20 April, 2012

R is for Royalties

You can find a full list of my A to Z challenge posts here. :)

Religion, politics, and money. I really know how to pick my topics. Thank goodness I didn't pick Sex for my S entry. ;)

When I was in the 'aspiring writer' stage of my writing career, I ran into a lot of inaccurate information about royalties and advances. What I've learned these past few years, though, is pretty simple and straight forward. I'm going to use simple numbers (which may or may not reflect actual, realistic sales) but they should give everyone an idea of how this 'getting paid to write fiction' thing works, at least in traditional publication.

Let's start with the advance. When a publisher buys the rights to publish your book, they pay an advance on future sales, also simply known as an advance.

To keep things simple, let's say you get a $10,000 advance (first novels are usually quite a lot less than this, btw, but $10k is a nice round number). Usually, it'll be split into two or three pieces. In my case, it was signing the contract (or on signing), a third when the book and its various rewrites and changes meet publisher expectations and it's accepted to head off to production (on acceptance), and the final third when the finished, printed, published book is released for sale (on publication). So, the publisher would cut three checks of  $3333.33 each.  If you have an agent (and, imho, if you're being traditionally published, you should) your agent gets a piece of the action, usually 15%. The publisher sends every payment to your agent, they remove their portion, then send you a check from their agency for $2,833.33 for each advance payment. An agented writer's total income from the $10k advance is $8500.

Publication contracts usually have a whole section dedicated to time, as in when various things should happen. The writer (you) must deliver a completed manuscript by a particular date, the book should head off to production by a particular date, the book will be published on a particular date, and the publisher will pay you (for the advance and any subsequent royalties) by a particular date. Usually, advances are paid within 30 days of the signing, acceptance, and publication milestones. Royalties are calculated once or twice a year (generally June 30 and/or December 31) and the publisher then has a specific time window (often 90 days) to pay any royalty income (again, to your agent, should you have one). Agencies have a much quicker turn around time - they want to keep their writers happy. I generally get a check from my agency within a week of my publisher's cut off day. The publisher will usually delay payment as long as they can.

So, that $8500 is spread over three payments that might take as long as two years to get fully paid to the writer.

Unlike a lot of rumors I heard when I was working on my first novel, a writer does NOT have to pay back the advance should the book be a sales dud. The publisher uses the advance as an Advance on Future Sales, and they're essentially making a bet that the book will sell enough copies to make that much money back, if not more. If it doesn't, their gamble didn't pay off. You still get to keep the money.

Okay, finally we're to Royalties.

When a writer signs their publication contract, there's a whole section dedicated to the amount of royalties each book will earn. They're sometimes broken down into sets of units sold (so the writer's royalty rate increases as they sell more than 100,000 copies or a million) and there are usually different royalty rates on hardcover, trade paperback, mass market paperback, and ebook versions.

To keep things simple, let's put a 10% royalty rate on a mass market paperback that the publisher has decided to sell for $8.00 cover price (actual royalty rates for mass market are usually around 6-8%, but 10% is an easier number). With every single book that sells, the writer gets 80 cents. So a thousand sold books earns the author $800. However, the writer was already paid an advance on sales, so, at 80¢ per book, it will take 10,625 books sold before the author has paid off their $10,000 advance (this is referred to as 'the book has earned out'). After that, and only after that, does the writer start getting royalty checks.

Does that make sense? Every book counts toward paying off the advance, but once the book's earned out the author will receive a royalty payment for subsequent sales.

Publishers usually calculate royalties once or twice a year, then they have their grace period (usually 90 days) before they have to pay the writer and, sometimes, it's within 60 days of the 90 days or other crazy delaying tactics. Frankly, this is a major reason why writers need agents. They will negotiate much better terms for royalty rates, payment speeds, cover prices, and what other rights the author keeps (like foreign print, audio, film, etc) because without an agent the publisher might keep pretty much everything and only pay out 120 days after the 6 months after the end of year. So it might take 2 years to get paid for book sales. It's crazy.

But, anyway, our writer's book earns out! At the end of year royalty calculation they've sold a thousand copies more than the 10,625 break even point and the publisher sends a payment of $800 to the agent some time the following spring. The agent then sends our writer a royalty check for $680. Yay!

As long as the book is in print and selling copies, whether it's for six weeks or twenty years, it will continue to receive royalties. Publishing contracts stipulate under what conditions the rights revert to the author or their heirs (common ones are stalled sales or a specific time limit). The book can then be re-sold to that same publisher (with a different contract), another publisher, or simply fade from publication.

Most writers never hit the big money of bestseller lists and, frankly, most books don't earn out at all, but  even a small royalty check is nice when it comes. :)

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