Quantity Breakpoints are found on the Royalty Set-up Screen.  This information covers how returns are calculated when a royalty report includes two or move breakpoints.

Compensating for Returns When Total Sales Cover More Than One Breakpoint.

One of the variable structure methods used in royalty calculations is based on the "quantity" of the units sold.  You can select this method from the various options found on the Royalty Set-up Screen screen.  When using this method, you establish "quantity breakpoints" where the amount of royalty paid increases with more units sold.

When the total sales of a product extend across more than one quantity breakpoint, AnyBook has to compensate for any returns or damages that are involved.  There are two different ways to deal with this situation

1. Apportion Returns. In this method returns & damages are apportioned to each breakpoint.  To make the needed calculations, AnyBook uses the running tally figure as the starting number of units sold.  The total number of sales in the current royalty period are added to the starting number to determine which breakpoints are required.  If more than one breakpoint is required, AnyBook then calculates the number of units which fall into each breakpoint.

Once it's done that, it can calculate the proportion of the total sales found in each breakpoint.  Using the same proportions, it takes the total number of returns and divides them among the breakpoints.  For instance, let's say that 75% of the total units sold fall in the first breakpoint and 25% fall in second.  If there were 100 returns, the first breakpoint would be reduced by 75 units, and the second reduced by 25.

Reason for using this approach: Fairness to Royalty Holder. The ability to reach a higher breakpoint is based on total sales.  The royalty holder is not compensated for more units than those minus returns, but is rather compensated for a fair proportion of the total at the higher breakpoint rate.

Let's say that 1090 book are sold, and first 1,000 are allocated to the first breakpoint and 90 books are allocated to the second breakpoint.  If there were 100 returns, under this method, the royalty holder is still able to reach the second breakpoint (thus obtaining a higher royalty rate).

However, under second method, described below, the royalty holder would not reach the second breakpoint.  He or she would not move into the second breakpoint, until the first breakpoint was completely filled.  Yet, technically the royalty holder has reached the second breakpoint based on sales figures.  Unless, the contract is worded otherwise, this method probably the fairest way of determining royalty when sales covers two or more breakpoints.

Apportion Returns is the default method that AnyBook has used in the past.  Some companies have requested more flexibility in this regard, and to provide that flexibility, a second option has been provided.

2. Take the Returns off the Top. In this second method, AnyBook removes returns and damages from the total number of books sold in the royalty period.  Using this number along with the running tally figure, it determines which breakpoints are required.

Since returns have already been removed, they are not divided between the breakpoints.  Rather, the returns have "come off the top."  Each breakpoint required is filled to their maximum amount ales except for the last breakpoint which holds any left over items after the previous breakpoints have been filled.

Reason for using this approach: Maximize profits. By not apportioning out returns, each breakpoint is filled to the maximum number before the next breakpoint is reached.  When this method is employed, royalty holders earn less when royalty cover two or more breakpoints.

For example, let's say that we have total sales of 1,000 with 100 returns (net total of 900).  Let's also say, that our breakpoint holds 750.  We'll use a flat rate of $1.00 to make things simple.

Using the apportion method, the total royalties are: (750 - 75) * $1.00 + (250 - 25) * $1.00 = $850.

But using the "Off the Top" method, total royalties are:  750 * $1.00 + 150 * $1.00 = $800.

There is one drawback for using the "Returns off the Top" method which is not a problem for the "Apportioned" method.  The drawback occurs when one accounting period has high sales and few returns followed by the next accounting period with low sales and high returns.   It is possible for the returns in the next accounting period to outnumber sales and drop the royalty rates into the previous breakpoint.  But to drop the royalty holder's rates clearly would be unfair to the royalty holder since that person has already reached the higher breakpoint and should continue to receive compensation accordingly.  The chances are unlikely, but you can avoid it by utilizing the first method.

Breakpoints normally have wide spreads, and overlap between them is not a frequent occurrence.  When it does occur, however, an understanding of how the adjustments are made makes it much easier to interpret the finished royalty report.

How to Select from the Two Methods

To select one of two methods, start at the Royalty Set-up Screen.  Look for "Variable Structure" and "QUANTITY."  Just to the right of where you indicate the number of quantity breakpoints, you'll see a small light colored box with "Returns" and an "R" button.

If you click on the "R" button, a dialog box appears on which you can indicate what method you wish to use for that royalty holder.  You can also select a default method.

Additionally, there is a quick way of selecting the method.  If you double-click in the small light colored box, the method will toggle back and forth between "Apportion" and "Off the Top."

Note also that on the View Royalty Reports Screen, you can see which method has been used.  If "Off the Top" has been used, the abbreviation OTT will appear on the upper right of the screen, at the end of the "Structure" line.  No abbreviation appears if the "Apportion" method has been used.

Other parts of the Set-up Screen include:

Menu Bar

Name, Address, and Phone Blanks

Email, Product, and Catalog Number Blanks

Summary Name, Social Security, Active, and Code

Keep Running Tally Box

Counting, Calculation and Structuring Methods

Options (Net and Profit Calculation Methods)

Vary Rate Based on Pricing Level

For more information on setting up a royalty with a Variable Structure:

Indicating the Number of Quantity Breakpoints

Indicating the Number of Discount Ranges

Entering Breakpoints & Royalty Rates for Variable Structure (Quantity)

Entering Discount Ranges & Royalty Rates for Variable Structure (Discount)

Entering Breakpoints, Ranges & Rates for Variable Structure (Quantity & Discount)