I mentioned when I talked about making money as a writer that my goal is to have 100% of my income be royalties from fiction writing. I talked about royalties briefly, but I wanted to go more in-depth and show you how powerful this is.
Definition
As per Wikipedia, royalties are a “usage-based payment" that one party (like Amazon.com or an editor) pays to you (the author) for the right to use, for a specific period of time, your assets (books and stories).
For fiction writers, royalties are based on a percentage, not a set fee. Your editor or digital publisher (like Amazon.com or Smashwords) will take out a certain percentage, leaving you with the remainder.
Traditional Royalties
Getting your stories and books published through a traditional publisher like Harper Collins, Random House, or Penguin is many an author’s dream. Mostly because of the potential for huge sales and even bigger royalties, right? It’s like author crack. We just want it!
Okay, let’s take a look at the numbers. Big Publisher pays you a $25,000 advance. They want to publish your Twi-Potter hybrid that’ll fill their pockets. A $25,000 advance will come in separate payments: the $20,000 to be paid up-front (plus you sign over most of your rights), then the remainder $5,000 to be paid out in royalties over the next few years. Keep in mind the $20,000 is an advance against your royalties. You can’t keep getting paid a royalty percentage once that $25,000 has been earned in book sales.
So, Big Publisher sets the royalty rate for your hardback as 11% and the paperback as 9%. Twi-Potter comes out and goes into stores. Show me the money.
You sell the first $20,000 worth of copies. You’re jumping for joy. Now it’s time to get those sparkly gold royalties. But you have agreed to put a cap on the amount of royalties you can earn from Twi-Potter. It’s $5,000. If you offer your hardback for $29,95, that’s $3.29 you earn from each copy. If you offer your paperback for $14.95, that’s $1.34 you earn from each copy. About 3,200 copies later, you reach the $5,000.
I guess it’s time to just get back to writing and try to produce Twi-Potter the sequel, because look – the money has run out. Your contract for Twi-Potter is finished. Hmmm. You may earn more money by selling copyrights to game developers, film producers and anthology creators … but you get the drift. The $25,000, once so shiny and so sparkly, is gone.
These royalty numbers can be pretty sobering, especially for those of us who haven’t written Twi-Potter.
Digital Royalties
Digital royalties and POD (print-on-demand) royalties are a completely different ballgame. We’re not playing with advances, limited print runs, and physical shelf space in a bookstore. We’re also not playing on the same field with Big Publisher. Or are we?
I publish “Daniel’s Garden” and future novels through digital publishers and self-publishers like Amazon.com, Smashwords and Barnes and Noble.
I set my Kindle price for Daniel’s Garden" target=_blank>“Daniel’s Garden” at $2.99. Amazon takes out a fee for allowing me to publish using their gigantic and popular platform, so my royalty fee from a Kindle copy is roughly $2.09. I earn about 70% (!) royalties. For CreateSpace, the fee Amazon takes is considerably higher, because it’s a POD (print-on-demand) service and it’s more expensive to print books. I set my paperback price at $14.95, which is a standard retail market value, and my royalty is $4.91 for each copy sold. Even so, I still earn 30% (!) royalties.
You can see a huge difference between the 70% royalty I receive through Kindle and the 30% royalty I receive through CreateSpace. But the 30% royalty is triple what Big Publisher would pay and the 70% is even bigger! This is one thing that makes digital publishing so exciting.
I don’t get the nacho supreme $20,000 up front, but I’m earning more in royalties than Big Publisher authors!
The Proof is in the Profit
Another secret weapon that digital and ‘small’ published authors have in our ink-stained pockets is T-I-M-E. We have all the time in the world to keep earning royalties on self-published and digital published books. So, if I want to earn that gorgeous $25,000 on “Daniel’s Garden,” I simply have to wait. If I sell only Kindle editions, then I’ll earn that sexy cash after 12,254 copies. But I have the potential to sell much more than that, even if I only sell 100 copies a month. It gets even more mouth-watering when you start writing FASTER and offering MORE books for sale, all earning a peachy 30-70% royalty rate. Your royalty profit is almost limitless.
The proof is in the profit. Traditional publishing may give you the pot o’ gold up front, but in the end that gold hurts your potential earnings. It’s more profitable in the long term (and writers don’t live in the short-term – we write novels, for heaven’s sake) to seek out the highest royalty percentage per copy for something that you can offer for sale for as many decades as you want.
That way, we really can feel like royalty! 
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