How to Calculate Net Royalty Receipts
Calculating net royalty receipts is not complicated, provided you have a clearly defined contract. Royalties are payments made to the creator of an original work from the licensed usage of the creator's work by a third party. In order for the creator of an original work to be paid their royalties, they must have entered into a contract that describes the terms and conditions of the licensed usage by the third party who may be a publisher or agent. Anyone who wants to earn royalties from their original work will benefit from knowing how to calculate the net royalty receipts.
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Instructions
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Read the contract describing the terms and conditions of the licensed work. Locate the part of the contract that describes what constitutes gross sales and deductions. The term "gross sales" refers to the total amount charged to customers who purchase the product containing the licensed work. Deductions are costs that are to be deducted from sales before the royalty is calculated.
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Calculate the gross sales under the contract. For instance, gross sales can be calculated based on total sales or on a per unit sales basis.
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Calculate all of the deductions under the contract. For instance, the licensee, under the contract, might be able to deduct expenses for such items as taxes, credits, returns and quantity discounts made at the time of sale.
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Subtract all of the deductions from gross sales to arrive at your net royalty receipt. For instance, an author might have published a book that entitles him to receive royalties based on total sales minus deductions. If the author's book had total sales of $100,000 and total deductions from sales totaling $10,000 his net royalty receipts would be $90,000 ( 100,000 - 10,000 = 90,000).
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References
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