Publishing Contracts: Money!

Welcome to you wonderful sentient beings and to all other beings! 

Today’s post is about money. Moolah. Dosh. The big bucks.

We’ll talk about advances and fees and what the differences are, what kinds of royalties you can expect, how they’re calculated and more! 

Before we begin I have to recite the theme-song- I mean disclaimer for this series: these posts reflect my own experience with contracts and are intended for guidance and informational purposes only. They should not be taken as iron-clad advice for all publishing contracts and if in doubt you should seek specific advice. There are organisations, like the Society of Authors in the UK, who will be able to help with this and if you have an agent they should also be able to help.

First up…

Advances and Fees

A key distinction to get to right away is the difference between an advance and a fee. 

In a nutshell a fee is a one-off sum that stands on its own whereas an advance is held against any other income your publishers make on your book and you only receive the royalties/earnings from your book once the advance has ‘earned out’ (don’t worry we’ll come to what that means in just a moment).

Usually a publisher would offer you an advance rather than a fee, but there are circumstances where a fee might be more appropriate. For example, if you are translating a book you would likely be offered a fee or if you are doing work on an assignment of copyright basis (as we talked about in the Grant of Rights post) you would get a fee. You probably won’t get any royalties if you are being offered a fee, but there’s many weird and wonderful deals out there so it’s not impossible and if you get a fee then you will start earning royalties right away.

An advance, however, is essentially the publisher paying you your royalties in advance (go figure). Your advance will be paid to you in whatever portions you have agreed with your publisher (more on that later) and then it will sit as an ‘unearned’ balance on your publisher’s system. This means that effectively your royalties are at a negative and need to accrue to the same amount as your advance before the publisher pays you any more royalties. The advance is almost a guarantee that your publisher is confident your book will earn at least that amount of royalties and is paying you those royalties ahead of time. 

How does this work in practice? Well, let’s take a look at a simplified example:

Say you’ve been offered an advance of £500 and you have a royalty rate of 10% of the published price of your book. Your book is on sale for £10 so for every sale that you make you get £1 in royalties. To ‘earn out’ your advance of £500 you will need to make 500 sales. Once you’ve done that then the publisher will pay you the additional royalties at £1 per book sale.

Let’s say that you sell 700 copies in total in your first year and it’s time for the publishers to cough up. The first 500 sales go against the advance and whittle it down to nothing, then you start accruing those royalties so the publisher will pay you £200 in royalties. If in the year after you sell 450 copies then the you’ll get £450 in royalties as the advance has already earned out. 

This is why high advances can be both a blessing and a curse. Of course, it’s amazing that the publisher wants to buy your book for a load of money, but if it doesn’t earn enough royalties to earn out the advance then you won’t get any more money for that book (don’t worry you would keep the advance) and the publisher is likely to offer a lower advance next time. 

Almost all publishers will use an advance/royalties model, although it is possible that some small presses may not be able to pay an advance as I imagine their budgets are very tight, but if you are offered an advance that’s how it will work and what a publisher will mean by things like ‘unearned’ or to ‘earn out’ the advance. 

I hope that all makes sense, but leave me a comment or come and say hi on social media if anything’s not clear and I’ll do what I can to clarify. 

 

Now, we’ve talked about what an advance is now let’s look at how it will be paid. 

Usually an advance will be split up into separate payments, whether that’s into halves, thirds, or quarters, or potentially more (although that’s only likely for multiple book deals). Each tranche of the advance will be paid once a specific condition is met and most often these are: 

• the contract being fully signed 
• the book being delivered
• the book being published

Let’s take a look at an example advance clause to see what this might look like: 

The Publishers shall pay to the Author the sum of eight hundred pounds (£800) in advance and on account of all royalty and other earnings accruing to the Author under this Agreement payable as:

two hundred pounds (£200) upon signature of this Agreement by both parties hereto; 

two hundred pounds (£200) on delivery and acceptance of the complete Work ready for press by the Author to the Publishers; 

two hundred pounds (£200) upon first hardcover publication of the Work by the Publishers, or within eighteen (18) months of delivery and acceptance of the complete Work, whichever is the earlier; and 

two hundred pounds (£200) upon first mass market paperback publication of the Work by the Publishers, or within twelve (12) months of the hardcover publication of the Work, whichever is the earlier. 

Here the advance is split up into quarters, which is quite common, and you can already see how spread out these payments could be. It’s important to keep this in mind as when you hear that authors have massive deals for thousands upon thousands of pounds (and hopefully when you get a deal for thousands of pounds!) it will still be split up over a long period of time, potentially years. 

This can get even longer if you have a multi-book contract. For the sake of argument, let’s say you’ve written a phenomenal fantasy book that’s the first in a trilogy. Your agent has managed to get an auction going between the best fantasy imprints going and you’ve just closed a three book deal for £600,000. Well done! But remember that this is going to be split up.

As it’s a three book deal that £600,000 is probably going to be split evenly between the titles, so the publisher will be paying £200,000 for each book. Let’s say that each of those is split up into quarters like we saw above. That means that each of those individual payments is going to be £50,000 each – still nothing to sniff at, but all of a sudden it looks a lot smaller than the £600,000 you signed for and each of those payments might be a year or more apart.

My point here isn’t to say that you should try to get everything paid at once (which, I’ll be honest, isn’t going to happen!) but that when your planning your finances and need to take the advances into account make sure you remember they can be very spread out. Although I completely understand that it’s exciting (and you should be excited, you deserve it!) to think of all this money you will have coming in you need to consider the timescale and also remember that if you sign up another book with that publisher they might not offer you that much next time (more on that later)!

If you take another gander at the clause you’ll see that it also says that the advance will be on account of ‘all royalty and other earnings’ that the Author makes under the Agreement. This is standard, and it would probably be the case in your contract too, and means that any other income that the book earns for example under the subsidiary rights clause (which is what our next post will be about) also goes against the advance. In a nutshell, if you’ve got the same £500 advance we talked about earlier and sold 300 copies (earning you £300 in royalties) there would still be an unearned balance of £200, but if the publisher then sold French language rights in your book for £300 that would also go against the advance, which would mean that £200 from the French deal earns out your advance and you’ll be paid through the remaining £100 and any more royalties you make from that point on. I’ve popped these into a table in case that’s an easier way to explain it.

A couple more notes before we move on from advances.

First, bonus advances. As the name suggests these are extra advances that you get on top of the advances we’ve talked about so far. Bonus advances will only be paid out if certain criteria are met. For example, you might have a bonus advance of £5,000 if you sell 10,000 copies in the first year, or you might get a bonus advance of £7,500 if you get longlisted for a coveted award. As with the other advances, if you have a bonus advance and it gets paid then it will add that amount onto your unearned balances, so it can be a double-edged sword. It may not be something you have to worry about though, as bonus advances are uncommon. 

And finally I promised we’d talk about what your publisher might offer you for your next book too, so let’s do that!

Given that the publisher is paying a big chunk of royalties ahead of time with your advance it’s possible that you never earn any more money from the book than that. If they paid you a £20,000 advance for the book and your royalties only earned you £17,500 by the time you come to sign the next book, the publisher may take the view that they ‘overpaid’ by £2,500 and so they may drop the offered advance down. You may have seen some authors online who get massive advances for their debut novels and there’s a lot of hype for them but then, for whatever reason, their books don’t sell as well as everyone thought. In those cases the publisher will probably drop their next advance to more properly reflect the sales that were made and that’s something else to keep in mind – you can’t necessarily rely on the same advance being paid for every book (whether that’s because you’re getting more money or less!). 

Wow, that was a pretty long explanation of something that sounds quite straight forward on the surface! It’s high time we jumped into royalties! 

Royalties

As you might well know your royalties will be whatever money you receive on the sale of each copy of your book. There are two main ways of calculating royalties: the first is as a percentage of the recommended retail price and the second is as a percentage of the publishers’ ‘net receipts’ (which is sometimes called ‘price received’ as well) which basically means the money they receive for the sale of the books. 

We’ll look at a royalties clause in detail later, but for now let’s talk about the broad categories royalties can be broken down into:

1. what format that copy is sold as
2. where that copy of the book is sold 
3. whether it was a special, one off sale or a standard sale

Let’s go through these then, shall we? 

Number one: Formats! 

As you may expect, there are different royalty rates payable for different formats. This is because of the cost of printing, shipping, storing the copies etc and will vary depending on the format and so the publisher needs to be able to vary the royalty they pay you to make sure its profitable to sell those formats for everyone involved. Typically, the formats you’ll see are: hardback, trade paperback (the paperbacks that are the same size as hardback), mass market paperbacks (the small ones), ebooks, and audiobooks. 

Electronic formats, like ebooks and audiobooks, should always have a royalty based on net receipts, but the physical formats can vary between a published price royalty and a net receipts royalty which can change based on …  

Number two: Where you’re selling!

In your contract you will have two markets defined. One will be the ‘home’ market, which will be where your publisher is based and has good distribution links. The other is the ‘export’ market, which is essentially everywhere else. The home market is easiest for the publisher to sell into and will probably be where most of your sales are. For UK based publishers the home market will likely be defined as the UK as well as Ireland, and potentially Europe as well. Home market royalties are most often based on the published price and export royalties are almost always based on the net receipts. 

Number three: Is it a special sale? 

There are certain kinds of sales that have their own special rules and royalties. Sometimes these are called special sales – which might be a one-off sale to book festival of 1,000 books – or it might be when the publisher is selling off your old books on the cheap to free up warehouse space (don’t worry they can’t do this right away and it would only be if demand for the book has slowed down). These sales are one-off kinds of sales and need their own rates, but they’ll be based on net receipts.

Now we’ve got that out of the way, here’s a simplified version of a royalties clause to show you how all these things fit together: 

Subject to the terms and conditions set out in this Agreement the Publishers shall make the following payments to the Author in respect of sales of the Work, excluding such copies as may by subsequent provisions of this Agreement, or as otherwise mutually agreed in writing, be sold subject to a different royalty:

(a) Hardback Sales

(i) On copies sold in the United Kingdom of Great Britain and Northern Ireland and the Irish Republic (the ‘home market’) a royalty of: ten per cent (10%) based on the UK recommended retail price on the first 5,000 copies sold; and twelve and one half per cent (12.5%) based on the UK recommended retail price on all copies sold thereafter

(ii) on copies sold for export, except as otherwise specified in this Agreement, a royalty of twelve and one half per cent (12.5%) based on the Publisher’s net receipts

(iii) on copies sold at a discount of fifty per cent (50%) or more from the UK recommended retail price the royalty shall be four fifths of the prevailing royalty on sales in the home market. 

(b) Trade Paperback Sales

(i) On copies sold in the United Kingdom of Great Britain and Northern Ireland and the Irish Republic (the ‘home market’) a royalty of: ten per cent (10%) based on the UK recommended retail price

(ii) on copies sold for export, except as otherwise specified in this Agreement, a royalty of twelve and one half per cent (12.5%) based on the Publisher’s net receipts

(iii) on copies sold at a discount of fifty-five per cent (55%) or more from the UK recommended retail price the royalty shall be four fifths of the prevailing royalty on sales in the home market. 

(c) Mass Market Sales 

(i) On copies sold in the United Kingdom of Great Britain and Northern Ireland and the Irish Republic (the ‘home market’) a royalty of: seven one half per cent (7.5%) based on the UK recommended retail price on the first 10,000 copies sold; and ten per cent (10%) based on the UK recommended retail price on all copies sold thereafter 

(ii) on copies sold for export, except as otherwise specified in this Agreement, a royalty of ten per cent (10%) based on the Publisher’s net receipts

(iii) on copies sold at a discount of fifty per cent (50%) or more from the UK recommended retail price the royalty shall be four fifths of the prevailing royalty on sales in the home market. 

(d) Special Sales

On special sales (i.e. sales outside of normal trade channels) at discounts of greater than fifty-five per cent (55%) the Publisher shall pay a royalty of ten per cent (10%) based on the Publishers’ net receipts 

(e) Audio Sales 

(i) On physical sales of the unabridged recording of the Work the the Publisher shall pay a royalty of ten per cent (10%) based on the Publisher’s net receipts

(ii) On digital download sales of the unabridged recording of the Work the the Publisher shall pay a royalty of twenty per cent (20%) based on the Publisher’s net receipts

(f) Ebook Sales

On sales of ebook copies of the work a royalty of: twenty-five per cent (25%) based on the Publisher’s net receipts. 

You can see that even this simple version of a royalties clause is pretty long as it needs to take into account all of the different formats that might be sold. I’ve tried to be both reserved and optimistic with the royalties that I’ve put in the clause above. They’re not crazy generous but neither are they massively stingy. If you’re working with an agent then they should have their own set of terms with a publisher that they get for every deal and will try to negotiate a better one if they can. Always ask your agent if you’re not sure about the terms and they should be able to explain it to you.

You’ll also notice there’s something in that clause that we’ve not talked about yet that: high discounts which you can see in a(iii), b(iii), and c(iii).

High discounts mean the discount that a publisher sells to a particular distributor or book store and should only apply to royalties that are calculated on the published price. The intention with the high discount rules is to make sure that, if copies of the books are sold to a distributor at a steep discount, the publisher doesn’t make a loss if they still have to pay you the same royalty as though they’d sold it without the discount. 

Let’s say your hardback book’s RRP is £20. Your publisher sells it to a book store at a 40% discount then you still get your 10% published price royalty and get £2. However, if the publisher has to sell at a discount of 55% they’re margins are slimmer and so you would only get 4/5th royalty (which means 8% published price) so you would get £1.60 instead. 

It’s a strange quirk of publishing and if you’re signing with a publisher it will most likely be in your contract. You will notice that there’s no high discount provisions for export sales or ebooks, and that’s because you’re getting a percentage of the money the publisher receives for the sale so no one needs to worry about the discounts it’s being sold to. 

Talking of quirks of accounting there’s a few more things we should talk about…

Miscellaneous Quirks

Joint and Separate Accounting

First off, let’s talk about separate versus jointly accounted contracts, which will only apply if you’ve been contracted for more than one book. 

Basically, if something is jointly accounted it means that your royalties for all your books go against all of the advances, whereas if it’s separately accounted the royalty for each book can only earn out that particular advance. 

Let’s look at a simplified example. 

You’ve just sold two books to your dream publisher – congratulations! The twist is that one’s a full length standalone work and the other one’s a novella. The publisher has offered you £5,000 for the full length novel and £1,000 for the novella. 

If these are jointly accounted then you will need to earn £6,000 in royalties across both books to start earning royalties, but if they are separately accounted then you will need the novel to earn £5,000 and the novella to earn £1,000 before you can start earning royalties. 

For example, if you had a jointly accounted contract and the novel earned you £7,500 in royalties but the novella only earned you £500 then you would still £2,000 royalties in total because you earned over the £6,000 threshold. If they were separately accounted you wouldn’t have earned out the novella and so that would still have an unearned balance of £500, but you would get £2,500 in royalties from the novel. There are pros and cons to both sides, but a publisher will push for separate accounting so they can have a better idea of how each book did (especially if the advances are different amounts). 

Reserve Against Returns

Now we got onto something called ‘reserve against returns’. As with most of these quirky publishing specific things it sounds a bit strange but also does what it says on the tin, so to speak. In the publishing industry book shops can return copies of a book if they don’t sell them (and provided that they’re not ruined of course), it’s one of the many parts of the business that it has inherited from bygone days and has yet to change. Publishers make concerted efforts to make sure that this doesn’t happen as it is a pain for everyone involved. 

Unfortunately it can still happen so in contracts with big publishers there will be a clause that says they can withhold a certain amount of royalties for a certain period of time. This is to guard against paying our royalties on copies they have sold that are then returned, which means that they’ve paid royalties on something they haven’t sold… All a bit confusing, but here’s an example clause: 

The Publishers shall have the right to set aside as a reserve against returns a sum representing; (i) in the case of a hardback edition ten per cent (10%); or (ii) in the case of the paperback edition twenty-five per cent (25%) of the royalties earned under Clause 7 at the first accounting period after publication of the first edition or version of the Work, and to withhold this sum for a period up to and including the third royalty statement following publication, after which all monies due shall be paid in full at the time of the next royalty statement.

You should be able to see the restrictions already. The publishers are only allowed to hold a certain amount of royalties back (and I’ve picked pretty standard percentages there) and they can only hold onto them for a certain amount of time before they have to pay them over. As I’ve mentioned, the publisher also wants to keep returns down to a minimum and as it’s money they have to pay you over in the end this clause should not keep any money from you. 

I know it’s a strange thing, but it’s a way for publishers to try and cope with some of the oddities of the publishing world and make sure they don’t go bankrupt in the process! 

Audits

Finally, let’s have a quick word about audits. You should also have a clause in your contract that says you – or someone you’ve appointed – can go in and inspect the records of the sale of your book to make sure that the sales are being accounted properly. The reason you can send in someone you’ve appointed is because, let’s face it, this is a job for an accountant! 

Here’s an example clause: 

Upon reasonable written notice and during the Publishers’ normal business hours the Author or their appointed representative shall have the right to examine the Publishers’ records of account, insofar as such records relate to sales and receipts in respect of the Work. Such examination shall be at the cost of the Author unless errors shall be found, to the disadvantage of the Author, in excess of 3 per cent of the amount due to the Author, in which case the reasonable cost of such examination shall be borne by the Publishers. Any amount thereby shown to be due to the Author shall be paid to the Author. No more than one such inspection shall be made in any twelve-month period.

I think this one is fairly straight forward, it confirms you have the right to check your publisher’s books to make sure they’re giving you all the money they should do and accounting the royalties correctly. It also sets a threshold for any normal errors that might occur during the course of business, in this case 3%. We’re all human, after all, and one of the publisher’s employees might have logged something incorrectly by accident. But, if your royalties are drastically different to what your (or your agents) accountant say they should be, then they need to pay that over to you as soon as possible. 

Whilst there is a limit on the amount of times you can do this – once per year in the example above – this is because it’s incredibly time consuming for a publisher’s royalties team to facilitate this and if everyone could do an audit once a month then they would grind to a halt and no one would get paid! 

This clause is a safeguard for you to make sure that you’re never screwed out of your royalties. I hope you will never need to use this clause because if you do need to go and audit your publisher’s accounts then it’s highly likely something has gone wrong. 

 

And there we have it!

I know this post ran a bit long (over 4,000 words!) but I wanted to make sure you got a detailed run down of the clauses and that they were all kept it all in the same place for ease of reference. As ever, if this raises any questions you can get in touch on social media and I’ll see if I can answer, but if you have an agent or a publisher don’t be afraid to ask them questions about any of this and they should be able to help too. 

Next time, we’ll take a look at Subsidiary Rights which will give you a quick outline of all the ways you can sell your stories other than to a publisher! 

Until then, be good to each other!