Book Contracts 101, Part 10 (Royalties)

January 21, 2011

Today's piece is on royalties. I want to preface by saying that the numbers I put here are from an actual book contract of mine. Again, we need to go back to the first post and remind everyone of "standard values," which is to say, publishers have a general range of what is standard practices for royalties. Your contract may vary depending on what you might give up, how big an author you are, the type of book, of any number of other topics. The royalty structure here is, I can safely say, "reasonably typical." You might get better or worse royalties on your contract, but hey, that's what negotiation is about.

7. Royalties: Publisher shall pay to Author the following royalties, from the sale of each copy of the Work, less returns:

1. 8% of net receipts for 1-5000 copies, 10% of net receipts for 5001-10,000 copies, 12% of net receipts for >10,000 copies, except for those copies sold pursuant to clauses 7b and 7c (below). Royalty calculations do not include any "freight pass through" expenses that may be received as a result of the Publisher calculating them into the book's price.

So, the more you sell, the more you get. Just a couple comments. First up, "less returns." Yeah. Current book-selling paradigm is the publisher/distributor sends books to bookstore. Bookstore pays for those books, tries to sell them. If they do not sell them in a timely fashion (it could be as short as a few weeks), they can return the books to the publisher (I believe at publisher's expense) for a discount. You, the author, get nothing. In fact, what you get is a kick in the teeth, because in a typical royalty statement, at least the first one for each book, the publisher will hold back a percentage of your royalties to cover the cost of potential returns. That percentage they hold back is a mystery and varies all over the place, but I've heard numbers ranging from 10% to 90%. If this makes royalty statements and writing seem like a gamble, I'm often reminded of a statement I once read along the lines of, "If you want to make money gambling, own a casino." With publishing, I've often thought, "If you want to make money in publishing, own UPS." Of course, with a shift toward e-publishing, even UPS might lose money in publishing.

Second thought is "freight pass through" expenses. I wasn't really sure what that was (my bad), so I looked it up and although that's not really significantly clearer to me, it appears to mean the royalty calculations don't include any shipping expenses the Publisher may have taken into account when deciding on your book's price. What that ultimately means, I'm not sure, so if anyone knows, I'd be glad to hear it.

b. On copies of the work sold by us through channels outside of the ordinary wholesale and retail trade (other than remainders or overstock as described in clause 7c) at a discount of >51% of the Publisher's retail price, a royalty of 6% of the amount received shall be paid.

That would seem to be straightforward, although I have no idea what those channels would be, although I suppose it might take into account things like your publisher going to a trade show or conference and selling books themselves.

c. 10% of the amount of Publisher's selling price for remainders or overstock copies sold at a discount of 60% or more from the retail price after one years from the date of the first publication, except that if copies are sold at or below manufacturing cost, no royalty shall be paid. Prior to remaindering the Work, Publisher shall make reasonable efforts to notify Author and afford Author the opportunity to purchase all or part of such overstock at the remainder price.

Uh-huh. Clearly a lawyer wrote this little gem, because it barely makes sense and only marginally seems like it was written in the English language. If your publisher gives up on your book and is going to call it out-of-print and get the extra stock out of their warehouse to make room for someone else's books, they'll pay you 10% of whatever they get for them--EXCEPT if they're selling them at 60% off to a remainder house (with further stipulations that make my head spin). Basically, the publisher's made a deal to get rid of your stock and they've made a deal that they'll at least break even and not take a loss on them. They'll also be glad to sell the unsold books back to you at a discount, which typically is a couple bucks per book. If that happens and you plan to continue writing and selling, it's worth buying a case or two to sell at other book events, etc., if you can afford it and have space to store them. E-books might be changing that a bit, though.

d. No royalty shall be paid on copies sold or furnished gratis to Author, or for review, advertising or promotional purposes.

Seems straightforward. Somewhere in the contract you get some author copies for free. You don't get royalties for that. Books the publisher sends out for review or whatever, you don't get royalties. Often, if you buy books from them directly at a discount, you don't get royalties (which is why some authors set up a relationship with a bookstore, so that if they want a case or two of books, the bookstore buys them and sells them back to the author at cost and the author still gets a royalty).

Just a comment. You may have noticed that there's nothing about e-book royalties, which may or may not fall under subrights. You are right. I believe that was an oversight in this particular contract, or that the contract was signed prior to e-books taking off. E-book royalties are currently a negotiating hairball and nobody can really agree on what standard values are. Publishers of course want to keep it the same as everything else. Authors and agents and numerous writers organizations want it to be 50% or higher. What I hear is a lot of people are getting 25% royalties for e-book sales. That may or may not be good, but put it into the context of an author self-publishing an e-book with Amazon's DTP program and getting a 70% royalty, it becomes a problem. Publishers are tending to price e-books at $9.99. So loosely speaking, if you took my understanding of this contract, for each e-book sold at that price, I would get about $1.00. On the other hand, if I had a 25% royalty, I'd get $2.50 (roughly). If I self-published it and sold the book for $2.99, I'd get a $2.00 per sale. Hell, if I self-published it and put a $9.99 price tag on it, I'd get almost $7.00 per sale.

I'm not going to go into e-book sales here, but you as a writer need to look at those figures and at least understand what all the fuss is about these days as publishing and e-books shakes out.