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Long Tail Error: Book Publishing Royalties

I picked up a copy of Chris Anderson’s The Long Tail and am about a third of the way through it. I’ll post a full review when I’m finished, but I wanted to point out a glaring error he makes on book publisher royalty calculations.

On page 77, Anderson is comparing royalties for self-publisher Lulu vs. a traditional publisher and says “Eighty percent of the profits from these (Lulu) sales go directly to the authors, compared to 15 percent for standard publishers. So much for the notion that self-publishing is just for losers.”

While the Lulu statement is fairly accurate (see this link for the details, where Lulu notes they charge a 20% commission against the gross margin), the traditional publisher calculation is wrong. Believe me…if publishers were really only paying 15% of the profits out to authors as a royalty, book publishing would be a much more profitable venture! In reality, what Chris probably meant to say is that standard publishers typically pay 15% of the net receipts, not profits.

Early in the life of my blog I offered up this post regarding basic royalty calculations. I went with a 10% royalty rate, rather than 15%, just to keep the math simple. In my example, the author receives a royalty of $1.50 per copy. That’s because the calculation is made against the publishers net receipts, not profit. You don’t have to be a mathematician to see that x% paid against net receipts is going to be a higher number than the same x% paid against profits, which will always be a smaller number than net receipts.

For what it’s worth, I’ve seen plenty of cases where the author made more on a book than the publisher. Due to the fact that the author gets paid against net receipts, not profit, it’s easy to see where the author can come out with a positive cash flow while the publisher loses money. Any publisher with too many of these money losers is likely to go out of business, of course. My point is that the traditional publisher takes on much more of the risk than a self-publishing outfit like Lulu.

Just like anything else, there are pros and cons that must be weighed. This one mostly comes down to whether you want a bigger piece of a potentially smaller pie or a smaller piece of a potentially larger pie.

Comments

renee

Joe, I haven't read the passage yet, but just an FYI, not all publishers or imprints within publishers calculate royalties from net receipts. Common practice in the trade book space -- where Chris' hard cover book falls -- would be 15% of the cover price of the book, not net which is common in computer and other series books.

Also, what he leaves out in his discussion of Lulu's 80% royalty is that the publisher offers little or no distribution. For small and independent publishers, the hefty fees charged by book distributors is substantial -- but also with substantial upside for the author and publisher alike.

Joe Wikert

Hi Renee. Yes, I'm very familiar with the trade practice of paying against cover price. But that would take the royalty amount even higher, much further away from what Anderson states in his book. Just to be clear: royalties against cover price are higher than royalties against net which are higher than royalties against profit, assuming the royalty *rate* is the same in all three calculations. Keeping with a consistent percentage, say, 15%, you're multiplying that rate against a shrinking number as you work down from cover price, then to net price and finally down to profit.

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