This is it! You’ve had a book published, and your advance money is long gone. But your publisher has promised a royalty check and you know exactly when that check is supposed to arrive. You run to the mail box every day for two weeks until finally, Voilá! The check is here! You rip open the envelope to see a grand total of:
How can this be? So much for the big screen TV. Maybe the pizza place is running a Tuesday night special.
Some authors don’t understand that the advance payment is not a signing bonus. Instead, it is money the publisher is paying the author to live on while the book is being written. The publisher will be paid back this money once the book starts selling. They will take the advance money right off the top of your earnings. Depending on the size of your advance and how well your book sells, you may not receive any royalty payments for a long time. Maybe never. When a book sells enough copies to cover the cost of the advance, it means the book has earned out. This puts your agent in a great position to negotiate the next contract.
Reserves Against Returns
Reserves are sums of money that are held back against returns. For the purposes of this post, I’ll make up an example: let’s say Barnes and Noble orders 20,000 copies of your book. The publisher may assume they can only count on selling 5,000 of those no matter what. They will credit you those royalties against your advance, but they will hold back the money they will owe you if the other 15,000 copies sold. Then, as they learn how many copies of your book they have actually sold, they will pay you. Let’s say B&N returns 5,000 books. The publisher will pay you royalties on the remaining 10,000 books sold, for a total of royalties on 15,000 copies. They will never pay you royalties on the 5,000 books that didn’t sell. This keeps the publisher from paying you for books that don’t really sell, so they don’t have: 1.) ask for money back; or 2.) write the excess payment off as a loss. Such a loss may not seem like much to you as a lone author, but imagine having to write off the overpayments for hundreds of authors, year after year. Then no one gets published, because the company has gone out of business. Most publishers estimate that getting an accurate count of sales takes several royalty-reporting cycles. Once they learn the count, they settle up with their authors. (By the way, this is one advantage for publishers with e-books. Those rarely get returned.)
For an excellent post that goes into much more detail about reserves and returns, please see Steve Laube’s insights: “Many Happy Returns.”
Reduced Royalty Sales
You may see a large number of books sold, but wonder why the payment doesn’t seem to reflect that number. Take a look at where, how, and to what type of account the book sold. Chances are your contract says that the publisher will pay you lesser royalties for certain where they have to discount it heavily to make the sale. The spin racks you see in the grocery store for example are sold to a vendor (aka rack-jobber) at a very high discount. In those sales the author’s royalties are usually half of what they normally would receive. This is where your agent can help you understand the breakdown of your sales if your statement isn’t clear to you.
The best way to combat disappointment is not to count on receiving any royalty payments. This may sound terrible, but it really isn’t. Your agent can help you negotiate the advance you deserve, so the more established and popular you become as an author, the more of an advance you will receive. Your agent can also help you adjust your expectations according to the publisher you’re pursuing. Plan your financial life around your advances, not your royalties. That way, when royalties do come, they will be a bonus.
Has this article helped you adjust your expectations about royalties? How?