TWUC's Royalty Math

Welcome to Royalty Math – your very quick guide to getting a fair shake on ebook royalties from a publisher. Also known as "Why authors should get an ebook royalty rate higher than 25%."


Here is a table full of numbers (above). Let’s hit the main points. What we’re doing with this table is comparing the various costs and revenue returns for different kinds of books. We’re looking at hardcover books, which we’ll assume average out at around a $35 list price, trade paperback books at $20, and ebooks retailing at $15 – and yes, that’s kind of a high price for an ebook, considering the way ebooks are marketed and sold right now. Nevertheless, the percentages work at all price points and $15 ebooks do exist, especially for Canadian titles.

PLEASE NOTE: This spreadsheet was created to reflect the reality for ebooks created from, or alongside, traditionally published books. This is not meant to reflect the world of e-born, self-published, or Print on Demand titles, which can have radically different royalty structures for authors. Please also note, in the column titled "Formula" there are alphabetical references. These refer to the rows in the spreadsheet. Row A is List Price, Row B is Manufacturing cost, etc.


Now, the first thing we want to consider with the sale of any book is how much the thing costs to make. Our understanding is that 10% of the standard retail price covers the manufacturing costs for print books, on average. What that means is that every single $35 hardcover copy of a book costs (roughly) $3.50 to make*. Every $20 trade book costs $2. But, of course, ebooks don’t have print costs, and you don’t have to use trucks to move them around. As well, unless the book is e-born, the heavy costs for editing and production have mostly been paid by the time it comes to producing the ebook. It does cost something to create ebooks and load them on retailer sites, so let’s estimate that at 25 cents per copy.


Of course, this is book selling we’re talking about, so that means we have to factor in the dreaded returns. For those who don’t know, booksellers do not buy stock outright from publishers. They are essentially selling on consignment, meaning the stock they do order from publishers, they have the option of returning for refund. Average returns across the two print classes are about 35% (ouch, yes, that hurts the feelings of writers AND publishers), so that means subtracting another $1.23 from each hardcover and 70 cents from each paperback. Ebooks, of course, being magical and non-existent as they are, are not returnable. 


And, of course, publishers provide booksellers with a significant discount for placement in their retail outlets and/or online retail sites. We have estimated an average discount of 55% for physical books, and 50% for ebooks. This is a rough estimate but reflects, we think, the reality of the business as it now stands. This means that on a hardcover, the retailer receives an average discount in dollars of $19.25, on a trade paperback, $11.00, and on our ebook, $7.50.


The net receipts are then calculated as the list price minus the discount to the retailer - standard stuff, resulting in $15.75 for a hard cover, $9 for a trade paperback and $7.50 for an ebook.


Standard royalty rates for Hardcover and trade paperback, starting at 10% and moving to 15% of the list price result in these amounts per book for the author - between $3.50 and $5.25 on hardcovers, and between $2.00 and $3.00 on trade.


And these profit amounts for the publisher (see above).


If we now look at books, you will see, first-off, that royalties are generally calculated not on the list price (which can fluctuate wildly), but on the net receipts. The "industry standard" right now is 25% of net receipts. TWUC recommends asking for between 25% and 50%. Why? Because, as you can see by this calculator, the publisher does quite well anywhere within that range – in fact, the publisher does not substantially suffer even at the higher royalty rate, while the difference to the author is substantial.


You see here, at 25% royalty on a $15 ebook, after the 50% discount to the retailer, the author makes $1.88 per book, lower than the amount she makes at 10% on a $20 trade paperback. The publisher on the other hand is making more than he would make at BOTH percentages for trade paperback.


Whereas at 50% on that same $15 ebook, the author now makes more than both trade levels, plus more than the 10% hardcover level, and yet the publisher is still making a good profit, better in fact than they make at the 15% royalty level for trade paperback. Clearly, the sweet spot for everyone is a royalty rate for ebooks between 25% and 50%. The industry standard, TWUC contends, is far too low and does not in any way reflect a fair partnership between authors and publishers on ebooks.


Knowledge is power, dear authors. Keep TWUC's royalty math in mind when you receive your next book contract.

Thanks, as always, to our sister organization, The Authors Guild, for doing the math on ebooks in a blog post a few years ago. The numbers haven't changed much since then.

*This is a rough estimation for the purposes of this demonstration. We recognize the unit cost for books goes down as more copies are made.