Scott Mitchell and Tim O'Reilly

Scott Mitchell wrote an entry about the economics of book writing, and none other than Tim O'Reilly dropped by to comment on the issue:

One detail that you left out in describing royalty rates is that many publishers' contracts provide for different royalty rates for different types of sales. So you might see an attractive "top line" royalty rate, say 15%, and overlook the fact that international sales (perhaps 30-40% of all your sales), direct-to-consumer sales (another 5-10%), or deep-discount sales (which may happen to "big box" stores, or even the chains) receive only half that. Not only that, most publishers take our large "returns reserves", and many of them hang on to those reserves for a long time, if not forever. I remember one "for Dummies" author telling me that his nominal royalty rate was 10%, but that he never actually saw over 5%.
By contrast, at O'Reilly, we pay 10%, but we pay 10% on all sales.

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Ask your publisher to estimate the total revenues for the book, and your total royalty take. It will just be a guess -- no one knows for sure how a book will do -- but it will help to ensure that you're on the same page.

Good points, but O'Reilly leaves out another important point, particularly in a soft book market...many book contracts used a tiered system for the main royalty rate (domestic sales), in which the first X copies pay you one percentage, while X copies to Y copies pay a higher rate. In some contracts, there's a third tier, above which the highest rate is paid. The important thing to note about this is that if you're negotiating a contract with such breakpoints in it, you need to make sure that the breakpoints are realistically achievable. It does you no good as an author to negotiate a really high second or third-tier royalty rate if you'll never reach the breakpoint.

I also want to thank both Scott and Tim for starting/continuing this discussion. It's definitely a good thing, IMO, for authors to have more information going in, so as to avoid getting burned, or ending up being very disappointed with the remuneration they receive for what is, in the end, very hard work.