In most book contracts that you sign with a publisher, your royalties will be paid based on net receipts. That means whatever income the publisher receives, minus his costs and any deductions given to the retailers or wholesalers. In the past, and still with some larger publishers, royalties were paid on the retail price of the book. The problem with being paid based on net receipts is that the contracts do not often specify exactly what net receipts refers to. Typically, a royalty percentage is higher when the royalties are based on net, as opposed to the retail price of the book. Note, also, that in a book contract it will often indicate that if the percentage of discount given to the buyer reaches a specified high range (somewhere between 50% and 80%), that the author's royalties will be cut in half. Before signing this, be sure to ask the publisher how often they sell at these higher percentages. For more discussion on this topic, go to: http://writersinthestorm.wordpress.com/2012/03/09/susan-spann-calculation-of-royalty-fees-in-publishing-contracts.