Saturday, January 24, 2009

Show me the money – A bit about Royalties

Many people are confused by just how much an author can expect for each book they sell. The reality is “not too much”. And of course every contract is a bit different. I thought I would highlight a few aspects about royalties in today’s post.

The reason I bring up advances is you will not receive any royalties until you “earn out” your advance. An advance is exactly that “an advance” against future royalties. So if your contract has a $5,000 advance and you earn approximately $1.00 per book then you will receive no royalties until your 5,001st book is sold. Beware of multiple book contracts that do “joint”

So what happens if you only sell 2,000 books? Well you get no royalties but you also don’t have to give back $3,000 worth of the advance. That being said, an author that does not earn out his/her advance is likely not going to be offered a second book deal. Sometimes it is worth having a smaller advance as you have a short bar to hit.

Be wary of multiple book deals that specify the royalties as “joint”. For instance a 3-book deal with a $15,000 joint advance is significantly weaker than a 3-book deal with a $5,000 advance for each book. It may sound better because you get more money “right away” but think about the case where your first book passes the $5,000 threshold. It would start earning royalties at this point where in the “joint advance” situation you would have to sell 3 times the number of books before you get the first royalty check.

Usually your royalty is based on either net sales or book list price. NEVER sign a contract that bases a royalty on profit. Any company who writes a contract in such a manner probably has a number of ways to account for all kinds of expenses such that the book does not make a profit and hence they owe no royalty.

Royalties on list price are the easiest to calculate and typically run about 10%. So a $12.00 book will yield the author $1.20 for each book sold regardless of where it is sold or how much it sells for (For instance Amazon may discount it by 10 – 15% but that does not matter the “amount off” comes out of Amazon’s share not the authors).

Royalties based on net sales are usually higher and will vary depending on where the book is bought from. A typical royalty on net sales would be 25% and since most sales will be made by bookstores buying through the wholesale chain the royalty works out to the same as a 10% list price. But in the rare cases where the book is bought directly from the publisher, or from the wholesaler, or certain online venues it may be higher. For instance books sold by publisher would yield a $3.00 royalty, those sold by the wholesaler $1.80, Since bookstores pay typically 60% of list to the wholesaler the royalty on these would be $1.20.

Check very carefully what the royalty is based on. A contract that is written as 10% net sales is actually a very low percentage.

If you have an agent then you will usually have a 10% to 15% agent fee. So your $1.20 royalty will actually put $1.08 - $1.02 in your pocket while the agent gets $0.12 to $0.18.

I have never seen a contract where books sold by the author receive a royalty. What happens in this case is you buy your books at an author’s discount (typically 50% but can be as low as 25%) and the money you make is the difference between the price you sell an the price you bought the book for.

Many contracts will have different royalties for different formats. For instance mass market paperbacks typically only have a 6% - 7% of list price so for a $6.99 paperback the author gets $0.42 - $0.50). Royalties may be different for trade paperback verses hard cover. Royalties on e-books are typically very high, for instance 50% since the publisher has significantly reduced production costs on these formats.

It is also common to have different royalties based on quantities sold. For instance you could receive 10% List on the first 5,000, 12% on the next 5,000, and 13% for anything over 10,000 books sold.

This is another aspect that will be spelled out in the contract but the most common is quarterly. There is usually some amount of time between the end of the quarter and when the check comes (typically 30 – 45 days) while they tally up the sales and write the checks. Some publishers will pay twice a year but this is not standard. I have yet to see a contract that pays monthly as the accounting overhead would be pretty high.

I have yet to see a contract where the publisher lists the anticipated list price of the book in the contract so the reality is you are signing a contract with no clear idea what your actual payments will be. While they may not put it in writing you may wish to discuss with them “their plans” (not contractually binding of course) for production and suggested list price. I highly recommend you look at other books they carry and how they do most of their selling (online, through bookstores, through Amazon etc) and find “comparable” books (similar length and genre) to get a “ball park” so you can at least get a feel for your anticipated royalty.

If the publisher generally sells for a high price is that good for me? Absolutely not! On the surface of things you might think – ya I’ll make twice as much royalty on a book selling for $24 rather than $12. But ultimately it is the buyer (the invisible hand of the market) that determines the value of the book. A highly overpriced book will not sell well (or at all). Sales are inversely proportional to price. So you might only sell 200 books at $24.00 where you could sell 2,000 books at $12.00.

In fact this brings us to a subject that is the worst atrocity in the publishing business - PublishAmerica. (I’ll do a whole post on them at some time). They claim to be a “traditional printer” and in some respects they are in so far as they don’t ask the author any up-front money to get the book in print. But…they place their list price WAY beyond what the market will bear. A typical example is a 156 page paperback for $24.95. This book will NEVER sell to anyone except the author’s friends and families and at that price they only have to sell a few to make up the costs they put into the book for cover design and layout. Where they actually make their money is authors who buy copies from them to resell on their own (at a dismal author discount – I think 35% off). This means that if the author buys 100 books they get $1,746.50 which is more than most vanity press books would charge. The author ends up selling the books “at cost” so say $17.50 a book which is at least “fairly reasonable” and they make nothing. I even know some PublishAmerica authors that sell their books at a loss – For instance $15.00 while paying $17.47 to buy them just to get a “following” for a second book published through someone else.

So given what we have learned here, and assuming a book is sold through a bookstore who uses a wholesaler (most common) and the author has a agent with a10% commission, let’s examine where the money goes for a $12.00 book:

  • $4.80 – Bookstore (40% of list – buys book at 60% discount)
  • $2.40 – Wholesaler (20% of list – diff between 40% and 60%)
  • $3.60 – Publisher (30% of list – pays wholesaler and author)
  • $0.12 – Agent (10% of author’s 10%)
  • $1.08 – Author (90% of author’s 10%)

Of course the book store, or online retailer may receive less if they decide to put the book on sale etc. It is common for Amazon to discount books 10 – 20% do the consumer would get a bit of that money back in their pocket.

I hope this helps explain royalties at a very high level. If you have any questions please feel free to add comments below.

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