12 Jul 2012 This is How Microstock Agencies REALLY Calculate Your Royalties

Or at least this is my best guess at how they do it.

With the help of a smart programmer I’ve created a series of royalty calculators that explore credit-based sales at some of the top microstock agencies.

There are currently calculators for Fotolia, Dreamstime and iStockphoto. I may add more in the future.

Why?

The purpose of these calculators is to clarify the process of royalty calculations. Some calculation policies border on the sneaky side, so I’m hoping to help raise awareness and understanding of those too. But it’s really about having a fully informed relationship with your microstock agency.

By changing the values and seeing the results, you can see the impact of each part of the royalty policy. You can try to match the royalty amounts you see in your earnings reports, and compare the difference in royalty of a different price, a different level or a different exclusivity status.

Once you understand how it works and can see the impact of different options, you can make better informed decisions.

Best Guess

As the disclaimer says, the calculators are not officially supported and may not be 100% accurate for all settings. This primarily relates to the complications of different currencies (detailed below), as most other calculation policies are fully disclosed. But to be safe, don’t go mounting any legal cases or defaming an agency based on the results of these calculators.

If you can see any inaccuracies or believe the calculations are done differently, let me know via the comments for this post.

Real Royalty Rates

One point of the calculators is to contrast the difference between the royalty rates the agencies promote and the real royalty rate.

What is a “real” royalty rate?

A royalty rate is supposed to be the percentage received by the contributor from the amount paid by the customer. That’s what I’m calling the “real” royalty rate, and that’s what the calculator calculates.

So what are the royalty rates promoted on the agency websites?

Agencies definitely use those numbers in the royalty calculation, but with all the other stuff their policies throw in, the end result doesn’t always match the figure they promote. The calculators show you those rates too.

No Subscriptions?

For now, I’ve left out subscription calculations and agencies that are predominantly subscription based. Subscriptions are more about the royalty ‘amount’ than the royalty ‘rate’ but it might be something fun to explore later.

Currencies – The Ultimate Complication

Calculating currencies made my brain hurt. I almost left out currencies from the calculators altogether.

It’s extremely difficult to guess how they’re calculated for each agency. Do they calculate the currency exchange for each sale and pay royalties accordingly, or do they always calculate royalties in the base currency based on the quantity of credits? If the former, do they use fixed exchange rates, or if not, how often do they update it?

Fotolia’s fixed credit value makes it easier, but they complicate it by paying contributors in various currencies too.

In the end I’ve set Dreamstime to always calculate the royalty on the price of the equivalent transaction in US Dollars, and iStockphoto calculating the royalty from whichever purchase currency is used. This seemed to fit best to the amounts I saw in my own earnings reports, and explains why there’s so many different royalty amounts at iStockphoto. If someone can set me straight on how this works, I’ll update the calculator.

Your Conclusions

Rather than tell you my conclusions I want to hear what you think. What surprises you most about the numbers you see in the calculators? How can you use what the calculators show you in the decisions you make about distribution, pricing, and exclusivity?

Check out the calculators here. There’s no comments on the calculator page, so come back to this post to share your thoughts.