How the royalty basis affects what your percentage is calculated on
The royalty basis determines what dollar amount the royalty percentage is applied to. Choosing the right basis is one of the most important decisions in a royalty contract because the same percentage can produce very different payouts depending on the basis. For example, 10% of Sale Price is a much larger amount than 10% of Net Royalties.
Revenue after Cost of Goods Sold (COGS) are deducted. This is the most common basis for publisher-author contracts because it reflects the publisher's actual profit margin on each sale.
Revenue after returns and distributor fees, but before COGS are deducted. This basis gives the contributor a share of total income the publisher receives, regardless of production costs.
The full retail price the customer paid. This is a high base amount (though List Price may be higher), so contracts using Sale Price typically have lower percentage rates. Common in traditional publishing for hardcover deals.
The ONIX catalog list price multiplied by units sold. Unlike Sale Price, List Price is not affected by retailer discounting or promotional pricing. This provides predictable, consistent royalty amounts regardless of what the customer actually paid.
A fixed dollar amount paid for each copy sold, regardless of the sale price or any deductions. This is the simplest method and provides completely predictable payouts. Often used for work-for-hire arrangements or illustrator contracts.
Consider a book that sells for $20.00, with $3.00 in distributor fees, $2.00 in COGS, and no returns. Here's how a 10% royalty differs by basis:
* List Price example assumes the ONIX catalog price is $24.99 even though the book sold for $20.00.
You want to share profits after all costs are accounted for. This is the safest option for publishers since royalties are only paid from actual profit.
You want contributors to earn based on revenue received, without being affected by production cost changes. Good when COGS vary between print runs.
The contributor negotiates a percentage of what the customer pays. Common in traditional publishing where the author's rate is based on the cover price.
You want completely stable royalty amounts that aren't affected by retailer discounting or promotional pricing. The payout is the same whether the book sold at full price or at 50% off.
You want a simple, fixed payment per copy regardless of price or costs. Ideal for work-for-hire arrangements where the contributor receives a set amount per sale.