Tuesday, August 04, 2009

The Reality of Royalties

I was talking to a client recently about royalties, and with her statement somewhere between the publisher’s office and mine she was wondering what she could reasonably expect that statement (and hopefully check) to look like. This is a common question not just among first-time authors, but from many of my more established clients as well, and I hate to say it but my answer is always the same. I have no idea. Sure, like the author, I always have hopes and make guesses based on what information the publisher has given me in terms of numbers and sub-rights sales, but since I’m rarely right I tend not to share those hunches with my clients.

The truth is that there is no way to really know what a royalty statement looks like until it arrives and I suspect this is true of most businesses. I remember talking to a friend who owns a retail shop and he was telling me how helpful computer inventories have been for his store. Even though he’s the one behind the counter 90% of the time he’s always amazed by which products are really his biggest sellers and which aren’t. I think this is the case with any business. We all have blinders on when it comes to a product we are really excited about, and until we see the actual facts and figures before us it’s difficult to separate our feelings from what’s really working and what isn’t.

What’s difficult for me is that all too frequently the author, upon receiving that very first statement, is disappointed. I don’t think it’s the numbers, because frequently the number of copies sold is very good, but it’s the check. There are a lot of things that take away from that first royalty check and certainly that can diminish the monetary numbers pretty quickly.

First, and I think most frequently forgotten, is the deduction for advance payments. I know we’ve discussed this before, but as a reminder an advance is not what you are being paid for the book, it is an advance against all future earnings (your royalties). In other words, the bigger the advance check(s), the bigger the deductions from your royalties. Let’s play this simple. Let’s say you received a $5,000 advance*** for your book. Before you earn any royalty money that advance needs to be earned out at your royalty rate, so if your book is selling for $10 and your royalty rate is 7.5%, you are earning roughly 75 cents a book. Which means you need to earn out $5,000 at 75 cents per book. If my calculations are correct you need to sell roughly 6,666 copies before your royalty earnings start to kick in.

However, those earnings might not appear in check form just yet because we also have reserves to consider. Reserves are those monies (or is that money) held back by the publisher in anticipation of any potential returns from bookstores. Remember, one of the biggest problems in this business is that books are returnable. Unlike other retail stores who buy and commit to a product, bookstores have the luxury of returning books for credit if they don’t sell, and authors only make money on books that actually sell to readers, not bookstores. Typically you can expect your publisher to hold back roughly 20% of the number of copies “sold” (that really means the number of copies sent to bookstores) in reserves from your first check. With each statement you receive, the percentage held in reserves should diminish until eventually the publisher is no longer holding anything. So, if your book “sold” 10,000 copies to bookstores, roughly 2,000 are held in reserves. That means that if you are earning a royalty rate of 7.5% on a $10 book, your potential income for this statement has been cut by $15,000, leaving you roughly with $7,500. Remember that $5,000 advance? You’ll need to subtract that too, which means now your check is reading about $2,500 and not the $15,000 you were hoping for based on the numbers your editor reported to you.

Of course this isn’t necessarily everything when it comes to both earnings and deductions, however it’s the bulk of what you’ll see on the statement, and these two things make the biggest impact on that royalty check.


***please note that the numbers here don’t accurately reflect actual publishing numbers. They are used simply because they are easy for me to calculate.



Jessica

27 comments:

Mark Terry said...

A good post, but what Jessica doesn't quite say, but I will, is to answer the first-time novelists question: "What should (versus can) I expect in royalties?"

And the most sane answer is: "Nothing."

That's common enough for first novels, and when you start factoring in everything Jessica mentions as well as other mysterious factors in royalty figures, as well as the way publication and royalty periods do or do not overlap, in your first royalty period or two, you might get nothing. True, you might get nothing EVER, but eventually, with any luck, if your publisher keeps publishing you and your books continue to sell, and your royalties aren't basketed (joint accounting), then you might eventually see some royalty money.

Or not.

But if you DO, hey, found money. Congratulations. It exceeded your expectations, which, hopefully, were ZERO.

Glenn Webber said...

Great article that should initiate those new to the world of big publishing. They need to realize that the brass ring that everyone is chasing is a little tarnished when you finally get it.

Just to avoid anyone disputing this work on the basis of the calculations though:

10,000 x .75 = $7500 sales
2,000 x .75 = $1500 reserves
_____
$6000 total
-$5000 advance
_____
$1000 future sales needed before royalties begin to accrue

And from what I understand, once an advance is given, you are never forced to return any of it. Even if the sales of your book don't cover it.


GW

(nothing worse than having a good article dragged down by trolls)

BookEnds, LLC said...

Thanks Glenn for clarifying and yes. Figures I would make an error ;)

jhf

Marsha Sigman said...

Its a good thing I am not in this for the money.

Anonymous said...

Another question is, 'what should authors -want- in royalties?'

I know this violates one of the basic creeds of the unpublished author--'I want my publishers to do really well and love me dearly'--but I once read an author saying that if you make any royalties, your agent didn't get you a large enough advance.

In other words, it's the agent's job to push as much of the risk as possible onto the publisher's side of the court. (But of course 'as possible' varies widely ...)

Kristen Torres-Toro @ Write in the Way said...

Thanks for breaking that down for us! It's good to know what to expect!

Anonymous said...

Which I guess is why you'd want the nice fat advance, therefore a good agent to get you one. Royalties are gravy.

Deaf Indian Muslim Anarchist! said...

I hate money.

Anonymous said...

I have a question: How many copies of a novel need to be sold for it to be considered to have sold well? I realize that selling far less than they anticipated so that the advance is never recovered by the publisher is BAD, but aside from that, is there a sort of ball-park figure that says you've sold a fair no. of copies?

Deb Salisbury said...

This is a very helpful post. It reminds me to be realistic in my expectations. Thank you!

Glenn: I love the image of the tarnished brass ring.

Kate Douglas said...

Anonymous 11:03--what's considered "selling well" depends a lot on your publisher's expectations and what they call your "sell through." If the publisher printed 10,000 copies of your book and 8,000 sold, you've had an 80% sell through and they're going to be really happy. If they printed 150,000 copies and only 50,000 sell, you're probably going to be looking for a new publisher. It's sort of expectations vs. reality, and there are so many factors that can affect your sales.

On my last royalty statement, I didn't earn anything on one book that had earned out in a prior statement, but that was because Borders went through and cleared their shelves of just about everything when they were having financial issues and returned tons of books, which showed up as returns on my statement. Those same books have probably been reordered now, as I'm seeing my books back on the shelves in Borders stores and many of them are going in for new print runs, but that one big return affected royalty statements for a lot of authors.

One thing you have to accept as an author is just how little control you have over sales. Yes, you can market and hope distribution keeps pace, but I've discovered the only thing I can really control (and for a control freak like me, this is VERY hard to accept!) is my writing, and even that gets edited. I write my books, do the best I can and hope like hell my publisher follows through. So far they've been terrific and I have no complaints, but I've also learned not to add my "assumed" royalty check to the budget until AFTER it shows up!

PV Lundqvist said...

I'm curious: how long does that reserve against return last? I've heard conflicting things about when a book ceases to be returnable. Is it ninety days? A year? Depend?

Dara said...

Even though those aren't "real" numbers, I'd be ecstatic getting $2500. That's more than I make in three months of work (working part time with little hours and little pay...). I'd still be able to quit my job with the support of my husband and family since I'd be making more even with the small royaly checks :)

Kim Lionetti said...

Dara --

Just to clarify:

Royalty checks generally only come once every 6 months, and you wouldn't necessarily receive royalties with every check.

Plus, the first royalty statement doesn't arrive until at least a year after the book's been published.

Kristin Laughtin said...

Amen, Marsha! And just another reason to keep the day job.

Kate, I appreciate your insight as a published author, especially about how one big return can affect a royalty statement in a major way for established authors, even after a book has earned out.

Thanks for the post, Jessica.

Robena Grant said...

Very helpful. Thank you.

If I get published, I'll have a pessimistic view on royalty statements and then when one arrives it will be "found" money and cause for celebration. : )

Sierra Godfrey said...

Essentially: write and publish for the glory of being permanently cataloged in the Library of Congress, not money.

Thanks for the reality check, Jessica!

Feywriter said...

What are your thoughts on an author entering War of the Words contest, and still querying agents? I know chances are slim to win, but there is that chance. Would an agent still want to sign if the book is picked up in that way?

Anonymous said...

A question here, Jessica.

Have you ever negotiated a lower advance for a client in return for a higher royalty rate? If so, did the author end up making more than the original advance might have earned out?

Rick Chesler said...

Thanks for this helpful, informative, and entertaining post!

Anonymous said...

Plus, the first royalty statement doesn't arrive until at least a year after the book's been published.

Thanks for explaining this! My very first work - a short story - was recently published by Harlequin SPICE Briefs, and now I don't have to pester the editor about whether/when I'll receive some sort of statement.

Kerrie said...

Jessica,

Thanks for breaking down how royalties work. I am sure this will help many writers and I will be sure to pass it on to my Northern Colorado Writers members.

Let's face it--most novelists do not write with the hope of making millions. Most writers I meet, write because they love it.

At a recent lunch, agent Rachelle Gardner said it best. "If you can quit writing--then quit."

Happy writing!

Krista Phillips said...

I'm a certified numbers geek so thanks for breaking down how it works! I knew all of that except was fuzzy on the reserves part. Oh, and the agent fee would come out of that as well, which would make it even lower by a bit.

Kate Douglas said...

Krista, true on the agent fee, but you know something? That's one expense I've never once regretted having to pay. I'd much rather earn 85% of something than 100% of nothing, and that's sort of where I was before signing with an agent.

and what Kim says about royalties coming once a year is true, but if you can get enough contracts going, you can insure checks throughout the year. I get paid on signing a contract, paid on delivering the story and paid when it publishes, all parts of the advance, so that's three separate checks for one book outside of the royalty payment. Right now I'm writing four books a year, which means I've got checks coming all the time. Not necessarily monthly, but often enough that I can count on those set amounts and budget around them. Of course, I have no life...but then I much prefer my fantasy world to the real one.

DebraLSchubert said...

I appreciate the explanation. Thank goodness I love to write as much as I do! The arts are the arts - you write, paint, sculpt, etc. because you love it and you're compelled, not because you want to get rich.

M. Dunham said...

I really appreciate you writing this post. I was wondering if maybe you could do a follow-up talking about the importance of royalties versus the advance. From some of the responses here I can see people think the way to a good career/money in writing is to get a large advance, when it's the opposite - the royalties are what'll be your sustaining income.

Anonymous said...

P.V. Lundquist, as long as a book remains returnable, a publisher will probably want to hold reserves against return. And a book does not cease to be returnable until the publisher declares it to be "out of print." The publisher sends a notice to bookstores which is a list of books going out of print, and then the bookstore has a stated period to get their returns of the listed titles back to the publisher. It's usually a couple months.

So, when the reserves are no longer held, it's because the book is out of print and won't sell any more copies.

Some books go out of print more quickly than others.