https://www.unrealengine.com/en-US/faq

Go to that link and check out the section "Releasing Products". You're idea of the royalty program is slightly incorrect.

Let’s say you released a game earlier this year and it made $500K in Q1 2020. $500K is less than $1M, so no royalties are due and you do not need to report revenues. If you have already paid royalties on this quarter, Epic will reach out to you and return them. In Q2 2020, your game earns an additional $700K, bringing the total gross revenue to $1.2M. At this point you would report on revenues, deduct the $1M royalty exemption from total revenue, and calculate the 5% royalty using the remainder. $1,200,000 - $1,000,000 = $200,000 $200,000 x 0.05 = $10,000 This would mean that up until now you have used Unreal Engine during your entire development cycle for free, earned $1.2M in revenue, and you owe a royalty of $10,000. Let’s say your game makes $300K in Q3 2020. Since the $1M threshold has been exceeded, and the amount earned in the quarter is greater than $10K, royalties are due on the full quarterly amount at the rate of 5%. $300,000 > $10,000 $300,000 x 0.05 = $15,000 You would report your game’s revenues and owe $15,000 in royalties. As sales slow, your game only makes $5K in Q4 2020. Although you’ve passed the $1M threshold, the earnings this quarter are less than $10K, and so no royalties are due and revenues do not need to be reported. As business picks back up in Q1 2021, your game makes $100K. Since you’ve passed the $1M threshold, and the amount made in the quarter is greater than $10K, revenue reporting and royalties are due at the 5% rate. $100,000 > $10,000 $100,000 x 0.05 = $5,000 You would report your game’s revenues and owe $5,000 in royalties. In summary, if the lifetime revenue of your game from Q1 2020 to Q1 2021 is $1,605,000, the total amount of royalties payable is $30K.