This article is part of our Complete Guide to Royalty Management.
You sign a contract with an author for 10% royalties. Simple enough. But 10% of what, exactly? The answer to that question can mean the difference between a healthy margin and a loss on every copy sold. The royalty model your contract uses determines how that percentage is applied, and not all models carry the same level of financial risk for you as a publisher.
This article breaks down the three main royalty models, walks through worked examples for each, and explains why one model in particular has become the default for most independent publishers.
What is a royalty model?
A royalty model defines the base amount that a royalty percentage is applied to. Think of it as answering the question: “percentage of what?” Two contracts can both specify a 10% royalty rate and produce very different payment amounts depending on which model they use.
There are three royalty models commonly used in publishing: net receipts, list price, and list price minus discount.
Net receipts: percentage of what you actually received
The net receipts royalty model calculates royalties as a percentage of the amount your publishing company actually received for the sale. This is the money that landed in your account after retailer discounts, distribution fees, and other deductions.
Here is how it works in practice.
Worked example: A book has a list price of $20.00. You sell it to a retailer at a 50% discount, so your net receipts are $10.00. The author’s contract specifies 15% of net receipts. The royalty payment is $1.50 per copy (15% of $10.00).
The key advantage here is straightforward. You will never owe more in royalties than you received for a sale. If a book is sold at a steep discount, the royalty payment adjusts automatically. This makes the net receipts model the safest choice for publishers who want to protect their margins across every sales channel, regardless of how heavily a title gets discounted.
List price: percentage of the cover price
The list price royalty model (sometimes called “retail price” or “recommended retail price”) calculates royalties as a percentage of the book’s published cover price. The discount given to the retailer has no effect on the calculation.
Worked example: That same $20.00 book, sold at a 50% discount. Your net receipts are still $10.00. But the author’s contract specifies 10% of list price. The royalty payment is $2.00 per copy (10% of $20.00).
Notice what happened. You received $10.00 but owe $2.00 in royalties, which is 20% of your actual income. On a standard trade discount that might be manageable. But what happens when a title is sold at a deeper discount?
The risk scenario: Suppose that same book is sold at a 70% discount through a promotional channel. Your net receipts drop to $6.00 per copy. The list price royalty is still $2.00, which is now 33% of what you received. On a book with multiple rights holders, each earning list price royalties, you could end up owing more in combined royalties than you took in. That is a net loss on every copy sold.
This is why list price royalties have fallen out of favor with many independent publishers. They work well when discounts are modest and predictable, but they create real financial exposure on deeply discounted sales. If your catalog includes titles sold through high-discount wholesale or promotional channels, list price royalties deserve careful scrutiny before you agree to them.
List price minus discount: a middle ground
The list price minus discount royalty model applies the royalty percentage to the list price after subtracting the retailer’s discount. It sits between net receipts and list price in terms of risk and simplicity.
Worked example: The book’s list price is $20.00. The retailer discount is 40%. The discounted price is $12.00 ($20.00 minus 40%). The author’s contract specifies 10% of list minus discount. The royalty payment is $1.20 per copy (10% of $12.00).
This model adjusts for discounting, which reduces the publisher’s exposure compared to a pure list price model. However, it relies on the discount rate being recorded on each sales line, which may not always match your actual net receipts. Distributor fees, currency conversion costs, and other deductions can mean you received less than the “list minus discount” figure suggests. For this reason, it is not quite as safe as a true net receipts model.
Comparing the three models side by side
Let’s put all three models next to each other using the same sale. A book with a $20.00 list price, sold at a 50% discount, with a 10% royalty rate.
- Net receipts: 10% of $10.00 = $1.00
- List price: 10% of $20.00 = $2.00
- List minus discount: 10% of $10.00 = $1.00
At a 50% discount, net receipts and list minus discount produce the same result. But they diverge when additional fees reduce your actual income below the discounted list price. The net receipts figure reflects reality. The list minus discount figure reflects the math.
Now consider a 70% discount on the same book.
- Net receipts: 10% of $6.00 = $0.60
- List price: 10% of $20.00 = $2.00
- List minus discount: 10% of $6.00 = $0.60
The list price model stays fixed at $2.00 regardless of how deeply you discounted. That is $2.00 out of $6.00 in income, leaving you with just $4.00 before you pay any other rights holders, cover your costs, or account for returns.
When to use each model
Net receipts is the right default for most independent publishers. It ties royalty obligations directly to actual income and eliminates the risk of overpaying on discounted sales. If you are building contracts from scratch, start here.
List price may be appropriate for major trade publishers with negotiating power and predictable discount structures. It can also appear in legacy contracts inherited from acquisitions. If you are working with a list price contract, pay close attention to your discount rates across channels and consider tiered royalties that adjust the rate based on discount thresholds.
List minus discount can work as a compromise in negotiations where an author wants something closer to list price but you need protection against deep discounting. It is less common than the other two models but worth understanding.
For a broader look at how royalty rates, advances, and payment structures fit together, see What Are Book Royalties?.
How Royalties HQ handles this
Royalties HQ supports all three royalty models natively. When you create a contract rule, you choose the royalty model as part of the rule’s action. The system then applies the correct calculation automatically during each royalty run, using the actual sales data from your imported distributor files.
You can even use different royalty models across different rules within the same contract. For example, you might set a net receipts rule as the default but add a list price rule for a specific sales channel where discounts are fixed. Rules are processed in priority order, so the first matching rule determines the calculation. You can learn more about setting this up in our contracts documentation.
If you are currently managing royalty calculations in spreadsheets and juggling multiple royalty models across your catalog, download our free guide to see how purpose-built software can reduce errors and save time.
The royalty model you choose shapes every payment you make to every rights holder on every title. Getting it right at the contract stage saves you from painful corrections later. For most independent publishers, the net receipts model offers the best combination of fairness, simplicity, and financial safety.