Understanding Royalties: What Every Writer Needs to Know

For writers hoping to make publishing a long-term career, understanding royalties is essential. Even if you have a literary agent or an accountant spouse, it's important to grasp how royalties work and what to expect in a book deal. This article provides an overview of royalties, how they function, and what you might encounter in today’s publishing industry.

What Are Royalties?

Royalties are payments that publishers make to authors in exchange for the rights to publish their books. These payments are based on a percentage of book sales, and while they are often negotiable, many publishers have standard royalty rates or ranges they follow for most contracts.

There are also different types of royalty structures, which can significantly impact an author's earnings. Some authors receive advances—upfront payments against future royalties—which must be "earned out" before additional payments begin.

Let’s break down the two main types of royalties authors typically see in publishing contracts.

Two Types of Royalties

1. Retail Price Royalties

Many publishers, especially large traditional publishers, pay royalties as a percentage of the book’s retail price. This is sometimes called a "list royalty" because it is based on the original cover price of the book, regardless of how much the retailer actually sells it for.

Typical Retail Price Royalty Rates:

Hardcover: 10%–15% of the retail price
Trade Paperback: 5%–7.5% of the retail price

These royalties are relatively straightforward—unless the book's retail price changes, the royalty amount per book remains the same.

2. Net Sales Royalties

Increasingly, publishers (especially smaller or independent presses) use a royalty model based on net sales. This means that instead of calculating royalties on the retail price, the publisher pays the author a percentage of the amount actually received after discounts are applied.

Since bookstores buy books at discounted rates, the actual earnings per book can be lower than in the retail price model. However, net sales royalties often have higher percentage rates to balance this out.

Typical Net Sales Royalty Rates:

Hardcover & Trade Paperback: 16%–26% of net sales

Let’s look at how these models compare in real-world examples.

Examples of How Royalties Work

Example 1: Royalties on Retail Price

Imagine a publisher selling 5,000 copies of your hardcover book, a retail price of $20. If your contract states that you receive 10% royalties on retail price, you will be paid $2.00 per book sold.

Total earnings from 5,000 copies: $10,000
If you received a $20,000 advance, you wouldn’t receive additional royalties until 10,000 copies were sold (since $2 x 10,000 = $20,000).

Example 2: Royalties on Net Sales

Now, let’s assume the same book is sold under a net sales model. Your publisher gives a 50% discount to retailers, meaning they receive $10 per book instead of $20. If your contract states you receive 20% royalties on net sales, your earnings would be:

$2.00 per book (20% of $10)
Total earnings: $10,000

Again, if you received a $20,000 advance, you wouldn’t earn additional royalties until 10,000 copies were sold.

While these simplified numbers make the two royalty models look similar, real-world contracts introduce more complexities. Different publishers define "net royalties" differently, discounts vary between retailers, and additional costs may factor into the final payout.

Understanding these differences is key to making informed decisions about publishing contracts, royalty negotiations, and an author's long-term earnings potential.

Profit Sharing

Some small and independent publishers have introduced alternative royalty structures, including profit-sharing models. Under this approach, an author receives royalties only after the publisher has covered all costs associated with production, marketing, and distribution. Instead of earning royalties from the first book sold, the author is paid a percentage of net profits—meaning they share in the publisher’s earnings rather than receiving a fixed percentage of sales.

Profit-sharing agreements typically do not include an advance, but they often offer a significantly higher royalty percentage once profits begin to accumulate. Authors working under this model can expect royalty rates ranging from 40% to 60%, which is substantially higher than standard royalty structures.

While this can be a lucrative option if the book sells well, authors also take on more financial risk—earning nothing unless the book generates enough sales to recoup the publisher’s costs.

Final Thoughts

It’s important to remember that this information is not exhaustive, nor should it be considered legal or financial advice for your book deal. If you receive an offer from a publisher, I strongly recommend consulting a literary agent or an attorney with publishing experience to review the contract.

Understanding royalty structures is crucial to making informed decisions about your writing career. Whether you choose traditional royalties, net sales, or a profit-sharing model, having the right information will help you confidently navigate the publishing landscape.

Best of luck, and may your publishing journey be a successful one!

FOR THE WRITERS