In order to achieve success with his newest e-book project, any writer must think about the business side of things before he starts creating. For finishing a quality ebook is not an easy or uncomplicated job. And assuming that he is not just into writing for the thrill of it, he must carefully take into account different royalty models before he goes on.

The general idea behind the concept of “royalties” is of course that it is a measure of the amount of money you might make from the sales of a certain product. However, when you are evaluating a royalties contract you should also weigh in other factors — factors that could be even more important for you to ponder. Such factors could be, for instance, your ability to end the contract prematurely, or the question of the exact time of the payments.

Here in this article, however, I will limit myself to an account of the total amount of royalties a writer can expect to generate when using different types of royalty deals. For brevity’s sake, I shall only list four royalties models, although there are other types of arrangements as well.

1. Publisher’s “List Price Percentage” Royalties

The first model that is seen at major publishing houses is the “List Price Percentage” model. This is probably the easiest one to calculate, since it only involves two factors: the list price and the author’s percentage. In such a model, the author typically gets between 10 and 20 percent of the e-book list price.

An illustration: An e-book sells for $20 and the contract says that the author will make 15 percent of the list price from the sale of every e-book. So the author can expect to be paid a royalty of $3 per ebook (0.15 x 20).

Big publishing houses such as Random House and Simon & Schuster have previously used this type of arrangement for contracts with ebook authors. Nowadays, however, these and other publishers are moving on to the second model, the “Net Receipts” model.

2. Publisher’s “Net Receipts Percentage” Royalties

Another type of arrangement is the “Net Receipts Percentage” model. Just like the previous one, this model is (or has been) used at many major publishing houses. This model is increasingly popular among publishers, and probably will be even more so in the future. As of now, Macmillan, Random House, and Simon & Schuster are using it.

In this royalties scenario, the net sales of the ebook is the chief number around which the calculation of the royalty amount revolves. The percentage number most frequently used in this type of arrangement is between 10 and 25 percent.

For example, assume that an ebook sells for a list price of $18. Also assume that the publisher arrives at the net sales figure as 60 percent of the net proceeds. If now the author has an arrangement where he gets 15 percent of the net sales, then he would, in this example, look at something like $1.62 per ebook (18 x 0.60 x 0.15).

3. Self-Publisher’s “Flex-Price Net Receipts Percentage” Royalties

The third option would be to publish your ebook all on your own, but nevertheless use one or several retailers and distributors to promote and sell it. For example, you could use distribution channels such as Lulu.com.

Here, the author should receive a certain percent of the net sale of the ebook, and in that way it is pretty similar to the second model. However, with the “Flex-Price Net Receipts Percentage” royalties system, the author’s percentage per book will be noticeably higher.

Another benefit for the author when comparing it to the second model, is that he might get more control over the product development. Not only will he be able to have more power of the editing and design, but he will also, most importantly, be able to set the list price himself.

4. Self-Publisher’s “Full List Price” Royalties

The fourth model is built on the idea that the author not only publishes the book himself, but also markets it himself. So in this particular model there are no external distribution channels or external retailers to worry about.

Even though there may be no distributors or external retailers to be concerned with, the author may here need more technology to set up some kind of e-business solution. Note, however, that the technical aspects of selling products online may not be as overwhelming as many think. Relatively simple-to-integrate payment processing solutions such as PayPal.com work well.

At any rate, the amount of royalties to be projected from this fourth arrangement is fairly easy to estimate, as you will keep all the proceeds for yourself. Naturally, though, depending on the particular solution you are using, you may wish to adjust the figures, in order to properly account for costs related to services such as the site or blog hosting or your payment processing, etc.

Conclusion

It may not be entirely easy to determine which scenario suits you the best. One issue is, for example, how interested you are in marketing. If you are very interested in promoting your own ebook or ebooks online, then royalty scenarios 3 and 4 may very well be good for you.

However, if you are mainly a writer, and not so keen on internet marketing, it might not be a bad idea to aim at the first and second royalty models. The downside with these two models is, unfortunately, that it is not so easy to get published; but if you don’t get lucky, you can always try models three and four as your plan B.

ABOUT THE AUTHOR: Johnny Jones is currently a contributor to the EbookBrothers.com website, where he shares his thoughts about ebook marketing, and on individual topics such as ebook royalty etc. For a free subscription to the EbookBrothers.com Newsletter (with free tips and articles on how you can succeed with your own e-book marketing), visit Ebook Brothers immediately, before the free offer expires.