Royalty Statements

Since I haven’t talked much about publishing lately, I thought I’d take a moment and talk about royalty statements since it’s that time of year.

September 30 was a big day for a lot of authors. It was royalty day. Publishing contracts typically pay out every six months. The contract states that royalties for the Jan-Jun 2006 period must be mailed to the author by September 30. So, if you visit the blogs of all your favorite authors and they’re deliriously happy, it probably means they got paid. 🙂 Some authors out there may not be so happy as they may not have earned as much as they wanted to earn. That’s the way it goes.

A couple of contract clauses can make royalty time a bit depressing for authors: joint accounting and reduced royalties on deeply discounted books. Let’s talk about these two so that you’ll know what authors face.

Joint accounting, also basket accounting. What is joint accounting? I don’t have a definition but I can give an example. Suppose you have a two-book contract that includes an advance for the first book and an advance for the second book. In joint accounting, you have to earn back the money for both books before you get any more money. Let’s say you get $10,000 for the first book and $20,000 for the second book, a total of $30,000.

Typically, you’d get half of the first advance ($5000) and half of the second ($10,000), a total of $15,000, upon signing the contract. When you turn in book one and it’s accepted, you get the second half of the first advance ($5000), for a total of $20,000 in advance received. When the second book is turned in, you get the second half of the second advance ($10,000), for a total of $30,000 in advance received.

In joint accounting, you don’t get another dime from the publisher until you earn back the full $30,000. Suppose your first book earns $25,000 the first year? You don’t get any money because you still owe the publisher $5000 under joint accounting. Without joint accounting, you would have received royalties of $15,000 on the first book ($25,000 – $10,ooo advance already received). Of course, you wouldn’t get any money on book 2 until you had earned back the $20,000 advance paid for book 2.

So, in joint accounting the payments for the books are lumped together, as opposed to each book standing on its own. Of course, if you’re getting $100,000 for the first book and $200,000 for the second book, you may not mind joint accounting. You really have to look at all the terms of the contract.

Reduced royalties on books sold at a discount. Typically, bookstores buy books from publisers at 60% of the cover price. On a hard cover book, the standard royalty rate (the rate the author is paid) is 10% of the cover price for the first 5000 copies sold, 12.5% for the next 5000, and 15% for anything over 10,000. If you sell 1-5000 copies of a book that has a cover price of $22 dollars, you get $2.20/book.

The reduced royalties on discounted books means you’d get 10% of the net receipts of the book, rather than 10% of the cover price. So, if the publisher sells the book to the bookstore at a 50% discount, you 10% of the discounted price. If the book is $22, you get 10% of $11 or $1.10/book. You’ll notice that this is half of what you’d get under normal royalties. [To be fair, I think 55% is the deep discount point for most publishers, but 50% was an easier number to work with in the example.]

These two clauses are enough reasons to get an agent to negotiate on your behalf. Your agent may not always be able to get them out, but she can advise you on ways to minimize their impact on your bottom line. Have a good one!