how to simplify the process with the help of existing automation tools.
Book royalties are payments authors receive from their publishers based on a percentage of book sales. The royalty terms are set when an author sells the rights to their work to the publisher.
The royalty model is a common alternative to a “work for hire” model, in which the author receives a one-time payment from the publisher. With royalties, both authors and publishers share the risks and rewards of the book’s success.
Book royalties fluctuate greatly depending on whether you’re working in a hybrid or traditional publishing model. In hybrid publishing, the costs of publication are shared, and authors may receive 50-90% of net sales.
In traditional publishing models, authors generally receive lower royalty rates, typically 25-50% of net sales for ebooks, 10% for paperbacks, and 15% for hardbacks. It’s also common for royalties to be adjusted for discounted sales, which are demanded by larger booksellers. When publishers license out rights for foreign editions or for film or television adaptations, authors typically receive 50% of those earnings.
Traditionally, there are two types of book royalties. “Retail royalties,” also known as “list royalties,” are calculated based on the retail price of the book. “Net royalties” are based on the publisher’s net revenue from book sales. Net royalties are more complicated to calculate and track, since there are likely to be varying levels of discounts the publisher offers to different retailers over the life of the publication.
Contract terms may vary, but usually royalties are paid for the life of the work’s copyright. Current U.S. copyright law preserves the copyright for the duration of the author’s life plus an additional 70 years. So if a book continues to sell, the author’s heirs may receive royalties for up to 70 years after their death.
The calculation of book royalty payments is informed by numerous factors, which can vary depending on how publishers structure their agreements with authors. The key factors in royalty calculation generally include:
(For more information on this topic, see our article How Are Royalties Calculated?)
A book royalty agreement should address the following to protect both the publisher and the author and ensure clarity in the financial relationship:
By addressing these elements in a royalty agreement, both parties will have a clear understanding of their obligations and how royalties will be managed throughout the book’s lifecycle.
The process of calculating book royalties can quickly become complex, error-prone, and time-consuming. A system of spreadsheets may help, but as a publishing company grows and its accounting demands become more sophisticated, a homegrown system becomes less effective. Publishers often find themselves bogged down by the sheer amount of time needed for royalty calculations, resulting in delays, inaccuracies, or missed payments to authors.
MetaComet® recognized this challenge over 20 years ago, and designed Royalty Tracker® and our other automation tools to simplify royalty management. These tools can cut the time required for royalty management by up to 95%, while eliminating errors and reducing frustration and stress. The software guides the user through setting up rules for processing their company’s royalty files. Once the initial set-up is complete, the user can upload sales files then complete their royalty calculations and send out statements and payment files with the click of a button. The royalty records are maintained on a secure server, making audits and reviews easy.
Would you like to see if the MetaComet® book royalty management solution is the right one for your business? Please contact us for a free consultation, and we’ll be happy to answer all of your questions.
David Marlin is the President and Co-Founder of MetaComet® Systems, a prominent provider of royalty automation tools. Since founding the company in 2000, David has spearheaded the development of a suite of best-in-class systems that effectively facilitate royalty processes for nearly 200 publishers. David has also served as the chair for The Book Industry Study Group’s Rights Committee and Digital Sales Committee.
Before establishing MetaComet Systems, David served as a technology consultant for renowned publishers, collaborating with notable companies such as Random House, Penguin, HarperCollins, Holtzbrinck, Macmillan, Scholastic, Time Warner, and many others. David holds both an MBA and a BA from Columbia University in New York.
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