Recently, I had the opportunity to sit with the leadership of one of the largest traditional publishers in the world. When I asked them, “What are some of your greatest challenges as a business?”, they mentioned authors and royalties.
I was floored. I could not believe that even though they were working with some of the most well-known authors in the world, these authors were still confused by royalties. Upon further investigation, what I discovered is the same issues that crop up with self-published authors flummox traditionally published authors as well. So I thought I would attempt to see if I could clear up some of the confusion
….the same issues that crop up with self-published authors flummox traditionally published authors as well.
First, I think it is important to know what information a publisher uses to calculate royalties. Understanding the terms is key to understanding the calculation. So in the first blog post, I am going to define some important terms.
Then, in a blog post to follow I want to address some common misconceptions or misunderstandings regarding royalties.
Admittedly, this topic is a complex one, and there is no way any blog post can address every circumstance. However, I have tried to take the most common terms and situations and address those. I trust you will find this helpful. So here are some the key terms you need to know.
- Pub comp reports. This is the report that each retailer and wholesaler generates and provides to publishers. It shows what books were sold and at what price. Think of it almost like a “cash register receipt” for books sold.
- Printed books report. If there is any question about the pub comp reports, a publisher can also request a printed books report from the printers. If the number of books printed is the same total as the books on the pub comp report than there are two independent sources that corroborate the numbers. Yet, I will tell you that many authors will still claim they are being underpaid for royalties even though these two different sources align. That can be frustrating for both authors and publishers.
- Retail (channel) discount. This is what the retailer takes from the retail price for selling the book. This discount can range from 36-55%; however, the most common retail discount is 55%.
- Nielsen BookScan report. This is another report that provides point of sale data for books; however, it only tracks numbers of retailers who opt in to report sales to BookScan. In most cases these sales figures do not include:
- Sales from Wal-Mart and Sam’s Club, to libraries
- Purchases by wholesalers such as Ingram
- Sales of used book sellers
- Books published through CreateSpace
- Fulfillment by Amazon (FBA) sales
- Pre-orders—orders for a book before the book is released
Therefore, it is an approximation, but not an exact number of sales
- Royalty calculation. This is the calculation that determines what amount will be remitted to the author from the sales of the book through retail channels. In some cases, there is a misunderstanding that the royalty calculation is based on the sale price. That is not correct. It is based on the net proceeds. Typically, net proceeds is the retail price minus the retail (channel) discount. However, in some cases there can be additional costs (such as a wholesale or distribution fee or even the printing cost of the book depending on the royalty agreement. Those must also be deducted before the calculation can be completed.
- Royalty percentage. This is the percentage that is used to calculate the royalty amount owed to the author based on the author agreement. It can vary greatly depending on the format of the book, the author agreement and whether the book is published with a traditional publisher or assisted self publisher.
I hope you find this information helpful. In the next post, I am going to address some common misconceptions about royalties.