This second article on book contracts is going to deal with the money, or in other words, what you are likely to get paid when you have book accepted for publication, and what you might expect (vs what you might hope for). First article is here — read first if you can.
Warning: I am not a lawyer or an agent, so what I say here is not legal advice. It’s knowledge and experience from 25+ years of book contracts, and too many writers are ignorant of things that could cost them a lot. Or even everything.
Many people (not just writers) don’t realize that the advance you receive when you sign a book contract is exactly that — an advance on future earnings. So if you receive a $2000 advance for your book, you won’t receive another cent until the publisher has sold enough books to cover your advance.
Thus, if your book is selling for $20 (as an example, for easy math), and your royalty is 10%, that means you will receive — on paper — $2 for every book sold. Your publisher would need to sell a thousand copies of your book for you to “earn out” your advance. If the book is still selling, you will start receiving royalty payments.
RRP — what is it?
The above example is based on Recommended Retail Price. Theoretically, this is what your book will sell for in most bookshops. However, if your publisher does a deal with BigBookChain X to sell them 1000 copies at deep discount, that might mean instead of you receiving $2 each for that 1000 copies, you might only receive 80 cents. So instead of $2000, you’ll get $800. (You may or may not see deep discount mentioned in your contract.)
Your sales will look better, but you are a bit further from earning out. You will very likely have a different rate of royalty for the e-book version of your book. Instead of selling for $20 as print, the e-book might be selling for $4.99.
So while your contract might say that you will get 30% royalty for each e-book sold, that actually means just over $1.49. And if your publisher does a special promotion of your e-book for 99 cents, well, that could mean just over 29 cents per book. It’s not that your publisher is trying to do you out of money — this is a common method of promotion now, and probably works out cheaper than advertising campaigns or book tours.
So what does Net Receipts mean?
Net receipts is what the publisher receives from the distributor. Some publishers do their own distribution, but it’s common for them to use commercial distributors, who get the book into shops etc and fulfill orders. A pretty standard discount for distributors is 40%, but it can be as high as 60% depending on the arrangement and what the distributor allows the bookshops as a discount.
Already you can see that if you are being paid per book on net receipts, the pot can become small fairly quickly. Your $20 book sold at 40% discount would garner the publisher $12, and from that they have to pay you, but also pay their print and marketing costs etc. Still, if you accept 10% of net receipts as your royalty, your portion of the book’s sale drops from $2 down to $1.20.
This is why, if your publisher insists on net receipts, you need to insist on at least 17% to earn that $2. For an e-book, you want at least 30% royalty on net receipts, and the closer to 40% the better. And for many new authors, the idea of negotiating for a better royalty sends them into a spin. We get back to that whole thing of being so grateful your book is accepted that you sign without working out the figures.
Why a Huge Advance is Not Always Wonderful
Remember that term — earning out? When the publisher does all their work on estimating the market for your book, which in turn means how many copies they think they can sell, a number of elements come into it.
Firstly, they calculate costs, and your royalty rate comes into it as well. If they decide your book is a hot topic (or they believe with marketing they can create you and your book as “hot”), they’ll be planning for a lot more sales than 2000. It’s an investment. In-house costs (editing, design, proofreading, marketing, special cover treatments etc) tend to be straightforward for them to calculate. Although to make your book “hot” they will probably allocate a much higher amount to marketing.
If they had to beat off some other publishers to get your book (we all wish for this to happen), then they have very likely already done the calculations — what it is going to cost them to publish — and have set a limit on what they will pay as an advance. It reverberates all the way down the chain, including things like reducing other authors’ book marketing budgets in order to pay for yours.
So let’s say that you’ve been offered a $50,000 advance for your book. Champagne! Meanwhile, at the publishing company, they’re likely to also be celebrating this hot new book they’ve acquired, and then doing all of their calculations again.
When your hangover wears off, do your own calculations. Let’s stick with the $20 RRP to make it easy. Your book now has to sell 25,000 copies for you to earn out your advance.
Here’s a little reality check. On average a book published in the USA sells 300 print copies. When you include e-book and audio sales, it’s about 1000. (Source) There are very few books that sell 10,000 copies. Very few. And even fewer that would get to 25,000. Yours might be one of them, if your publisher’s campaign works.
We’ve all heard of books that come out of nowhere and sell hugely (Where the Crawdads Sing anyone?). But your book? Who knows? It might. It more likely might not. So instead of earning out and making your publisher a bundle of money, let’s say your book did quite well and sold 10,000 copies. You will still be $30,000 short of earning out your advance.
Will your publisher want to take a chance on another book from you? Especially if you only got lukewarm reviews and no shortlistings for any awards? Hmmm. These days, maybe not.
So I should be grateful for a $4000 advance?
Not necessarily. Remember that marketing and publicity department? The lower your advance and the less “hot” your book is, the lower the budget for marketing.
If you can get a higher advance, the publisher is likely to spend more money on marketing because that way, they are keener to get their investment back and hopefully make a profit. It’s like a balancing act in a way, and you as the author are part of it. It’s a key reason why agents are worth their commission. A good agent is going to do their best to get you a bigger advance, which will not only cover their commission but also get your book better marketing dollars.
If you don’t have an agent, try thinking about it this way. How many hours have you spent writing your book? What value do you put on your creation? Do you want to keep writing and want to see enough of a return to maybe drop your work hours to part-time, for instance? If you do some sums on the publisher’s offer, it might just give you the courage to go back to the table and ask for more. It’s your writing career and future books at stake.
It is possible to go online and research what book advances have been paid, or you can ask around. Advances in the USA are usually much bigger than Australia, for example. Do your homework here and it will be very useful. Writers are notorious for keeping the money stuff secret and it doesn’t help — knowledge is power in negotiations.
Big warning here! If you get a letter of offer that stipulates the advance and royalties in the letter — in writing — be very careful. Signing or agreeing to that letter of offer can be binding for the contract and give you NO room to negotiate.
OK, that’s probably enough for this article. Your head might be spinning by now. But get out your calculator and do some sample sums yourself. If you have book contracts you have signed, go back and look at your advance and royalties, whether you’re on RRP or net receipts, and what your book actually sold for in the bookshops. It’s a very good exercise!
By the way, as a heads-up from Article 1, if you made the mistake of selling your copyright in your book, none of this is relevant. What you received when you signed the contract is it. No more money ever again.
(And as I said up front, I’m not an agent or a legal expert. Just pointing stuff out I’ve learned.) This article was first published on Medium - https://medium.com/@sherrylclark/why-you-need-to-know-the-basics-of-book-contracts-part-2-show-me-the-money-c171e099f01
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