One of the first things you should note in your publishing agreement is whether royalties are paid based on the retail price (also called list) or net receipts (also called net price or amount received). Most commercial trade publishers base their royalties on the retail price, and this is generally preferred. However, if a publisher accounts based on net, there's very little you can do to change this, so it's important to understand exactly what net means.
Net is the amount the publisher receives from third parties it sells the book to - such as bookstores, wholesalers, distributors, etc. - and not how much the reading public is actually charged. For trade books, this is usually anywhere from forty to fifty percent less than the list price, which takes into the discounted price publishers offer to these parties. In addition, publishers will usually deduct any applicable taxes and fees.
If you get a contract with net receipts, it's not the end of the world. You first need to make sure that the publisher has a clear definition of the term. Next, ask the publisher what their average discount is to booksellers and wholesalers. From there you should be able to make an accurate estimate of your royalties, and negotiate for an improvement if needed. For example, if the standard discount a publisher offers is fifty percent, than the net receipts royalty for hardcover sales should start at twenty percent (which is basically about ten percent of the list price).
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