Royalty Payouts—What Do Authors Make Per Book Sold?

It’s royalty payout time again here at Orange Hat Publishing! This is one of my favorite things to work on for three reasons. First, I love it because I wrote the code that calculates royalties. It’s all written in the statistical programming language R, which is the language I’m most familiar with. I used R a lot when I was working in research, and it’s fun to keep up my coding skills with the royalty code. There’s always something new to do with the code, new features to add, updates to make. Just look at some of the cool stuff I’ve written! This code takes sales through our website of two books (sold in a bundle) and creates new entries for each book so that the author’s sold total and compensation can be properly calculated.

bw.sc.rows <- which(web[,”isbn”]==”BW1001SC”)

if (length(bw.sc.rows)>0) {
for (x in 1:length(bw.sc.rows)) {
web[nrow(web)+1,c(“title”,”isbn”,”sold”,”total”,”format”)] <-
c(“Bodywork for Babies”,”9781645383864″,web[bw.sc.rows[x],”sold”],as.numeric(web[bw.sc.rows[x],”total”])/2,”SC”)
web[nrow(web)+1,c(“title”,”isbn”,”sold”,”total”,”format”)] <-
c(“Bodywork for Sensory Integration”,”9781645387428″,web[bw.sc.rows[x],”sold”],as.numeric(web[bw.sc.rows[x],”total”])/2,”SC”)
}
}

web <- web[-which(web[,”isbn”]==”BW1001SC”),] # Remove the SC bundle entries

bw.hc.rows <- which(web[,”isbn”]==”BW1001HC”)

if (length(bw.hc.rows)>0) {
for (x in 1:length(bw.hc.rows)) {
web[nrow(web)+1,c(“title”,”isbn”,”sold”,”total”,”format”)] <-
c(“Bodywork for Babies”,”9781645383840″,web[bw.hc.rows[x],”sold”],as.numeric(web[bw.hc.rows[x],”total”])/2,”HC”)
web[nrow(web)+1,c(“title”,”isbn”,”sold”,”total”,”format”)] <-
c(“Bodywork for Sensory Integration”,”9781645387138″,web[bw.hc.rows[x],”sold”],as.numeric(web[bw.hc.rows[x],”total”])/2,”HC”)
}
}

web <- web[-which(web[,”isbn”]==”BW1001HC”),] # Remove the HC bundle entries

The second reason I love working on royalties is because it means we get to pay out money to our authors! Reasonably, no one should go into publishing books to make money. But isn’t it awesome when money comes in?

And the third reason I love working on royalties is because we get to look at the data and see if there’s anything interesting we can learn from it!

One of the pieces I calculated is the amount authors earn per book sold. There are a variety of ways that authors can sell their books. They sell on websites like Amazon, on places like the Orange Hat store, and the authors themselves sell copies. For royalties, we have data on sales from distributors, from our website, and from any wholesale orders we’ve fulfilled.

For authors earning royalties this period, I took the amount owed and divided it by the number of books sold. And here’s what the data tells us!

Average Earning Per Book: For this period, we are paying to authors as a royalty $3.62 per book on average.

Lowest Earning Per Book: The lowest paid amount per book is $0.50 per book. This amount came mostly from selling discounted ebooks. Put the ebook on sale for a low amount to get the book into the hands of more readers and generate interest in an author. It’s a great strategy for readership, even if the financial return is small.

Highest Earning Per Book: $14.45! Why so high? This book is priced higher because it’s a reference book not meant for the general public. It serves as a great reminder that higher prices on books—when people will pay it—generates greater return. Maybe that sounds a bit silly to even say! But it matters a lot with our royalty model in which Orange Hat’s share of compensation received is a flat amount, not a percentage, and the author receives whatever is left.

Variation in Earning: The standard deviation of earnings is $2.19, meaning about two-thirds of authors earn between $3.62 – $2.19 = $1.43 and $3.62 + $2.19 = $5.81 per book. Except that our distribution is right skewed, meaning more authors earn at the average or below (58%) than at the average or above (42%).

Other Factors: In addition to price, another factor is wholesale discount. I wrote a whole post about wholesale discounts, but the basic idea is that the wholesale discount amount is the discount we agree to give a retailer who is selling the book. We can give between 30% off and 55% off. A higher amount means a retailer like a bookstore is more likely to stock the book, but it also gives that same higher discount to places like Amazon. When putting a book up for sale, we have to assess if we are losing sales by not giving bookstores the full wholesale discount they expect. If we think it is unlikely a bookstore will stock the book by ordering it through Ingram, then it makes more sense to do a smaller wholesale discount. And the result of that smaller discount is more money for the author!

For example, imagine a book retails for $20 and costs $5 to print. (I’m using nice round numbers just to demonstrate. These should not be taken as reflective of actual retail prices or print costs.)

We calculate the royalty owed this way: $20 – wholesale discount – print cost – small distributor fee – Orange Hat share = royalty.

$20 – (55% of $20) = $9 – $5 print cost – small fee (say, $0.30) = $3.70. This is how much Orange Hat receives when the book sells. If the book is sold via Ingram (our main distributor), we take $0.50 of whatever we received and pay the rest to the author. Thus, in this case, the royalty paid is $3.20.

But what if we put in the minimum wholesale discount of 30%? $20 – (30% of $20) = $14 – $5 print cost – small fee ($0.30) = $8.70. After our $0.50, the author gets $8.20.

Just by updating the wholesale discount, the author’s royalty for this hypothetical book more than doubled! But if we chose 30%, no bookstore would stock the book through Ingram (though they might order directly through us). It’s a delicate balance.

Authors should regularly discuss retail price and wholesale discount with their publisher, especially if the publisher has a royalty model like ours where the author’s royalty is not a fixed percentage of retail price! The differences can be huge.

Okay, that’s all the little data dive for today! Thanks for reading! Do you have any questions about royalties? Post them in the comments!