Hello and welcome to another Mailbox Monday!
Today, it’s time for an update on one of my most popular (and most SEO-friendly) articles for AWAI, Copywriting Royalties: How to Get Them.
That was a very fundamentals-based article on structuring royalty arrangements… And definitely worth the read if you haven’t read it yet.
Royalties are probably the biggest revenue opportunity in the traditional freelance copywriting world, because your income is tied to the results you generate for clients.
Today I’m going to revisit and expand on some of my best advice on earning royalties and getting paid as a copywriter.
Let’s go ahead and dive in…
I’m looking for some online resources about how the pro’s structure a copywriting deal…just looking for benchmarks so I know the terms and royalties that may be “reasonable”. Every search comes back with how to write better copy, not the business end of it…which is why I’m turning to you.
I’m specifically interested in knowing the percentage of royalties that other copywriters are negotiating and the length of time they receive those royalties.
If you have a business resource you could direct me to, I would gratefully be in your debt. Or you may know the answer personally.
You’re a busy guy and you may get a lot of requests from other people. So you don’t have time to answer, no worries. If you did answer I would be extremely grateful.
Okay, where do we start?
Well, first off, let’s quickly revisit the idea of royalties.
When you’re a copywriter, you can get paid for the time you put in, the work you do, and/or the results you generate.
Time you put in is very similar to a traditional employment agreement. While in a job you could have an hourly wage or a salary, as a freelancer you would have an hourly fee or a retainer arrangement. Either way, you’re getting paid for the time you put in.
Getting paid for the work you do doesn’t really have a parallel in the normal work world. This is coming to an agreement that you’ll create a specific deliverable for a client, and you get paid based on getting that done. This is very common in freelancing, probably the most common way copywriters get paid.
And then there’s royalties. The parallel here to the normal work world is a salesperson’s commission. There’s a reason the best salespeople are often some of the best paid employees in a company. Because without the revenue they generate, the company does not function. And so good salespeople are usually paid a percentage of the business they generate. The same with copywriting. If your copy results in sales, some clients will pay a percentage of those sales back to you in revenue.
Finally, there’s combinations of the above.
You could get paid a retainer to do regular work for a client, and a royalty on the results your work generates.
You could also get paid a project fee, plus royalties on results.
I’ve done both. They’re both good ideas.
In fact, I’ve grown increasingly-more stubborn about my rule to only ever work on projects where royalties are at stake.
Here’s how the math works…
Let’s say you’re a really good copywriter.
In scenario one, let’s say you chose to work on a fee-only basis, and you set your fee at $15,000. Now let’s say you took a month and a half to complete this project.
When the month and a half is over, you’ve earned an average of $10,000 per month — a very good income. Keep that up all year long, and you clear over $100,000 in the year, even if you take a month off.
In this fee-only scenario, you can also increase your income. You can write faster, and increase your income. You can work more hours, and increase your income. Or, you can try to get clients to pay more — which, if you’re good, they will, but only so much more.
Compare that to scenario two, where you work for a fee and royalties. Now let’s say you set your fee at $10,000, with a royalty at 3%.
The project takes you the same amount of time to complete. So you earn an average of $6,667 per month, based on fees — less than in scenario one.
But we didn’t talk about performance before — let’s say in both scenarios, the promo generates $1 million (to keep math simple).
In scenario one, you would’ve gotten none of that. In scenario two, your 3% royalty nets you another $30,000.
So instead of earning that $10,000 fee, the project actually earned you $40,000 total. And now your monthly income based on this project is $26,667. Big difference, huh? If you’re able to consistently do this, your income just shot up over $300,000 per year.
Even if your promos do a quarter of that — $250,000 each in sales — that’s $11,667 per month in fees and royalties.
And the reality is if you do this long enough, and are dedicated to getting really good at it, and have decent clients, you’re going to have some promos that don’t do much at all, quite a few moderate successes, and the occasional runaway winner that sends your total way higher than you could imagine.
Okay, on to some specifics about royalties, and the numbers behind them…
First, let’s define a couple more terms.
There’s “gross sales.” That’s every dollar that comes in through the door.
Then there’s the most generous calculation of “net revenue.” This is sales minus refunds within a set window. In short, the revenue from everyone who bought and stuck around.
Then there’s a bunch of other calculations of “net revenue” which can get tricky. If you have questions, you may want to bounce these off your accountant. I tend to avoid these completely. Some folks calculate “net” based on sales minus refunds and marketing cost. Some calculate “net” based on sales minus refund, marketing, and fulfillment costs. Some find other things they can work into the equation. In general, the more costs they try to factor in before your royalty is calculated, the more suspect the whole deal becomes. At some point, they’ll find a way to make the “net” zero even though they’re taking home a bundle in profits.
And then there’s the “profits” calculation. This would mostly be reserved for partnership deals, but could sneak its way into the deal. In general, the rule is the same as for net. You want them calculating your cut with as few expenses taken out as possible. Extreme example: you don’t want your royalty calculated after the cost of the new company jet is factored in.
As we start to talk percentages, the question is, “percentage of what?”
If it’s percentage of gross, it’s going to be smaller.
If it’s percentage of profits generated by the company, you’re going to want it to be a lot bigger.
And then end number could be the same in both scenarios.
If there’s $1 million in sales, and you get 1% of gross sales, that’s $10,000.
If there’s $1 million in sales, but profits are only $100,000 (using whatever calculation), your deal has to be for at least 10% of profits for you to come out in the same spot.
That’s why it’s so important to understand all these things!
Now with all that said, here are some specific numbers…
I almost always work for a percentage of “net revenue,” defined as sales minus refunds. I have control over sales (by writing more compelling copy) and refunds (by not writing copy that promises more than can be delivered) but I don’t have control over much else.
That’s why I always like this as my base.
The lowest royalties I’ve ever worked for were 2% of net revenue.
The highest I see paid today are around 10% — though I’d tend to charge that as an exception, not the rule.
The bell curve has a few outliers on both sides, but they’re exceptions.
3% to 5% is the most common range. I tend to work for 5% royalty on top of my fee, with rare exceptions (both ways).
Also I should state, some clients want the fee to be an advance on royalties. I would generally turn an agreement like this down. Instead, I get a fee plus royalties start on dollar one. I didn’t always work this way, but I generally recommend you do ASAP.
You can also consider other pay for performance arrangements, such as a price per lead that they pay for lead generation, or a performance bonus at certain benchmarks.
Regarding length of time, I always fight hard for “life of copy” — as long as this copy is making you money, you pay me royalties.
One more thing to consider is the sophistication of the client. I’m happy to get a smaller royalty from a bigger client who I know will use the copy and pay the royalty.
I might negotiate a bigger royalty for a smaller client who is less likely to get full use out of the copy, and who may not have the system in place to support paying my royalty (making it less likely to happen).
No matter the specific details of your situation though, if you write sales copy, I believe you should charge royalties.
I made it a point very early on to get paid on performance. I’ve missed out on working with a few interesting clients because of my stubbornness to only work this way. But it’s been more than worth it when I continue to get checks months and years after doing work for a client, because my copy just keeps making them money.
Yours for bigger breakthroughs,
Editor, Breakthrough Marketing Secrets