The royalty rule’s Royalties tab specifies the formula used for royalty calculations.
Royalties may be based on the retail price, sales amount, sales amount less expenses, sales less expense and cost of sales or net profit.
Royalties can be a flat percentage rate or it escalate; increase, based on quantity sold, revenue or the sales price. Royalties can be a flat rate per unit sold or a one time fee.
Rates apply to
Royalty rates can be based upon the;
- Invoiced retail price
- Published retail price
- Published price to dealer (used by music publishers)
- Sale amount
- Net sale amount
- Gross profit
- Net profit
In the United States most publishers pay royalties on the MSRP (published retail price), Sales (sales amount) or the Net (Net sales amount). For many publishers the sales amount and the net sales amount are the same.
|Royalty Basis||Example||10% Royalty|
|Retail – Invoiced Retail Price||$20.00||$2.00|
|MSRP – Published Retail Price||$24.00||$2.40|
|PPD – Published Price to Dealer||$12.00||$1.20|
|Sales – Sale Amount||$10.00||$1.00|
|Net – Net Sale Amount (sales less expenses)||$9.50||$0.95|
|Gross – Gross Profit (sales less expenses and unit costs)||$6.00||$0.60|
|Net – Net Profit (sales less expenses, unit costs and overhead %)||$5.20||$0.52|
Retail – Invoiced retail price
Invoiced retail price is the retail price; prior to discount, invoiced to the customer. If the sales record’s retail price field is not populated the royalty software uses the published retail price from the Title edition’s Prices & versions tab.
MSRP – Published retail price
The MSRP; manufacturer’s suggested retail price or the published retail price, is the list price for the edition.
When a sales record is created the published retail price for the sales transaction’s version reference is automatically assigned to the sales record. The published retail price can differ from the invoiced retail price.
WARNING: The published retail price is the retail price that existed when the sales record was created. If the published retail price is changed the change will not affect sales records created prior to the change.
PPD – Published price to dealer
In the music industry, the Published Price to Dealer (PPD) is the wholesale unit price of a recorded work. It is used in royalty contracts as a basic figure for defining royalty shares.
In EasyRoyalties the PPD price is specified in the Title Edition record’s Prices & versions tab. If the sales record does not specify a version reference the software will use the default version PPD that exists when the sales record is created.
Sales – Sale amount
The sale amount is the amount received after discounts and VAT are deducted.
Net – Net revenue (net sale amount less expenses)
Net revenue is the amount received after discounts, VAT tax, and expenses are deducted. Expenses are those recorded in the sales record.
Margin – Gross Margin (net sale amount less expenses & costs)
Gross margin deducts unit costs from the net revenue. If unit costs are not specified when the sales record is created the software will use the default unit cost from the Title edition record.
WARNING – The default unit cost is the unit cost that existed at the time the sales record was created. If the unit cost is changed the change will not affect sales records created prior to the change.
Profit – Net Profit (net sale amount less expenses, costs and overhead)
Net profit deducts overhead from the gross margin. Overhead is a percentage of gross revenue
The default factor is 100% of the royalty basis. If the factor field is populated the software will use a percentage of the royalty basis (% x royalty basis) to calculate royalties.
Some eBook royalty contracts specify that royalties are applicable to sales before distribution frees are deducted. Others specify that royalties are applicable to the net receipts after distribution fees are deducted.
Some royalty contract may specify that royalties are based on net receipts before or after the deduction of sales commissions.
The table below shows the difference between Sales and Net. When no expenses are deducted Sales and Net are the same.