About a month ago, I spent a good while typing up a forum post sparked by something I’d read on a popular writer ’s blog (name or link not mentioned because there’s really no sense in it; it was only one sentence in a completely unrelated blog post) that said, “royalties paid on profit is never a good thing to see in a publishing contract.”
Since KHP pays 50% net royalties (on ebooks – paid the other way on print), I naturally took offense to the statement, told in the context that this is a big red flag for presses that should be avoided. I also failed to see the logic in this.
Since the forum I’d posted it on crashed shortly after, I wanted to do it again, this time with more detail, and I’ll try not to digress much.
For starters, let me explain the difference:
Gross Royalties are a percentage paid to the author based on a percentage of the retail price, often between 5 and 15%. Say you have a mass market deal and it pays 10% gross royalties on a paperback that costs $6.99. For each sale, you get about 70 cents royalty. For a small press, the retail may be something like $14.95, and thus the royalty per sale (again, at 10%) would be about $1.50.
Net Royalties are where you get a percentage of what the press has left per book after subtracting production costs, or the net profits. If you’re still getting 10%, but this time in net royalties, this brings the royalties in the above comparisons down quite a bit, so this would understandably not be the better option. However, this is only in the case of selling through the big stores, and sales for small presses there are very low.
Before I start throwing figures at you, know this: relying solely on Amazon or brick and mortar stores is damn near suicide for small presses. Some presses let their orders from such places go through Ingram or perhaps Amazon’s Creatspace, so they never see the book and don’t incur any production costs until a sale is made. This can help tremendously through mainstream outlets, but for my examples, I’m referring to the small presses who have their books printed for direct distribution (they touch the books between printing and selling).
Amazon, Baker & Taylor (big supplier for Barnes & Noble and Borders), and Ingram (Lightning Source’s distributor), buy books at 50-55% off of retail. Say a book costs around $5 to print (people hear a lot of $3-to-print but that’s if you print off a bulk amount, in which case the press is stuck with tons of stock when they don’t sell). For my below figures, I’ll use the usual 55% buyer’s discount, the $5 production costs, and the retail price of $14.95. For the royalties, I’ll use 50% for net royalties and 15% for gross royalties (because there is no way a press can do 50% gross royalties, especially when the big stores take 55%)
For presses paying gross royalties: Easy. Authors get $1.50 per book sold. Amazon and others pay the press $6.72 per sale. Subtract the $5 production costs and the press has $1.72. Give the author the $1.50 and the press profits a whopping 22 cents per sale. And there is other overhead like website costs, ISBN blocks, promotion… now you can get an idea of why I mentioned “suicide.”
For presses paying net royalties: After the stores’ discount, you’re left with $6.72 and subtract the production costs to get $1.72. At 50% royalties, both the author and the press get 86 cents. But wait! The author isn’t getting as much as with gross, so they’re getting screwed! Red flag! Red flag! … Compared to the gross royalty example, how much do you suppose the author will continue to make after the press goes bankrupt? This way, the author is getting the same as the press. It’s more of a partnership. And it’s assuring to (most) authors to know that if they see a low royalty check, the press isn’t doing any better. If the check is high, the press is just as thrilled. Again, partnership. In my opinion, that’s how it should be. Authors are not simply money-makers and the press is not simply a company made for writing checks. If you want to make money, you work together for it.
Still, the royalties/profits suck either way, thanks to the big stores’ heavy discounts. And here’s where I explain the “low sales” further. These days, the market is in rough shape regardless of the press size, but when a small press gets a book up on Amazon, it’s amongst a sea of mainstream bestsellers that get all all the front space, and all the vanity crap that’s clogging up the rest of the space. It’s a virtual sea of books, to where someone would have to type the title, specifically, into the “search” box to find it. And people, especially authors, think this is exposure?
Hence, low sales. I’m guessing that a small press who claims to make fantastic sales from Amazon sold more than one that month, perhaps a handful in the previous quarter. Then you have those who take anything to fill their catalog, thinking quantity over quality will bring sales up. Readers only need to buy a few crappy ones before they avoid titles bearing that press’s name.
A few years ago at Skullvines, we sent a really nice promotional package to Barnes & Noble in hopes that they’d give it a shot in their stores. The form rejection said, “Blurbs not good enough.” The front cover sported a blurb from Clive Barker and the back had other big names. Do you think they even looked? No, they said, “Hm, another small press” and chucked it.
The big stores will rarely give small press titles a chance, and if they do, there is little to no profit to be made.
So where is the money when a press does direct distribution? Direct sales. Let me offer you those figures:
The press sells a book at $14.95 and, since there is no big store discount, they simply subtract the $5 production cost and split what’s left with the author. Both the press and the author get approximately $4.98. Big difference!
Let me offer you a scenario that’s very close to how it actually goes down, and I’ll even throw in profits from Kindle ebooks. For this example, I’ll say the ebook sells for $2.99 for which Amazon pays $2.09 per sale. And most presses who pay gross royalties, to my knowledge, rely more on big store sales than direct, but I’ll be generous here. Here we go:
For a slow month on a $14.95 small press title (paying 50% net royalties):
1 Amazon sale gets the author 86 cents
1 Baker & Taylor order (which takes about 8 or 9 months to pay) gets the author 86 cents
5 direct sales get the author $24.90
3 Kindle sales get the author $6.27
Total royalties for this month: $32.89
A press making the same sales, but paying 10% gross royalties:
1 Amazon = $1.50
1 B & T = $1.50
5 direct = $7.50
3 Kindle sales = $0.90
Total royalties = $11.40
See any red flags? Are gross royalties better with small press?
Let’s be more generous and say they pay 15% gross:
1 Amazon = $2.24
1 B & T = 2.24
5 direct = $11.20
3 Kindle = $1.35
Total = $17.03
Still not near as good as $32.89. It doesn’t even touch it.
Now, I’m not slamming presses who pay in gross royalties. It’s pretty common, actually, and practiced by some fantastic presses who are great to work with and treat their authors fairly. Most of these rely more on Amazon sales, etc, and it’s direct sales that make net royalties pay so much higher. If they make less direct sales than otherwise, their way is fine. It all depends on the business model – how they distribute.
This is simply to illustrate that a press who pays net royalties is NOT somehow screwing the authors over, especially if they make more in direct sales than otherwise.
A big issue that hinders progress for small presses, regardless of how they pay, are the incredibly huge discounts stores take for each sale. At the same time, there are enough presses out there who are screwing people over, so customers are paranoid about buying direct. I don’t blame them.
Hopefully I’ve managed to clarify some things for those not in the business, or authors who were told to stay away from “net profit” paying companies. As always, there are good and bad presses, and it can be difficult to tell which are which, but this method of payment is NOT a red flag.
Thanks for listening.