How do I calculate the correct percentage to use for an autopay freelancer royalty?

Publisher Service -

Normally agreements call for licensor royalties or freelancer royalties to be calculated either on a gross or a net basis.

gross royalty normally means the royalty is based on price paid by the end customer. So a 10% gross royalty on a PDF for which the customer pays $20 would simply be 10% x $20 = $2 due to the royalty recipient.

net royalty normally means that any fees associated with the sale are removed from the gross amount the customer paid and the royalty is applied to the net amount the publisher actually receives. So a 10% net royalty on a PDF for which the customer pays $20 would be $20 x 70% (exclusive publishers) = $14 net earnings x 10% royalty = $1.40 due to the royalty recipient.

 

Our marketplace's autopay royalty calculations are all done based on the gross sales price paid by the customer (for digital titles).

The autopay royalties are not based on the net earnings you receive as a publisher.

 

If your royalty agreement with your licensor or freelancer is a gross royalty, then life is simple (with the printed format caveat below) and you simply enter your royalty percentage in the royalty tool.

If your royalty agreement is for a net royalty, then you need to do a little math to convert your net royalty to an equivalent gross royalty. Simply multiply the net royalty rate by your publisher earnings rate to calculate the equivalent gross royalty. For example, if you owe a licensor a 10% net royalty and you are an exclusive publisher with an earnings rate of 70% then you would multiple 10% net royalty x 70% earnings rate = 7% equivalent gross royalty and enter that 7% as the royalty rate in the royalty tool.

 

Printed Sales

For printed versions of your titles, the royalty rate you enter for your licensor or freelancer will be applied to the gross margin of your print sale.

For example, if you price Book XYZ in print at $20 and its print cost is $5, then the autopay royalty will be paid on the $15 margin on that sale.

For printed books where the print cost varies depending if the book is printed in the US or the UK, this means that the gross margin of print sales is not always the same for every sale. You'll probably want to make sure your licensor or freelancer understands this method of royalty calculation and agrees to it before using an autopay royalty for a title with a print option.

Titles can only have a single royalty rate set for each freelancer/licensor and that rate will be applied to both the gross price of download sales and the gross margin of printed sales.

 

 

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