What Percentage of Publisher Compensation Goes to Authors?

Big news! In time for our March royalty payments, I have completed our new royalty calculation tool. It’s all coded in the statistical programming language R, my programming language of choice. And it gives what I believe is unprecedented transparency in royalty calculations. Our authors can now see exactly the amount of compensation we received for the sale of their book, how much is our share, and how much goes to the author. The math is simple (though assembling all the sources of info into a useable format takes some wrangling), and the rates for our authors with hybrid contracts (99+% of our books) are impressive!

(Does anyone want to know more about the code and the data wrangling? You’ll need to muster a strong argument in the comments for me to write it! I don’t want to bore anyone!)

Here’s the compensation formula: Sale price (retail or wholesale) – print cost – fees (Ingram has small fee) = compensation

And here’s how Orange Hat’s share is calculated:

• Ingram or other distributor-fulfilled order: $0.50 per book
• Wholesale order that OH fulfills: $1.00 per book
• Retail order through OH website: $5.00 per book
• Ebook sales: 25% of compensation

And with all that in place and the code whizzing and buzzing to produce the payment spreadsheets, here’s the final breakdown for where our compensation payments go.

• Authors—78.8% of compensation
• Orange Hat—21.2%

Our fixed compensation and percentage based approach (rather than a fixed amount paid per book sold, regardless of compensation received) allows us to both pay authors more and make sure we don’t make commitments we can’t keep. It also allows authors flexibility with their pricing that doesn’t require any special calculations on our end. Want to sell your ebook for $19.99? Great! One month later, want to lower the price to $0.99? Super! Because our royalties are all calculated based on compensation received, we don’t even need to keep track of when the price changed. We just add up all the compensation and give 75% of it (in the case of ebooks) to the author.

Do other publishers share this kind of info? If not, I wonder why. It’s easy to create and—spoken as a person with a PhD in quantitative social sciences, mind you—fun! I’ll share more insights from the data as I find them.