When signing a publishing contract, the amount of money that is due to the author is a percentage of the sale price of the book as defined by the publisher. This percentage is called royalties and the system applies both to print books and digital books.

At first sight, this seem straightforward enough, if a book sells for $10 for example, a 25% royalty should be $2.5.

This of course depends on the wording of the contract. If the contract stipulates 25% of gross, or retail price, or cover price, then indeed the royalty for a $10 book would be $2.5.

However, and that is when studying the contract is crucial, if the contract stipulates 25% of net, it is much more complex to establish the amount of a $10 book’ royalties.

Net could mean only after deduction of payment charges, such as Credit Card, check clearance or money wire charges. Let’s take an example where payment charges amount to 6% of the book cover price. Our $10 book net value in that case is $10 – $0.6 = $9.4.

In that case, the royalties due to the author would amount to $2.35 instead of $2.5. Still reasonable

Yet, net could also mean that the publisher intends to deduct from the gross price not only the payment charges but any other charge incurred during the publishing process. That could be the price of producing a cover, the editor’s payment, storage cost, marketing cost or any other cost defined by the publisher.

So let’s examine our $10 book. It has now sold 20 000 copies, not bad at all….

That is a sale figure of $200 000. So 25% of the gross amount would come to $50 000, which would make the author happy. Now, from this, we deduct the 6% for payment charge, the net amount comes down to $188 000 of which the authors royalties, 25%, will amount to $47000, still nice.

That is in the case the publisher did not include other costs in his definition of “net”.

Let’s have a look at what an unscrupulous publisher could include in the cost to be deduced from the gross to obtain the net.

Book cover price:        $   2500

Editing:                       $   2500

Formatting:                 $     500

Layout:                        $     900

Promotional material:  $10 000

Administrative cost:    $   1000

Packaging:                   $   5000

Printing:                      $60 000

Mailing:                       $30 000

Distribution:                $10 000

Total                           $122400

Of course, the payment are also deducted, which means the royalties for the author would be reduced to 25% of 188 000 – 122 400 = 65 600, or a paltry $16 400 That is $30 600 less that if had signed with the honest publisher above who only subtracts payment charges before calculating royalties. The publisher, on the other hand, would get fat, all his costs being paid for by the author, so he cashes in almost 100% of the sales revenue, leaving only crumbs to the author, and all very legally.

Why did this happen to the unfortunate author? Simply because he neglected to verify the meaning of the word “net” in his contract … It is nothing much, just a three letter word. Yet the financial implications are considerable.

So, when signing a publishing contract where the royalties are based on the “net”, it is critical to verify what expenses are included in the definition of “net”. As a large part of ePublishers do pay royalties as a percentage of net,  always demand a clear definition of all expenses that the publisher intends to deduct from the gross amount, keeping in mind that a ruthless publisher could actually end up having all your royalties written off as expenses.