Royalties can be calculated in all sorts of ways. They’re usually calculated as a percentage of the selling price, which seems pretty straightforward: but there are all sorts of ways that things can get complicated, and it’s essential that writers check their contracts carefully and ensure that they understand all that it implies.
A percentage of cover price is nice and simple, so long as the cover price is set: a royalty of 10% of £10.00 will always end up with the payment of £1.00 per book sold.
A percentage of profits is not nearly so desirable: it might seem better initially, as the percentages given based on this calculation are often higher than those calculated on cover price. But so much depends on how the publisher calculates those profits: do they refer only to the profits made by your book, or to profits made by the whole company? If the latter, your book could end up subsidising the publication of other less successful books; and you’re always at risk of subsidising a feckless publisher’s fondness for new computers or business lunches.
Things are bad enough if royalties are calculated on gross profits: but if they’re calculated on nett profits, then your receipts are going to be even lower.
The problems are compounded by the non-standard contracts common with some of the less standard presses: YouWriteOn’s publishing arm promises a 60% royalty “after printing costs”, but defines neither the printing costs nor the retail price leaving their authors with no accurate idea of how much money they’ll earn from each copy sold.